FISCAL 2023 ANNUAL REPORT ON FORM 10-K
This Fiscal Year 2023 Annual Report on Form 10-K (this “Report”) contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used anywhere in this
Report, the words “expect,” “believe,” “anticipate,” “estimate,” “intend,” “plan” and similar expressions are intended to identify
forward-looking statements. These statements relate to future events or our future financial or operational performance
and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity,
performance or achievement to differ materially from those expressed or implied by these forward-looking statements.
We caution you that these forward-looking statements are not guarantees of future performance and involve risks,
uncertainties and assumptions that are difficult to predict. You should not place undue reliance on forward-looking
statements. These statements reflect our current views with respect to future events, are based on assumptions and are
subject to risks and uncertainties. These forward-looking statements include, among other things, statements regarding our
operations being dependent on changes in consumer preferences and purchasing habits regarding our products, a global
supply chain and effects of supply chain constraints and inflationary pressure on us and our contract manufacturers, our
ability to continue to operate at a profit or to maintain our margins, the effect pandemics or other global disruptions on our
business, financial condition and results of operations, the sufficiency of our sources of liquidity and capital, our ability to
maintain current operation levels and implement our growth strategies, our ability to maintain and gain market acceptance
for our products or new products, our ability to capitalize on attractive opportunities, our ability to respond to competition and
changes in the economy including changes regarding inflation and increasing ingredient and packaging costs and labor
challenges at our contract manufacturers and third party logistics providers, the amounts of or changes with respect to
certain anticipated raw materials and other costs, difficulties and delays in achieving the synergies and cost savings in
connection with acquisitions, changes in the business environment in which we operate including general financial,
economic, capital market, regulatory and geopolitical conditions affecting us and the industry in which we operate, our
ability to maintain adequate product inventory levels to timely supply customer orders, changes in taxes, tariffs, duties,
governmental laws and regulations, the availability of or competition for other brands, assets or other opportunities for
investment by us or to expand our business, competitive product and pricing activity, difficulties of managing growth profitably,
the loss of one or more members of our management team, potential for increased costs and harm to our business
resulting from unauthorized access of the information technology systems we use in our business, expansion of our wellness
platform and other risks and uncertainties indicated in this Report, including those set forth under “Risk Factors” in the
included Form 10-K for the fiscal year ended August 26, 2023. Important factors could cause actual results to differ materially
from those indicated or implied by forward-looking statements such as those contained in documents we have filed with
the U.S. Securities and Exchange Commission (the “SEC”) and those contained in subsequent reports we will file with the
SEC. All forward-looking statements in this Report are qualified entirely by the cautionary statements included in this Report
and such other filings. These risks and uncertainties or other important factors could cause actual results to differ materially
from results expressed or implied by forward-looking statements contained in this Report. These forward-looking
statements speak only as of the date of this Report. We undertake no intention or obligation to update or revise any forward-
looking statements, whether as a result of new information, future events or otherwise, except as required by applicable
law, and readers should not rely on the forward-looking statements as representing the Company’s views as of any date
subsequent to the date of the filing of this Report.
December 7, 2023
I am pleased to invite you to our January 18, 2024, Annual Meeting of Stockholders. The webcast can be accessed at
www.virtualshareholdermeeting.com/SMPL2024. Before the meeting, I encourage you to review our Annual Report to
Stockholders for the 2023 fiscal year.
At Simply Good Foods, our focus is on growth, profitability and our people.
Growth
Full-year fiscal 2023 organic net sales increased nearly 7%. This performance reflects our diversified portfolio across
brands, retail channels, customers and product forms. Total Simply Good Foods combined U.S. measured and unmeasured
channel retail takeaway growth was 13%. Performance was driven by Quest retail takeaway growth of 24%, while Atkins
increased 1%. In fiscal 2024, we expect our net sales growth, driven by volume, to be at the high end of our 4% to 6%
long-term algorithm, including having the benefit of a fifty-third week in the fiscal year.
In my nearly seven-month tenure at Simply Good Foods, I have become increasingly confident in the long-term growth
potential of the nutritional snacking category and our leadership position in the category. There are many reasons to feel
confident about our runway for long-term growth. Currently, household penetration of the category is 50% compared to
high 80’s / low 90’s of most food categories. The category is driven by the twin tailwinds of snacking and health and
wellness and over-indexes with Millennial and Gen Z consumers, where a high protein, low carbohydrate and low sugar
diet has emerged as a top nutritional approach. Finally, our own research as well as external studies suggest our products
may serve as a nice nutritional ‘companion’ for consumers on the new GLP-1 medications and a smart ‘off-ramp’ choice
for those seeking to transition off the drugs. As a category leader and advisor to most of our retail customers, we will continue
to invest in our brands and partner with retailers to realize the full potential of growth.
In addition to being in an exceptionally strong category, we have two of the leading brands. Quest is approaching $1 billion
in retail sales driven by continued innovation, increased marketing and media, along with continued distribution increases.
With 50% of consumers looking to lose or maintain weight, we have also begun to deploy a multi-pronged revitalization plan
for Atkins that we believe will help put the brand on a path back to achieving consistent growth.
Profitability
Gross profit increased to $453.4 million. Gross margin improved during the year, and we expect to build on this momentum
in fiscal 2024. After a year of significant inflation, we anticipate lower ingredient and packaging costs in fiscal 2024 and
expect to invest a portion of these savings into brand-building initiatives and capabilities to drive volume growth.
Fiscal 2023 Adjusted EBITDA† was $245.6 million compared to $234.0 million in the year-ago period. Combined with
working capital improvements, this resulted in cash flow from operations of $171.1 million, an increase of $60.5 million or
55%, compared to last year. This allowed us to pay down debt and repurchase shares of our common stock. Specifically, in
fiscal 2023, we repaid $121.5 million of our term loan debt, and at the year’s end, the outstanding principal balance was
285.0 million. As of August 26, 2023, we had cash of $87.7 million and a trailing twelve-month Net Debt to Adjusted EBITDA†
ratio of 0.8x. Additionally, we repurchased $16.4 million of our common stock at an average price of $30.11 per share.
Approximately $71.5 million remains available under our current stock repurchase authorization.
People
Our employees are the key ingredient to our success. This amazing team of approximately 250 dedicated individuals
works tirelessly every day to provide nutritious, delicious and convenient food options for our valued consumers. We
fundamentally believe food should work for people, not against them, and our team is passionate about helping consumers
live a healthy lifestyle. I am very grateful for their passion and commitment.
†
Adjusted EBITDA and Net Debt to Adjusted EBITDA are non-GAAP financial measures. Please refer to Annex III of
our proxy statement for the 2024 Annual Meeting of Stockholders for a reconciliation of these non-GAAP financial
measures.
As we enter fiscal 2024 and seek to build a company that will deliver multiple years of top-tier growth and performance, I
am excited to lead a leadership team that mixes the very best of several of our long-standing leaders and some new, outside
talent.
Stuart Heflin, a driving force behind the Quest brand’s success since the 2019 acquisition, continues in his outstanding
marketing and brand leadership role as Senior Vice President and General Manager, Quest marketing. In this role, Stuart
is taking full ownership of Quest’s brand performance and overseeing all of Quest’s marketing and growth initiatives. as well
as other brand priorities. to further strengthen Quest’s leadership position in the nutritional snacking category.
Ryan Thomas joined us as Senior Vice President and General Manager, Atkins marketing. Ryan is a seasoned packaged
goods leader who has held pivotal roles leading portfolios and revitalizing brands at J.M. Smucker, Big Heart Pet Brands and
The Campbell Soup Company. I have worked with Ryan in the past and have confidence in his ability to take full
accountability for Atkins’ performance and for reshaping the brand’s strategy and growth trajectory.
The Company has also appointed Linda Zink, an accomplished executive team member, as Chief Growth Officer. Linda is
a Simply Good Foods and Atkins veteran and will be focused on ensuring the innovation funnel — for both Atkins and
Quest — has the right products at all stages of development. This role plays to Linda’s strengths. We have spent
considerable time reviewing the innovation funnel and I am excited with what she is working on and will soon bring to
market.
Jason Bendure joined the Company as Senior Vice President, Operations. He has extensive experience in the food
industry. Previously to joining Simply Good Foods, Jason was Senior Vice President of Operations for KIND’s Health and
Wellness platform, a division of Mars, and was instrumental in supporting and driving the growth of the KIND and Nature’s
Bakery brands. Jason’s experience includes eighteen years at PepsiCo, operating across Quaker Foods, Frito-Lay,
Tropicana, Naked Juice, Gatorade, and Pepsi brands. Jason’s experience makes him an exceptional choice to oversee our
supply chain logistics, planning, procurement, co-manufacturing functions, and sustainability efforts.
Collectively, these strategic leadership changes signify Simply Good Foods’ commitment to driving growth both now and in
the future. We are balancing executional excellence with long-term growth, and we are poised to elevate our position as
a trusted leader in the nutritional snacking category, backed by a team of visionary leaders dedicated to driving growth and
pushing boundaries.
In July, when I succeeded Joe Scalzo as President and Chief Executive Officer, Joe became Executive Vice Chair of our
Board of Directors. Very few people have the distinction of establishing large, publicly traded companies, especially in the
food and beverage space. As President and Chief Executive Officer of Simply Good Foods and, before that, Atkins
Nutritionals, Inc., Joe oversaw a period of profound growth, innovation and value creation for nearly 10 years. He was
instrumental in our successful entrance into the public market and our transformational acquisition of Quest Nutrition, which
together have positioned Simply Good Foods as a U.S. leader in nutritional snacking. I do not mind admitting that Joe
leaves some large shoes to fill. The good news for me is that Joe remains a valuable resource.
I am fortunate to work with a best-in-class leadership team and Board of Directors. Our ability to effectively communicate
with each other is a big part of our success. As a group, I am confident we will build on our momentum and deliver on our
short-term objectives while positioning the business for continued, long-term, sustainable growth.
Lastly, on behalf of our Board of Directors, employees and myself, I want to thank you, our stockholders, for your investment
in The Simply Good Foods Company and your confidence in us to continue to build stockholder value. We hope you and
your families remain healthy and safe.
Sincerely,
Geoff Tanner
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________
FORM 10-K
_______________________________________________________
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 26, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 001-38115
___________________________________________________________________________________________________________
The Simply Good Foods Company
(Exact name of registrant as specified in its charter)
___________________________________________________________________________________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
82-1038121
(I.R.S. Employer Identification No.)
1225 17th Street, Suite 1000
Denver, CO 80202
(Address of principal executive offices and zip code)
(303) 633-2840
(Registrant’s telephone number, including area code)
___________________________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
SMPL
Nasdaq
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-Accelerated Filer
☒
☐
Accelerated Filer ☐
Smaller Reporting Company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the common stock held by non-affiliates of the registrant as of February 24, 2023, the last trading day of the
registrant’s most recently completed second fiscal quarter was approximately $3.5 billion based on the closing price of $38.54 for one
share of common stock, as reported on the Nasdaq Capital Market on that date. For the purpose of the foregoing calculation only, all
directors and executive officers of the registrant and owners of more than 10% of the registrant’s common stock are assumed to be
affiliates of the registrant. This determination of affiliate status is not necessarily conclusive for any other purpose.
As of October 18, 2023, there were 99,603,880 shares of common stock, par value $0.01 per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s definitive proxy statement, in connection with its 2024 annual meeting of stockholders, to be
filed within 120 days after the end of fiscal year ended August 26, 2023, are incorporated by reference into Part III of this Annual Report
on Form 10-K.
The Simply Good Foods Company and Subsidiaries
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
Page
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81
Item 1
Item 1A
Item 1B
Item 1C
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 9C
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
Item 16
SIGNATURES
3
Cautionary Note Regarding Forward Looking Statements
This Form 10-K (this “Report”) contains forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). When used anywhere in this Report, the words “expect,” “believe,” “anticipate,”
“estimate,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements. These statements relate to future
events or our future financial or operational performance and involve known and unknown risks, uncertainties and other factors that could
cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these
forward-looking statements. We caution you that these forward-looking statements are not guarantees of future performance and involve
risks, uncertainties and assumptions that are difficult to predict. You should not place undue reliance on forward-looking statements. These
statements reflect our current views with respect to future events, are based on assumptions and are subject to risks and uncertainties.
These forward-looking statements include, among other things, statements regarding our operations being dependent on changes in
consumer preferences and purchasing habits regarding our products, a global supply chain and effects of supply chain constraints and
inflationary pressure on us and our contract manufacturers, our ability to continue to operate at a profit or to maintain our margins, the
effect pandemics or other global disruptions on our business, financial condition and results of operations, the sufficiency of our sources of
liquidity and capital, our ability to maintain current operation levels and implement our growth strategies, our ability to maintain and gain
market acceptance for our products or new products, our ability to capitalize on attractive opportunities, our ability to respond to
competition and changes in the economy including changes regarding inflation and increasing ingredient and packaging costs and labor
challenges at our contract manufacturers and third party logistics providers, the amounts of or changes with respect to certain anticipated
raw materials and other costs, difficulties and delays in achieving the synergies and cost savings in connection with acquisitions, changes
in the business environment in which we operate including general financial, economic, capital market, regulatory and geopolitical
conditions affecting us and the industry in which we operate, our ability to maintain adequate product inventory levels to timely supply
customer orders, changes in taxes, tariffs, duties, governmental laws and regulations, the availability of or competition for other brands,
assets or other opportunities for investment by us or to expand our business, competitive product and pricing activity, difficulties of
managing growth profitably, the loss of one or more members of our management team, potential for increased costs and harm to our
business resulting from unauthorized access of the information technology systems we use in our business, expansion of our wellness
platform and other risks and uncertainties indicated in this Report, including those set forth under “Risk Factors” in this Report. Important
factors could cause actual results to differ materially from those indicated or implied by forward-looking statements such as those
contained in documents we have filed with the U.S. Securities and Exchange Commission (the “SEC”), including in this Report in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and those contained in
subsequent reports we will file with the SEC. All forward-looking statements in this Report are qualified entirely by the cautionary
statements included in this Report and such other filings. These risks and uncertainties or other important factors could cause actual results
to differ materially from results expressed or implied by forward-looking statements contained in this Report. These forward-looking
statements speak only as of the date of this Report. We undertake no intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise, except as required by applicable law, and readers should not
rely on the forward-looking statements as representing the Company’s views as of any date subsequent to the date of the filing of this
Report.
Explanatory Note
Unless the context otherwise requires, the terms “we,” “us,” “our” the “Company” and “Simply Good Foods” refer to The Simply
Good Foods Company and its subsidiaries. In context, “Quest” may also refer to the Quest® brand and “Atkins” may also refer to the
Atkins® brand.
Summary of Risk Factors
An investment in our securities involves a high degree of risk. You should carefully consider the risks described in Item 1A “Risk
Factors” of this Report, which are summarized below, before making an investment decision. Our business, prospects, financial condition
or operating results could be harmed by any of these risks, and other risks not currently known to us or that we currently consider
immaterial. The trading price of our securities could decline due to any of these risks, and, as a result, you may lose all or part of your
investment.
Risks Related to our Business
•
•
•
•
•
Changing consumer preferences, habits, perceptions and discretionary spending, which may negatively affect our brand loyalty
and net sales.
Our dependence on a global supply chain and effects of supply chain constraints and inflationary pressure on us or our suppliers.
Our ability to maintain or increase prices or fail to implement our growth strategies successfully.
Our inability to compete successfully in the highly competitive nutritional snacking industry.
Our inability to continually enhance our brand recognition, increase distribution of our products, grow and maintain shelf space,
attract new consumers to our brands and introduce new and innovative products, either on a timely basis or at all.
4
•
•
•
•
The perception of our brands or organizational reputation are damaged, including as a result of negative information on social
media.
The fact that we must expend resources to maintain consumer awareness of our brands, build brand loyalty and generate interest
in our products and the evolution of our marketing strategies and channels, and our programs may not be successful.
Our geographic focus, which makes us particularly vulnerable to economic and other events and trends in North America.
Pandemics, epidemics or disease outbreaks, such as the novel coronavirus (“COVID-19”), which may disrupt our business,
including, among other things, consumption and trade patterns, our supply chain and production processes.
Risks Related to our Operating Model
•
•
•
•
•
Ingredient and packaging costs are volatile and may rise significantly.
Shortages or interruptions in the supply or delivery of our core ingredients, equipment, packaging and products as we rely on a
limited number of third-party suppliers to supply our core ingredients and a limited number of contract manufacturers to
manufacture our products.
Our reliance on sales to a limited number of retailers for a substantial portion of our net sales and we maintain “at will” contracts
with these retailers, which do not require recurring or minimum purchase amounts of our products.
Losses in, disruption of and lack of efficiency in our fulfillment network.
Severe weather conditions, natural disasters, government regulations related to climate change, the effects of climate change and
geopolitical events,which can all affect crop supplies and supply chain infrastructure.
• We intend to grow through mergers, acquisitions or joint ventures, and we may not successfully integrate, operate or realize the
anticipated benefits of such business combinations.
Our insurance policies may not provide adequate levels of coverage against claims.
Loss of our key executive officers or other personnel, or an inability to attract and retain such management and other personnel.
•
•
• We may not be able to adequately protect our material intellectual property and other proprietary rights.
•
Any inadequacy, failure or interruption of our information technology systems may harm our ability to effectively operate our
business, and our business is subject to online security risks, including security breaches and identity theft.
Regulatory Risks and Litigation Risks
•
•
•
•
All of our products must comply with regulations of the U.S. Food and Drug Administration and state and local regulations.
Our advertising is regulated for accuracy, and if our advertising is determined to be false or misleading, we may face fines or
sanctions.
Changes in the legal and regulatory environment could limit our business activities, increase our operating costs, reduce demand
for our products or result in litigation.
Litigation or legal proceedings could expose us to significant liabilities and have a negative effect on our reputation.
Risks Related to our Capital Structure
•
Our indebtedness could materially and adversely affect our financial condition and ability to operate our company, and we may
incur additional debt.
Changes in interest rates may adversely affect our earnings and cash flows.
•
• We may need additional capital in the future, and it may not be available on acceptable terms or at all.
• We have incurred and will continue to incur significant costs because of operating as a public company.
•
If we cannot maintain appropriate systems, procedures and controls, we may not be able to successfully procure, offer or ship our
products, grow our business, account for transactions, accurately report our financial results in an appropriate and timely manner
or prevent fraud.
Our only significant asset is ownership of 100% of Atkins Intermediate Holdings, LLC which could limit our ability to pay any
dividends on our common stock or satisfy our other financial obligations.
•
Risks Related to our Common Stock
• We do not expect to declare any dividends in the foreseeable future.
•
•
Our amended and restated certificate of incorporation contains anti-takeover provisions which could impair a takeover attempt.
Our common stock price may be affected by future sales of common stock or other dilution.
Other Risks
• We experience risks associated with our international operations and exposure to the worldwide economy.
•
Our amended and restated certificate of incorporation excludes certain of our Board members from the doctrine of “corporate
opportunity.”
5
Item 1. Business.
Overview
PART I
The Simply Good Foods Company is a consumer packaged food and beverage company that aims to lead the nutritious snacking
movement with trusted brands that offer a variety of convenient, innovative, great-tasting, better-for-you snacks and meal replacements,
and other product offerings. The product portfolio we develop, market and sell consists primarily of protein bars, ready-to-drink (“RTD”)
shakes, sweet and salty snacks and confectionery products marketed under the Quest® and Atkins® brand names. Simply Good Foods is
poised to expand its wellness platform through innovation and organic growth along with acquisition opportunities in the nutritional
snacking space.
Our nutritious snacking platform consists of brands that specialize in providing products for consumers that follow certain
nutritional philosophies and health-and-wellness trends: Quest for consumers seeking a variety of protein-rich foods and beverages that
also limit sugars and simple carbohydrates and Atkins for those following a low-carbohydrate lifestyle or seeking to manage weight or
blood sugar levels. We distribute our products in major retail channels, primarily in North America, including grocery, club, and mass
merchandise, as well as through e-commerce, convenience, specialty, and other channels. Our portfolio of nutritious snacking brands gives
us a strong platform with which to introduce new products, expand distribution, and attract new consumers to our products.
We believe snacking occasions have been on the rise in recent years as consumers continue to desire more convenient, healthy
and delicious foods, snacks, and meal replacements. We believe our emphasis on product formats such as our protein bars, cookies, chips
and salty snacks, and RTD shakes positions us to fill important needs for consumers. We believe a number of existing and emerging
consumer trends within the U.S. food and beverage industry will continue to both drive the growth of the nutritional snacking category and
increase the demand for our product offerings. Some of these trends include increased consumption of smaller, more frequent meals
throughout the day, consumers’ strong preference for convenient, “better-for-you” snacks, consumers’ greater focus on health and
wellness, consumers’ movement toward limiting carbohydrate and sugar consumption, and the trend of consumers seeking to add
convenient sources of protein and fiber to their diets.
With our Quest brand, we strive to offer an attractive line up of protein bars, cookies, protein chips and salty snacks, RTD shakes,
and confections, which target these existing and emerging consumer trends. With our Atkins brand, we strive to offer a compelling line of
protein bars, RTD shakes, cookies, protein chips and salty snacks, and confections. Our sales, marketing, and research and development
capabilities enable us to distribute products to a national customer base across a spectrum of retail channels, including the mass
merchandise, grocery, drug, club stores, e-commerce, and small format retail such as convenience stores and gas stations.
The Simply Good Foods Company (“Simply Good Foods”) was formed on March 30, 2017, to acquire NCP-ATK Holdings, Inc.
(“Atkins”), on July 7, 2017. As part of Simply Good Foods’ strategy to become an industry leading snacking platform, in November 2019,
we acquired Quest Nutrition, LLC (“Quest”). This transaction is referred to as the “Quest Acquisition.”
Our principal executive offices are located at 1225 17th Street, Suite 1000, Denver, Colorado, 80202. Our telephone number is
(303) 633-2840. We maintain a web site at www.thesimplygoodfoodscompany.com.
Business Trends in Fiscal Year 2023
Throughout fiscal year 2023, we continued to actively monitor the effects of the dynamic macroeconomic inflationary
environment in the United States and elsewhere, elevated levels of supply chain costs, the level of consumer mobility, including the rate at
which consumers return to working outside the home, and consumer behavior. Current or future governmental policies may increase the
risk of inflation and possible economic recession, which could further increase the costs of ingredients, packaging and finished goods for
our business as well as negatively affect consumer behavior and demand for our products.
During fiscal year 2023, our business performance was affected by unfavorable raw material costs, higher co-manufacturing costs,
and supply chain challenges, including supply chain disruptions resulting from labor shortages and disruptions in sourcing ingredients. The
supply chain environment showed signs of improvement during fiscal year 2023 and we expect to see improvement during fiscal year 2024
in overall cost environment and in our gross margin. We continue to proactively engage with our retail customers, contract manufacturers,
and logistics and transportation providers, to meet demand for our products and to remain informed of any challenges within our business
operations.
For more information on the effects of supply chain cost increases on our profitability during fiscal year 2023, see
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-K.
6
Our Strengths
Powerful brands with strong consumer awareness and loyalty. We are a leader in the fast growing nutritional snacking category,
and both the Quest and Atkins brands are leading brands with combined scale in protein bars, protein chips, confections, cookies, and RTD
shakes. Our highly focused snacking portfolio provides us with a leading position within retailers’ nutrition and wellness aisles, resulting
in meaningful shelf space. Our brands can appeal to both consumers interested in an active lifestyle who are seeking protein-rich, low-carb
snacking options as well as weight management program consumers, which makes our brands highly attractive and strategic for a diverse
set of retailers across various distribution channels.
Aligned with consumer mega trends. Increasing global concern about growing rates of obesity and weight-related diseases and
other health issues has resulted in increased scientific, media and consumer focus on nutrition. Over 100 independent, peer reviewed,
clinical studies show the benefits of controlling carbohydrates. We believe this focus is prompting consumers to rebalance their nutritional
breakdown away from carbohydrates. Our brand attributes, “low-carb,” “low-sugar” and “protein-rich” nutrition, are well aligned with
consumer mega trends. In addition, we believe consumers’ eating habits are gradually shifting towards increased convenience, snacking
and meal replacement. We also believe our portfolio of convenient and nutritious products and our ongoing effort to meet consumer
demands for convenient snacking options support their individual health, nutrition and lifestyle goals.
Scalable snacking and food platform. We have been able to grow our product offerings for both of our nutritious snacking brands
through our line extensions and through acquisitions. Our in-house product development experience and our outsourced manufacturing
model allow us to bring new products to market quickly. We pride ourselves on knowing our consumers and gleaning insights that lead to
new products and ideas. We believe we can leverage our strong relationships with our retail customers and distributors, a strong brand
building track record, and category management expertise to help new products, brands and brand extensions gain distribution and
consumer recognition, allowing us to continue to successfully expand our snacking platform.
Asset-light business with strong cash generation. We retain core in-house capabilities including sales, marketing, brand
management, customer relationships, product development, and supply-chain expertise, while collaborating with a diversified pool of
contract manufacturers and distributors to execute manufacturing and distribution. Outsourcing these competencies allows us to focus our
efforts on innovation, marketing, and sales to meet consumer demands. Our lean infrastructure allows for significant flexibility, speed-to-
market, and minimal capital investment, which translates into relatively consistent and robust free cash flow generation over time, driven
by strong gross margins.
Experienced leadership team. Simply Good Foods has an experienced team of industry veterans with extensive experience across
multiple branded consumer products, food and nutrition categories. Our management team’s extensive experience is complemented by the
significant industry expertise of our Board of Directors. Our management team’s deep expertise and proven record of accomplishment in
managing brands and operating packaged food businesses is a key driver of our success and we believe positions Simply Good Foods as an
attractive vehicle for future long-term growth within the nutritional snacking space.
Our Strategies
Innovate and expand the portfolio of product offerings to meet consumer demand for higher protein products and new product
forms. We intend to continue to enhance, strengthen and expand our product offerings with new and innovative flavors and forms and
packaging alternatives, all while maintaining a commitment to delivering products that meet our targeted nutritional profile and provide the
convenience and taste consumers crave. Our in-house research and development laboratories allow us to develop new products internally
and bring them to market quickly through our contract manufacturing network without diverging from high standards of taste, nutritional
content, quality, and safety. Additionally, we intend to satisfy developing and changing consumer preferences through the pursuit of
merger and acquisition transactions.
Leverage platform to expand in attractive food and snacking categories. We believe the fragmented snacking category presents an
opportunity for consolidation and the opportunity to build, through disciplined acquisitions, a leading platform in the nutritional snacking
space. As a leader in nutritious snacking, we believe we have the unique capability to leverage our operating platform, product innovation
expertise and customer relationships to expand beyond our current brands. In addition, we believe the nutritious snacking category will
continue to grow given its relatively low household penetration and favorable consumer trends of snacking, health and wellness,
convenience, and on-the-go consumption. Our experienced management team has deep expertise in brand building that we believe will
help us to expand the business into additional brands and products in the snacking segment. Over time, we expect to continue seeking to
identify and evaluate acquisition opportunities to complement our platform, and we see significant opportunity for growth and synergies in
complementary adjacent snacking categories such as the “better-for-you” eating space.
Expand distribution in white space opportunities. In the fifty-two weeks ended August 26, 2023, approximately 77% of Quest’s
gross sales in the U.S. and approximately 86% of Atkins’ gross sales in the U.S. were through the mass retailer, grocery and convenience
store distribution channels. Our management believes there is opportunity for the brands to further penetrate those channels as well as other
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distribution channels such as convenience and club stores. In addition, while shoppers have increased e-commerce purchases generally,
approximately 21% of Quest’s gross sales for the fifty-two weeks ended August 26, 2023 were through its e-commerce channel and
approximately 14% of Atkins’ gross sales for the same period were through its e-commerce channel. We intend to leverage our brand
recognition to develop further the distribution channels through which we reach consumers, including through the continued expansion of
the e-commerce channel.
Continue our marketing efforts and strategies to both increase household penetration and reach consumers beyond our core
historic buyers.
We intend to expand our marketing efforts to bring first-time buyers into the Quest and Atkins brand franchises. For our Quest
brand, our historic consumer base has been individuals pursuing a performance-based active and athletic lifestyle and for our Atkins’ brand
it has been people interested in weight management. As public opinion on the use of chronic weight management medication is shifting
significantly as the popularity of clinical solutions grows and more medications are approved by the FDA, we are looking to communicate
to consumers who have elected to use these medications what we believe are the complementary benefits of using our products to support
achieving or maintaining their weight management goals.
For both the Quest and Atkins brands, we have an active and growing digital and social presence, using a comprehensive
approach of search, banner, and search engine optimization efforts. We are a leader in social media, with an evolving social media
presence on major channels such as Facebook, Instagram, Pinterest, X (formerly known as Twitter) and YouTube. We also have a growing
network of social influencers and content creators, who promote our products in their targeted social media posts. We believe that social
media is a cost-effective way of continuing to attract and retain our consumers. We believe that our ongoing efforts to educate consumers
about the benefits of our nutrition philosophy and lifestyle will further reinforce our brands. For our Quest brand, we have used a national,
targeted broadcast ad campaign, and continue to leverage targeted streaming television ads and an extensive network of social media
influencers and content creators who prompt both our Quest brand products through their online posts to motivate new buyers and product
introductions. For our Atkins brand, we use targeted broadcast and streaming television and print ads with a celebrity-based campaign that
attempts to (i) motivate potential programmatic weight loss consumers to try the Atkins approach to healthier eating and weight loss as
these Atkins consumers are our most loyal, profitable and frequent purchasers and (ii) broaden the reach of the Atkins brand to appeal to
those consumers generally interested in low carbohydrate, low sugar nutrition.
We intend to continue to make focused changes to our approach to consumer outreach to attract consumers beyond our historic
core buyers. For our Quest brand, we intend to enhance our marketing efforts to reach more consumers who are seeking products that are
aligned with their choice to pursue a healthy and active lifestyle. For the Atkins brand, we intend to continue our marketing efforts to
attract self-directed low-carbohydrate and health motivated eaters (those individuals not on a program diet) who buy and consume our
Atkins products. We also note the Atkins brand has approximately 96% aided brand awareness with U.S. consumers and the Quest brand
has approximately 76% aided brand awareness with U.S. consumers.
Our Vision and Mission
Our vision is to lead the nutritional snacking movement with trusted brands that offer a variety of convenient, innovative, great-
tasting, better-for-you snacks and meal replacements and other product offerings. Our mission is to empower healthy lives through smart
and satisfying nutrition.
Our Products
Core Quest Products
Our core Quest brand products consist of protein bars, cookies, salty snacks and confections.
Protein Bars. To keep on-the-go consumers energized and fueled, our Quest bars offer a convenient and effective solution,
providing consumers with protein, fiber and a delicious taste. The typical Quest bar profile contains about 20 grams of protein, 5 grams or
less of net carbs and about 1 gram of sugar. Quest offers more than 25 different flavors of protein bars.
Cookies. First launched in 2018, Quest’s cookie products are a convenient source of high-protein combined with low net carbs
and low-sugar. Available in a variety of flavors including Chocolate Chip, Peanut Butter, Oatmeal Raisin and Snickerdoodle, Quest’s
cookies typically contain about 15 grams of protein, 4 grams or less of net carbs and less than 1 gram of sugar. Quest also offers soft baked
frosted cookies containing about 5 grams of protein, 1 grams of net carbs and less than 1 gram of sugar.
Salty Snacks. Quest’s protein chips, including the tortilla-style chips launched in spring 2018, quickly became a high-selling
product offering an attractive nutrition profile when compared to conventional chip products. Offered in flavors including nacho cheese,
ranch, chili lime, BBQ, loaded taco and spicy sweet chili, Quest’s chips typically contain about 18 grams of protein, about 4 grams of net
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carbs, and around 6 grams of fat compared to 2 grams of protein, 15 grams of net carbs and 8 grams of fat for a well-known leading
conventional brand. Quest’s cheddar cheese crackers launched during fiscal year 2023, contain 10 grams of protein, 5 grams of net carbs
and 7 grams of fat.
Confections. Quest’s confections include full-size and mini peanut butter cups, “fudgey” brownie, “gooey” caramel candy bites,
chocolatey coated peanut candies and “coconutty” caramel candy bars sold in a variety of packaging. The full-size peanut butter cups
feature a nutrition profile for two cups of 11 grams of protein, 1 gram of net carbs, less than 1 gram of sugar and 4 grams of fiber. The mini
peanut butter cups feature a nutrition profile per serving of 8 grams of protein, 1 gram of net carbs, less than 1 gram of sugar and 3 grams
of fiber. The candy bars feature a nutrition profile of 12 grams of protein, 3 to 4 grams of net carbs, about 1 gram of sugar and about 9
grams of fiber. The candy bites feature a nutrition profile of 5 grams of protein, 1 gram of net carbs, l to 3 grams of net carbs, about 1 gram
of sugar and 4 to 9 grams of fiber.
Core Atkins Products
Our core Atkins brand products consist of protein bars, RTD shakes, confections, cookies, and chips.
Protein Bars. To keep on-the-go consumers energized and fueled, our Atkins bars offer a convenient and effective solution,
providing consumers with protein, fiber and a delicious taste. Atkins offers two main types of bars: Atkins Meal Bars and Atkins Snack
Bars. Atkins Meal Bars contain 13 to 17 grams of protein and are available in more than 10 different flavors. Atkins Snack Bars contain 7
to 13 grams of protein, with 2 to 4 grams of net carbs, and are available in 15 different varieties.
RTD Shakes. Our rich and creamy Atkins RTD shakes contain 10 to 15 grams of protein, as well as other important vitamins and
minerals. Available in a variety of flavors, including cookies and crème, café caramel and creamy chocolate, Atkins’ RTD shakes are made
with high quality ingredients and are designed to provide energy balance through the day. Our Atkins’ Plus RTD shakes contain 30 grams
of protein, for our consumers seeking higher protein content.
Confections. Our Atkins Endulge® line, which is designed to satisfy consumers’ sweet cravings, and which we call Treats,
consists of delicious desserts without all of the added sugar. Atkins offers a variety of different Treats, such as peanut butter cups and
pecan caramel clusters, each with only 1 gram of sugar or less and low net carbs, providing consumers with the option to indulge.
Cookies. First launched in fiscal year 2021, Atkins’ soft and chewy cookie products are a convenient source of high-protein
combined with low net carbs and low-sugar. These sweet tasting cookies are available in double chocolate chip, peanut butter and
chocolate chip. Atkins’ cookies contain approximately 10 grams of protein, 3 grams of net carbs and approximately 1 gram of sugar or less
depending on the flavor.
Chips. First launched during fiscal year 2022, Atkins’s protein chips offer an attractive nutrition profile when compared to
conventional chip products. Offered in nacho cheese, ranch, and chipotle BBQ flavors, Atkins’s chips typically contain about 13 grams of
protein, about 4 grams of net carbs, and around 7 grams of fat compared to 2 grams of protein, 15 grams of net carbs and 8 grams of fat for
a well-known leading conventional brand.
Recipes. While provided free of charge, we also offer over 1,600 protein-rich, low-carbohydrate and low-sugar recipes designed
to help consumers achieve and maintain a healthy lifestyle, while still enjoying delicious food.
Marketing, Advertising and Consumer Outreach
Our marketing efforts are designed to increase consumer awareness of and demand for our products. We employ a broad mix of
marketing, including coupons, product sampling, consumer and trade events, advertising (television, online and print) and recipe and food
plans, to target our consumers. We also use online resources, including social media sites, to communicate with consumers and build
interest in our brands. Our advertising and use of online resources are aimed at increasing consumer preference and usage of our brands.
Our trade promotions focus on obtaining retail feature and display support, achieving optimum retail product prices and securing retail
shelf space. We use coupons (freestanding insert newspaper, store register, on-pack and online coupons) to help stimulate product trial and
repeat purchases by providing consumers with economic incentives. The mix of these marketing activities varies between the Quest and
Atkins brands.
As part of our advocacy on the advantages of a protein-rich, low-carbohydrate, and low-sugar dietary approach, we have devoted
portions of our respective brand websites and social media to promote consumer education, engagement, and dialogue about the benefits of
our nutritional approaches and how our products can fit within those approaches. Our sales and marketing team gathers information and
feedback from consumers and retailers to enable us to better meet changing consumer needs. We also believe that an effective marketing
tool is to share educational information through our brand websites to explain each brand’s approach to nutrition and the nutritional
qualities of our products. We also provide access to consumer service representatives to answer questions and educate consumers on
nutrition, new products and developments. As part of this approach, over time, for those consumers who have elected to use weight
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management medications to pursue their weight management goals we expect to develop and enhance our marketing messages regarding
how we believe our products can be used to meet their snacking use occasions and be complementary to their use of medication for weight
management to achieve and maintain their weight management goals.
For both brands, in order to facilitate awareness and knowledge of the health benefits of a low-carbohydrate, low-sugar and
protein-rich eating approach, we have established a variety of marketing and advertising strategies to connect with consumers, including
digital marketing and social media platforms, television broadcast and streaming advertising as well as celebrity and social media
influencer endorsements.
For both brands, we have built large consumer followings. Beyond the core historic consumers for each of our brands, we believe
there is significant opportunity to increase household penetration for our products by expanding our marketing, product offerings and
educational efforts to consumers who are focused more generally on long-term healthy living.
In the fifty-two weeks ended August 26, 2023, approximately 66% of Selling and marketing expenses were spent on advertising
costs.
Product Innovation
A portion of our sales is driven by new products, and as a result, we believe innovation is, and will continue to be, an important
component of our business. We take a deliberate approach to new product development, focusing on enhancing existing products,
innovating flavor and form varieties, and expanding into adjacent snacking products. Our innovation model is designed to respond to
competitive demands, with a primary focus on enhancing the quality and flavor of our products while simplifying composition and
ingredients to meet consumer demands for unique nutrition options.
Our innovation strategy is based on ongoing research into consumers’ healthy lifestyle and nutritional needs. We pride ourselves
on knowing our consumers and developing products that meet their needs. Providing variety in snacking options to our consumers is an
important strategy in our product innovation. New flavors, textures and snacking formats are important to meeting consumer needs.
We believe an important component of meeting consumers’ nutritional needs is a focus on evolving current products. We are
committed to continually finding new and innovative formulations for our products, as well as using “better-for-you” ingredients like nuts,
fiber and whey protein, while continually improving taste and quality.
We maintain an in-house research and development team as well as market research and consumer insight capabilities. Through
our research and development labs in El Segundo, California and Broomfield, Colorado, we control our brands’ innovations and product
formulations from the ground up. By developing new products, prototypes and adjacencies in-house, we facilitate our core competencies in
product innovation, and enhance our speed to market.
In addition, as part of our innovation process, we collaborate with nationally recognized third-party flavor providers and product
development firms for new product development and then conduct our own proprietary consumer research to identify and improve upon
new product concepts. We plan to continue conducting extensive consumer research to develop successful new products including product
flavor and concept testing, marketing and trend analysis, and consumer prototype testing.
We also believe the fragmented snacking category presents an opportunity for consolidation and the opportunity to build, through
disciplined acquisitions, a leading platform in the nutritional snacking space. As a leader in nutritious snacking, we believe we have the
unique capability to leverage our operating platform and customer relationships to expand beyond our current brands. Our experienced
management team has deep expertise in brand building to expand the business into additional brands and products in the nutritional
snacking segment. Simply Good Foods is actively seeking to identify and evaluate new acquisition opportunities to complement our
existing portfolio, and sees significant opportunity for growth and synergies in complementary adjacent snacking categories such as sports/
active and adult nutritional snacks, salty snacks and protein snacks, as well as in the “better-for-you” eating space.
Intellectual Property
We own numerous domestic and international trademarks and other proprietary rights that are important to our business.
Depending upon the jurisdiction, trademarks are valid if they are used in the regular course of trade and/or their registrations are properly
maintained. We believe the protection of our trademarks, copyrights, patents, domain names, trade dress and trade secrets are important to
our success. We aggressively protect our intellectual property rights by relying on a combination of watch services and trademark,
copyright, patent, trade dress and trade secret laws, and through the domain name dispute resolution system. We also own virtually all of
the recipes and specifications for our products.
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Competition
We compete primarily with nutritional snacking brands in large retail and e-commerce environments. The nutritional snacking
industry is fragmented and highly competitive and includes a number of diverse competitors. Our identified branded competitors include,
but are not limited to, CLIF Bar, KIND bars, Boost, Premier Protein, Core Power, Fairlife, Muscle Milk, ONE bar, Pure Protein, Slimfast,
and think!. We believe that the principal competitive factors in the nutritional snacking industry are:
brand awareness and loyalty among consumers;
product ingredients;
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• macronutrient profile of products;
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• media spending;
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product claims;
product taste and texture;
convenience of products;
product variety, packaging and labeling; and
access to retailer shelf space.
We believe that we currently compete effectively with respect to each of these factors. However, a number of companies in the
nutritional snacking industry have greater financial resources, more comprehensive product lines, broader market presence, longer standing
relationships with distributors and suppliers, longer operating histories, greater distribution capabilities, stronger brand recognition, and
greater marketing resources than we have.
Supply Chain
We operate an asset-light business model. For the manufacture of our products, we contract with contract manufacturers, and as a
result, our operations are highly flexible and require minimal capital expenditure. The supply chain for our international business also uses
exclusively contract manufacturers.
U.S. Supply Chain. The majority of our products are shipped directly to one central warehouse, which is a leased warehouse
managed by a third-party logistics provider. We also have a separate warehouse for a portion of our distribution needs. A substantial
portion of our inventory is shipped directly to our retailers from the warehouse by the same third-party logistics provider. Most of our
remaining customers pick-up their orders at our distribution centers and make their own arrangements for delivery to their fulfillment
network. For certain customers, RTD shakes are shipped directly from the contract manufacturer to the customers’ locations. We believe
our use of demand forecasting and vendor-managed inventory systems enables us to meet shipping demands, ensure timely delivery of
orders and offer service levels to our customers.
Sourcing. The principal ingredients to manufacture our products include chocolate and other coatings, dairy, proteins, soy, and
nuts. Our packaging consists of flexible film, cartons, tetra paper, and corrugate. All of our core ingredients are purchased according to
rigorous standards to assure food quality and safety. These core ingredients are generally available in adequate quantities from several
suppliers. We competitively bid with major suppliers to source competitively priced, quality ingredients and packaging that meet our
standards. For certain ingredients we establish direct purchasing agreements with suppliers, under which our contract manufacturers source
ingredients to produce finished products. We also actively manage the cost of most of our packaging supplies, such as corrugate, film, and
cartons. The cost of sourcing our ingredients and packaging has been affected by the current elevated levels of supply chain cost inflation
in the United States and elsewhere. For more information, see “– Business Trends in Fiscal Year 2023,” above.
Manufacturing. We rely on contract manufacturers to manufacture our products. The contract manufacturers schedule and receive
ingredient and packaging inventory according to parameters set in their contracts and forecasts we provide. As noted above, some
ingredients and packaging are purchased by our contract manufacturers pursuant to framework contracts we have with the applicable
suppliers. Our contract manufacturers are regularly audited by third parties and are required to follow rigorous food safety guidelines. We
believe our contract manufacturers have capacity to meet our anticipated supply needs, although short-term high demand can cause
disruptions. We monitor both near-term and long-term capacity as well as fulfillment rates and overall performance of our manufacturing
partners and qualify alternate suppliers as needed. In general, we purchase finished products from our contract manufacturers, which
includes all packaging and ingredients used, as well as an agreed-upon tolling charge for each item produced. These finished products are
then shipped directly to our distribution centers, or shipped directly from the contract manufacturer to the customer.
U.S. Storage. We lease two distribution centers, both in Greenfield, Indiana, referred to collectively as the Distribution Centers,
where we store finished goods. We utilize over 1.29 million square feet of floor space among our Distribution Centers.
Distribution. For the majority of our customers, our logistics provider distributes the finished goods via truckloads from our
Distribution Centers, which first flow through regional terminals. At the terminals, our orders are consolidated with other companies’
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products being shipped to the customer. The finished goods are then distributed to retailer distribution centers. The regular weekly
shipments and consolidation have reduced our costs. For some products, we ship directly to customers from our contract manufacturer
through a third-party logistics provider. In some instances, the customer will arrange to pick-up directly finished products from our
Distribution Centers.
Retailers. We have a wide variety of customers across the mass, food, club, drug, and e-commerce channels. A substantial
majority of our sales are generated from a limited number of retailers. Sales to our largest retailer, Walmart, represented approximately
31% of consolidated sales in fiscal year 2023, of which approximately 24% is through their mass retail channel and approximately 7% is
through their Sam’s club and e-commerce channels. Sales to our next largest retailer, Amazon, represented approximately 16% of
consolidated sales in fiscal year 2023. No other customer represents more than 10% of sales. For additional information, please see the risk
factor “We rely on sales to a limited number of retailers for a substantial majority of our net sales, and losing one or more such retailers
may materially harm our business. In addition, we maintain “at will” contracts with these retailers, which do not require recurring or
minimum purchase amounts of our products.”
E-Commerce. We aim to ensure that our consumers may access our brand in the way that best suits their lifestyles by offering
online ordering of our products. We sell our products on questnutrition.com, Atkins.com, Amazon.com and e-commerce platforms of our
brick-and-mortar customers, which all deliver our products directly to the location designated by the consumer.
Food Safety and Quality. Food safety and quality is a top priority, and we dedicate substantial resources to ensure that consumers
receive safe, high quality food products. Our products are manufactured in facilities that have programs and controls in place regarding
consistent quality and food safety. Product attributes such as taste, aroma, texture, and appearance are regularly monitored. Good
Manufacturing Practices and comprehensive food safety programs are designed to produce a safe, wholesome product. Our suppliers are
required to have equally robust processes in place and confirm their compliance with product specifications with Letters of Guaranty and
Certificates of Analysis for shipments of core ingredients to be used in our products. Finally, random samples of finished goods are
regularly sent to a third-party laboratory for testing. We hold an ISO 22000 certification for our U.S. operations, which we first obtained
during fiscal year 2022.
International. Our products are also sold outside North America. Our top international sales are in Australia and New Zealand.
For the fifty-two weeks ended August 26, 2023, international net sales represented approximately 2.7% of total net sales. Our international
supply chain is run by a lean team solely focused on international operations. Similar to U.S. operations, international operations utilize
contract manufacturers for products, and distributors for distribution and sales.
Information Technology
We rely heavily on information systems for management of our supply chain, inventory, payment of obligations, collection of
cash, human capital management, financial tools and other business processes and procedures. Our ability to manage our business
functions efficiently and effectively depends significantly on the reliability and capacity of these systems. We have instituted controls,
including information technology governance controls that are intended to protect our computer systems and our information technology
systems and networks. We also have business continuity plans that attempt to anticipate and mitigate failures. However, we cannot control
or prevent every potential technology failure, adverse environmental event, third-party service interruption or cybersecurity risk.
We increasingly rely on cloud computing and other technologies that result in third parties holding significant amounts of
customer, consumer or employee information on our behalf.
We along with our third party service providers, including our licensees, contract manufacturers, e-commerce contractors and
third-party sellers, collect information about consumers directly from them as well as automatically through their use of our websites. We
collect information from consumers when they interact with our websites and the services we offer on those sites. The information we
collect varies based on the consumer’s particular interaction with our websites. We may combine this information with other information
that we collect. We and our third-party service providers may use cookies and other similar tracking technologies to track information
about consumers’ use of our websites and the services we offer on those websites. The website operations of our third parties may be
affected by reliance on other third-party hardware and software providers, technology changes, risks related to the failure of computer
systems through which these website operations are conducted, telecommunications failures, data security breaches and similar
disruptions.
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Segments
During the fifty-two weeks ended August 27, 2022, we substantially completed our efforts to fully integrate our operations and
organization structure after the Quest Acquisition. We aligned the nature of our production processes and the methods used to distribute
products to customers for the Atkins® and Quest® brands. We also designed our organizational structure to support entity-wide business
functions across brands, products, customers, and geographic regions. Additionally, our chief operating decision maker reviews operating
results and forecasts at the consolidated level. As a result, we determined our operations are appropriately still organized into one,
consolidated operating segment and reportable segment.
Regulation and Compliance
Along with contract manufacturers, brokers, distributors, ingredients and packaging suppliers, Simply Good Foods is primarily
subject to laws and regulations in the United States promulgated by federal, state and local government authorities. In the United States,
the federal agencies governing the manufacture, distribution and advertising of products include, among others, the U.S. Federal Trade
Commission (“FTC”), the U.S. Food and Drug Administration (“FDA”), the U.S. Environmental Protection Agency, and the Occupational
Safety and Health Administration, in addition to similar state and local agencies. Under various statutes, these agencies prescribe the
requirements and establish the standards for quality and safety and regulate marketing and advertising to consumers. In certain
circumstances, these agencies must not only approve products, but also review the manufacturing processes and facilities used to produce
these products before they can be marketed in the United States.
Simply Good Foods is subject to labor and employment laws, laws governing advertising, privacy laws, safety regulations and
other laws, including consumer protection regulations that regulate retailers or govern the promotion and sale of merchandise. Our
operations, and those of our contract manufacturers, distributors, and suppliers, also are subject to various laws and regulations relating to
environmental protection and worker health and safety matters. We continue to monitor their development and our compliance.
Food-Related Regulations
As a manufacturer and distributor of food products, we are subject to several food-related regulations, including the Federal Food,
Drug and Cosmetic Act and regulations promulgated thereunder by the FDA. This comprehensive regulatory framework governs the
manufacture (including composition and ingredients), labeling, packaging and safety of food in the United States. The FDA:
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regulates manufacturing practices for foods through its current good manufacturing practices regulations;
specifies the standards of identity for certain foods, including many of the products we sell;
regulates the advertising claims that can be made on food product labels; and
prescribes the format and content of certain information required to appear on food product labels.
We are subject to the Food Safety Modernization Act, which, among other things, mandates that the FDA adopt preventative
controls to be implemented by food facilities in order to minimize or prevent hazards to food safety. We are subject to numerous other
federal, state and local regulations involving such matters as the licensing and registration of manufacturing facilities, enforcement by
government health agencies of standards for our products, inspection of our facilities and regulation of our trade practices in connection
with the sale of food products.
Environmental Regulations
We are subject to various state and federal environmental laws, regulations and directives, including the Food Quality Protection
Act of 1996, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Federal Insecticide, Fungicide and
Rodenticide Act and the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended. Governments
may in the future implement new laws, regulations and directives aimed to meet certain climate change goals and objectives which could
affect our business operations as they relate to ingredient and packaging procurement.
We believe that we are in material compliance with existing environmental regulations applicable to our business. We do not
expect the cost of our continued compliance with existing environmental regulations to have a material effect on our capital expenditures,
earnings, cash flows or competitive position in the foreseeable future. In addition, any asset retirement obligations are not material.
Labeling Regulations
We are subject to various labeling requirements with respect to our products at the federal, state and local levels. At the federal
level the FDA has authority to review product labeling, and the FTC may review labeling and advertising materials, including online and
television advertisements, to determine if advertising materials are misleading. We are also subject to various state and local consumer
protection laws. We believe we are in material compliance with all labeling laws and regulations applicable to our business.
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Human Capital Resources
As of August 26, 2023, our workforce consisted of 271 employees globally who were largely based in an office or in research and
development (“R&D”) lab locations. Of that total, approximately 94% of our employees were in the United States, and the rest were in
Canada, Europe, Australia, and New Zealand. 116 employees were engaged in marketing and sales, 85 were engaged in R&D, operations
and quality, and 70 were engaged in administration. Of our United States employees, 23 employees were hourly and 233 were salaried. No
employees were covered by a collective bargaining agreement.
Mission, Vision and Values. Our mission is to empower healthy lives through smart and satisfying nutrition. Our vision is to lead
the nutritious snacking movement with trusted brands that offer a variety of convenient, innovative, great-tasting, better-for-you snacks and
meal replacements. Our values, Act with Integrity, Lead with Innovation, Succeed through Interdependence, Be Empowered, and Bring
Passion Every Day, are critical to our success in fulfilling our mission and vision.
Training & Development. Training and development is critical to our mission’s success, helps our employees grow their career,
and is one way we attract, motivate and retain our employees. We regularly host “Be Empowered” sessions for employees, which are
educational classes and networking opportunities that teach our nutrition philosophy and our different business functions. To develop
effective and empowered leaders, we host regular trainings and informational sessions.
In our normal performance review cycle, which took place in early fiscal year 2023, 99% of our employees held career
discussions with their managers to identify opportunities for development and career progression. Our accelerated mentorship program
pairs junior talent with executive leadership, which is designed to broaden talent networks, increases exposure to cross-functional problem
solving and builds leadership competencies and impact. Because of these career discussions, the accelerated mentorship program and the
talent review process conducted by our senior leadership, during fiscal year 2023, we promoted 8% of our workforce and provided
associated compensation increases.
Our Commitment to Diversity, Equity & Inclusion (“DE&I”). We recognize the importance of a diverse, equitable and inclusive
culture for our employees and its effect on our ability to achieve our mission, so we have made commitments to track and improve our
performance in each of these areas. Our Board of Directors created its Corporate Responsibility & Sustainability committee that has been
tasked with, among other things, overseeing human capital resources and all our DE&I initiatives. These initiatives include the following,
among others:
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In 2022, we established a Diversity, Equity, Inclusion and Belonging Council consisting of mid-level and senior leaders so our
DE&I efforts are informed and led by a cross section of our leaders. Its mission is to foster a positive, open, and trusted culture of
belonging where every person feels empowered to bring their unique selves to the workplace resulting in a competitive advantage
through thought-leadership and talent growth that halos beyond our workforce to our partners and community, creating an
inclusive ecosystem.
• We complete a pay equity audit every fiscal year to evaluate equity in our pay practices and work to address any issues that may
arise.
• We post every open position or promotional opportunity in the United States that is not confidential, and we include the job’s pay
range to provide transparency to candidates. This practice provides every qualified candidate an opportunity to apply with
knowledge of the range of pay for the role.
Environmental, social and governance (“ESG”) initiatives are included as part of the determination of the discretionary
component of our annual short-term incentive program.
All employees are required to attend preventing discrimination and harassment training.
•
• We observe Juneteenth as a company-paid holiday every year in the United States as a day of reflection, education, and
•
celebration.
The table below provides information as of August 26, 2023, the end of our fiscal year, about the representation of women and
minorities as a percentage of our employees at various levels of management categories used by our Executive Leadership Team to
manage our workforce. This information is also reviewed by our Board of Directors about the representation of women and minorities as a
percentage of our employees at various levels of management and our Board of Directors, as of August 26, 2023.
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All Employees
All People-leaders
Director-level
VP-level
Executive Leadership Team
Female and Minority Representation
Female
Minority1
56%
48%
55%
26%
30%
35%
26%
25%
16%
10%
Board of Directors
1 Minority representation includes the percent of United States employees who identify as Black or African American, Asian,
Hispanic, Native American, or two or more races.
18%
9%
In our Form 10-K for the fiscal year ended August 27, 2022, we provided a table of information for the period December 1, 2021
through December 15, 2021 from our 2021 EEO-1 report. Earlier this year, the U.S. Equal Employment and Opportunity Commission
determined to delay the timeline for the submission of data to complete the 2022 EEO-1 report. Data submission for our 2022 EEO-1
report is now scheduled for the period from October 31, 2023, through December 5, 2023. As a result, updated information from our 2022
EEO-1 report is not available as of the filing date of this Form 10-K.
Employee Culture. We regularly ask our employees to respond to engagement surveys to gather feedback on topics ranging from
teamwork to, growth, job satisfaction, engagement and inclusion. This encourages open communication with employees and management,
and tracks employee engagement over time.
Total Rewards. The health, satisfaction and security of our employees and their families are important to us and an important part
of reaching our organization's goals. We offer total rewards packages that include valuable and competitive compensation and benefit
plans. These programs reflect our commitment to attracting and retaining top talent and keeping our staff healthy and secure. Our
compensation philosophy is to pay for performance, and we do so through a mix of base salary, annual short-term incentive and long-term
incentive.
We understand that each employee's situation is unique, so we offer benefits that can be shaped and molded by each employee to
fit their individual or family's needs. Our current benefits vary by region, but generally include medical, dental and vision insurance,
401(k) retirement plan, savings accounts, life and disability insurance coverage, free mental telehealth support, and other voluntary
benefits. We also offer time-off benefits including vacation time, flexible vacation for exempt positions, sick leave, and paid parental
leave.
We recognize the importance of balance in our employees’ lives to their overall wellbeing, so we offer our employees time off
benefits described above to recharge, ten company-paid holidays per year, flexible remote workdays every Monday and Friday, and paid
parental leave.
Advancing Health, Nutrition and Wellbeing. Our mission is to empower healthy lives through smart and satisfying nutrition. We
believe we play an important role in helping to improve nutrition and overall wellness in the United States through scientific research,
education, advocacy and community engagement.
Since 2016, we have advocated with various branches of the U.S. federal government to encourage more inclusive guidance in the
U.S. Department of Agriculture’s and U.S. Department of Health and Human Services’ Dietary Guidelines for Americans (the “Dietary
Guidelines”), which is released every five years. Our goal is to expand the Dietary Guidelines to offer solutions for more Americans,
including the more than half of the U.S. population suffering from negative metabolic-related conditions such as cardiovascular disease,
prediabetes, diabetes and obesity. We also believe expanding the Dietary Guidelines would help to address health equity in many
underserved populations in the United States who have higher rates of metabolic-related diseases. The advocacy work we have done is
aligned with recent guidance issued by major health organizations such as the American Diabetes Association and the American Heart
Association, both of which recommend a lower carbohydrate dietary approach as an option for those with diabetes.
Our public policy advocacy includes presenting significant scientific research comprised of several hundred, peer-reviewed
clinical studies in numerous meetings with policymakers, congresspeople, and decision-makers in the U.S. Department of Agriculture and
the U.S. Department of Health and Human Services. In addition, we have sponsored numerous continuing education courses for registered
dieticians and other healthcare professionals, and we are a member of multiple collaborative groups focused on improving the nutritional
quality of the U.S. food system.
As part of our advocacy on the advantages of a protein-rich, low-carbohydrate, and low-sugar dietary approach, we have devoted
portions of our respective brand websites and social media to promote consumer education, engagement, and dialogue about the benefits of
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our nutritional approaches and how our products can fit within those approaches. Through our websites and social media, we also share
educational information to explain each brand’s approach to nutrition, teaching consumers how to make smarter food choices and the
nutritional qualities of our approach and products. Our Atkins website also offers free of charge information regarding the Atkins protein-
rich, low-carbohydrate and low-sugar approach to eating, several tools to assist consumers in pursuing the Atkins approach and over 1,600
recipes designed to help consumers achieve and maintain a healthy lifestyle, while still enjoying delicious food.
In late 2021, we launched Quest for Impact, formerly known as The Quest Challenge, a grant program for individuals who are
making a difference in their community in support of health and wellness. In 2023, we provided four separate $20,000 grants. The Quest
for Impact grants were awarded following a competitive process in which applicants expressed their current philanthropic work and what
they aim to achieve if they received the grant. Recipients of this year’s grant have used this money to provide life enrichment skills for
individuals with autism and special needs, empower and provide skills development for underserved individuals and communities, and
support programs designed to develop student’s minds and prepare them for the complexities and demands of the world. We will continue
to follow the progress of our past recipients and their effect on their communities.
For the third year, we participated in Walmart’s “Fight Hunger. Spark Change.” campaign. For each purchase of participating
Simply Good Foods’ Atkins and Quest products at Walmart during the campaign, we donated the monetary equivalent of at least one meal
to Feeding America. Through this program, Simply Good Foods secured at least 500,000 meals for Feeding America. Additionally, we
encourage and support our employees to give back to charities they are passionate about, and we match up to $100 of each employee’s
donations.
In 2023 we sponsored a Community Impact Day for our employees to volunteer in their communities in support of our
commitment to help improve nutrition and overall wellness in the United States through scientific research, education, advocacy, and
community engagement. We partnered with five organizations in five cities where our employees have a presence: Denver, CO; El
Segundo, CA; Minneapolis, MN; Bentonville, AR, and Cincinnati, OH. Over 110 Simply Good Foods employees volunteered, building
awareness about nutrition security, and striving to help end hunger in the U.S. by centering this volunteer event around Community
Gardens, a place where people come together to access affordable, healthy food options.
Available Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC.
We file our reports with the SEC electronically through the SEC’s Electronic Data Gathering, Analysis and Retrieval (“EDGAR”)
system. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding
companies that file electronically with the SEC through EDGAR, which are available free of charge. The address of this Internet site
is www.sec.gov.
We also make available free of charge through our website at www.thesimplygoodfoodscompany.com our Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We
are not, however, including the information contained on our website, or information that may be accessed through links on our website, as
part of, or incorporating such information by reference into, this Report.
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Item 1A. Risk Factors.
An investment in our securities involves a high degree of risk. You should carefully consider the risks described below before
making an investment decision. Our business, prospects, financial condition or operating results could be harmed by any of these risks, and
other risks not currently known to us or that we currently consider immaterial, which could become material. The trading price of our
securities could decline due to any of these risks, and, as a result, you may lose all or part of your investment.
Risks Related to our Business
Changing consumer preferences, habits, perceptions of certain nutritional snacking products and discretionary spending may
negatively affect our brand loyalty, purchase frequency rate and net sales, and materially and adversely affect our business, financial
condition and results of operations.
We focus on products we believe have positive effects on health and compete in a market that relies on innovation and evolving
consumer preferences. The packaged food industry in general, and the nutritional snacking industry in particular, is subject to changing
consumer trends, demands and preferences and emerging nutrition science is constantly evolving. Products, ingredients, or methods of
eating once considered healthy may become disfavored by consumers, scientifically disproven or no longer be perceived as healthy.
Trends within the food industry change over time and our failure to anticipate, identify or react to changes in these trends could,
among other things, lead to reduced consumer demand, shelf or retail space and price reductions, and could materially and adversely affect
our business, financial condition and results of operations. Additionally, certain ingredients used in our products may become negatively
perceived by consumers for a variety of reasons, resulting in reformulation of existing products to remove such ingredients, which may
negatively affect the taste or other qualities of our products. Factors that may affect consumer perception of healthy products include
dietary trends and attention to different nutritional aspects of foods, concerns regarding the health effects of specific ingredients and
nutrients, trends away from specific ingredients and processing in products and increasing awareness of the environmental and social
effects of product production.
Consumer perceptions of the nutritional profile of our products and related eating practices may shift. Consumers may also no
longer perceive products with fewer carbohydrates, higher levels of protein, higher levels of fat, or additional fiber or which contain
alternative sweeteners as healthy or needed to achieve personal weight management, wellness, or fitness goals. Adverse messaging in the
media, including social media, or within certain influencer communities, relating to the marketing of nutritional snacking products or
weight-related dietary programs may adversely affect the overall consumer impression of certain of our products, programs or brands,
which may materially and adversely affect our business. Approaches regarding nutritional approaches and healthy lifestyles are the subject
of numerous studies and publications, often with differentiating views and opinions, some of which may be adverse to us. Conflicting
scientific information on what constitutes good nutrition, or the benefits of certain dietary approaches may also materially and adversely
affect our business. Our success depends, in part, on our ability to advance sound nutrition research and to anticipate the tastes and dietary
habits of consumers and other consumer trends and to offer products with marketing messaging that appeal to their needs and preferences
on a timely and affordable basis. A change in consumer discretionary spending, due to inflationary pressures, economic downturn or other
reasons may also materially and adversely affect our sales, and our business, financial condition and results of operations.
Our operations are dependent on a global supply chain and effects of supply chain constraints and inflationary pressure on us or our
suppliers could adversely affect our operating results.
Our operations and the operations of our contract manufacturers have been, and may continue to be, affected by supply chain
constraints and packaging, ingredient and labor challenges resulting in increased costs. The continuing uncertain economic environment,
and macroeconomic and geopolitical events and trends may increase these risks. In addition, current or future governmental policies may
increase the risk of further inflation, which could further increase the costs of ingredients, packaging and finished goods for our business.
Similarly, if costs of goods and labor continue to increase, our suppliers may continue to seek price increases from us. These circumstances
have resulted in negative effects on our results of operations. If we cannot mitigate the effect of supply chain constraints and inflationary
pressure through price increases or cost saving measures, our results of operations and financial condition could be further negatively
affected.
Even if we can raise the prices of our products, consumers might react negatively to these price increases, which could have a
material adverse effect on, among other things, our brands, reputation, and sales. During fiscal year 2023, our price increases may have
caused some consumers to purchase fewer of our products than they have in the past. If our competitors maintain or lower their prices
while we raise prices, we may lose customers or the purchase frequency of our products may slow, which would both adversely affect
sales. Our profitability may be negatively affected by higher costs, inadequate pricing or a reduction in purchase frequencies of our
products, which may negatively affect gross margins and sales. Even though we continue to work to alleviate supply chain constraints
through various measures, we cannot predict the effect of these constraints on the timing of revenue and operating costs of our business in
the near future. Supply chain challenges and supply chain constraints relating to ingredients, freight and packaging, including cost
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inflation, have negatively affected our gross margins and profitability during fiscal year 2023 and may continue to have a negative effect
on our future operating results and profitability. In addition, prolonged unfavorable economic conditions, including because of recession or
slowed economic growth, or public health outbreaks, endemics or pandemics, may have an adverse effect on our sales and profitability.
If we cannot maintain or increase prices of our products to cover elevated input costs, our margins may decrease.
We rely, in part, on price increases to offset cost increases and maintain or improve the profitability of our business. Our ability to
maintain prices or effectively implement price increases, may be affected by several factors, including competition, effectiveness of our
marketing programs, the continuing strength of our brands, market demand and general economic conditions, including broader
inflationary pressures. During challenging economic times, consumers may be less willing or able to pay a price premium for our branded
products and may shift purchases to lower-priced or other value offerings, making it more difficult for us to maintain prices and/or
effectively implement price increases. In addition, our retail partners and distributors may pressure us to rescind price increases we have
announced or already implemented, whether through a change in list price or increased trade and promotional activity. If we cannot
maintain or increase prices for our products or must increase trade and promotional activity, our margins may be adversely affected. For
more information on the effects of supply chain cost increases on our profitability during fiscal year 2023, see “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in this Form 10-K. Furthermore, price increases generally cause volume
losses, as consumers tend to purchase fewer units at higher price points. If such losses are greater than expected or if we lose distribution
due to price increases, our business, financial condition and results of operations may be materially and adversely affected.
We may not be able to compete successfully in the highly competitive nutritional snacking industry.
Our business is committed to providing people a more nutritious way to eat. We compete in the nutritional snacking industry,
which is included in the general snack foods industry. The nutritious snacking industry is large and intensely competitive. Competitive
factors in the nutritional snacking industry include product quality, taste, brand awareness among consumers, nutritional content, simpler
and less processed ingredients, innovation of “on-trend” snacks, variety of snacks offered, grocery aisle placement, access to retailer shelf
space, price, advertising and promotion, product packaging and package design. We compete in this market against numerous
multinational, regional and local companies principally based on our nutritional content, product taste and quality, our brand recognition
and loyalty, marketing, advertising, price and the ability to satisfy specific consumer dietary needs. An increasing focus on healthy and
simpler products in the marketplace will likely increase these competitive pressures within the category in future periods.
Our competitors in the nutritional snacking industry include companies selling meal replacement bars, shakes and nutritional
supplements and through specific dietary approaches such as keto, paleo, vegan, gluten free, vegetarian and others. Views towards
nutritional snacking, weight loss and management, and other nutritional approaches, are cyclical and trendy, with constantly changing
consumer perceptions. Besides remaining competitive through the quality of our products and consumer perceptions of the effectiveness of
a low-carb, low-sugar and protein-rich eating approach, both our brands must continue to be viewed favorably, or our business and
reputation may be materially and adversely affected. If other nutritional approaches become more popular, or are generally perceived to be
more effective, we may not be able to compete effectively. In addition, public opinion on the use of chronic weight management
medication is shifting significantly as the popularity of clinical solutions grows and more medications are approved by the FDA.
Moreover, the growing acceptance and use of medication to manage weight could negatively affect the demand for many types of food in
general and our products. If the use of weight management medication becomes more popular and more widely used and we are unable to
communicate effectively to consumers how our products can support achieving or maintaining their weight management goals, of our
business could be materially and adversely affected.
Some of our competitors have resources substantially greater than we have and sell brands that may be more widely recognized
than our brands. Our current and potential competitors may offer products similar to our products, a wider range of products than we offer,
and may offer such products at more competitive prices than we do. Local or regional markets often have significant additional
competitors, many of whom offer products similar to ours and may have unique ties to regional or national retail chains. Any increased
competition from new entrants into the nutritional snacking industry or any increased success by existing competition could cause
reductions in our sales, require us to reduce our prices, or both, which could materially and adversely affect our business, financial
condition and results of operations.
If we fail to implement our growth strategies successfully, timely, or at all, our ability to increase our revenue and operating profits
could be materially and adversely affected.
Our success depends, largely, on our ability to implement our growth strategies effectively. However, we may fail to accomplish
this. We expect to continue focusing on nutritional snacking and intend to add additional brands to our product portfolio. Our ability to
expand successfully our nutritional snacking brands and other growth strategies depends on, among other things, our ability to identify, and
successfully cater to, new demographics and consumer trends, develop new and innovative products, identify and acquire additional
product lines and businesses, secure shelf space in grocery stores, wholesale clubs and other retailers, increase consumer awareness of our
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brands, enter into distribution and other strategic arrangements with third-party retailers and other potential distributors of our products,
and compete with numerous other companies and products.
In addition, low carbohydrate eating lifestyle consumers of our products and those consumers using chronic weight management
medication to support their weight loss goals may have different preferences and spending habits than the consumers of traditional weight
loss products. We may also fail to adequately explain to consumers using chronic weight management medication how our products can
support achieving and maintaining weight loss goals. We may fail in reaching and maintaining the loyalty or purchase frequency rate of
new consumers to the same extent, or at all, as we have with our historical consumers. We may also not succeed in evolving our
advertising and other efforts to appeal to our target consumers.
If we cannot identify and capture new audiences and demographics for all our brands, our ability to integrate additional brands
successfully will be adversely affected. We may also not succeed in evolving our advertising and other efforts to appeal to our target
consumers. Accordingly, we may not be able to successfully implement our growth strategies, expand the number of our brands, or
continue to maintain growth in our sales at our current rate, or at all. If we fail to implement our growth strategies or if we invest resources
in growth strategies that ultimately prove unsuccessful, our sales and profitability may be negatively affected, which would materially and
adversely affect our business, financial condition and results of operations.
If we do not continually enhance our brand recognition, maintain or increase distribution of our products, attract new consumers to
our brands and introduce new and innovative products, either on a timely basis or at all, our business may suffer.
The nutritional snacking industry is subject to rapid and frequent changes in consumer demands. Because consumers are
constantly seeking new products and strategies to achieve their healthy eating goals, our success relies heavily on our ability to continue to
enhance our brand recognition amongst consumers, develop and market new and innovative products and extensions and effectively
inform consumers of these new products. New product sales represent a growing and important portion of our net sales. To respond to new
and evolving consumer demands, achieve market acceptance and keep pace with new nutritional, scientific, technological and other
developments, we must constantly introduce new and innovative products into the market, some of which may not be accepted by
consumers, may be sent to market prematurely, or may contravene our taste or texture standards. Accordingly, we may fail in timely
developing, introducing or marketing any new or enhanced products. If we cannot commercialize new products, our revenue may not grow
as expected, which would materially and adversely affect our business, financial condition and results of operations.
Our growth may be limited if we cannot maintain or secure additional shelf or retail space for our products in brick-and-mortar
retailers.
Our results depend on our ability to drive revenue growth, in part, by expanding the distribution channels for our products. Our
ability to do so may be limited by an inability to secure new retailers or maintain or add shelf and retail space for our products. Shelf and
retail space for nutritional snacks is limited and subject to competitive and other pressures. There can be no assurance that retailers will
provide sufficient, or any, shelf space, nor that online retailers will provide online access to, or adequate product visibility on, their
platform to enable us to meet our growth objectives.
Unattractive placement or pricing, including because of our recent price increases, may put our products at a disadvantage
compared to those of our competitors. Even if we obtain shelf space or preferable shelf placement, our new and existing products may fail
to achieve the sales expectations set by our retailers, potentially causing these retailers to remove our products from their shelves.
Additionally, an increase in the availability, quantity and quality of private label products in the product categories in which we compete
could create more pressure for shelf space and placement for branded products within each such category, which could materially and
adversely affect our sales.
If the perception of our brands or organizational reputation are damaged, our consumers, distributors and retailers may react
negatively, which could materially and adversely affect our business, financial condition and results of operations.
We believe we have built our reputation on the efficacy of our nutritional approach, and the high-quality flavor and nutritional
content of our food. We must protect and expand on the value of our brands to continue to succeed in the future. Any incident that erodes
consumer affinity for our brands or our business operations could significantly reduce our value and damage our business. For example,
negative third-party research or media reports on our nutritional approach, use of ingredients or the quality of our food, whether accurate or
not, may adversely affect consumer perceptions, which could cause the value of our brands to suffer and adversely affect our business. In
addition, if we recall certain products, including licensed products over which we may not have full quality control, the public perception
of the quality of our food may be diminished. We may also be adversely affected by news or other negative publicity, regardless of
accuracy, regarding other aspects of our business, such as:
•
•
public health concerns, illness or safety;
the perception of our environmental stewardship and the effects our business has on the environment;
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•
•
•
security breaches of confidential consumer or employee information;
employee related claims relating to alleged employment discrimination, health care and benefit issues; or
government or industry findings about or the financial stability of our retailers, distributors, manufacturers or others
across our supply chain.
As part of our marketing initiatives, we have contracted with certain public figures to market and endorse our products. While we
maintain specific selection criteria and are diligent in our efforts to seek out public figures that resonate genuinely and effectively with our
consumer audience, the individuals we choose to market and endorse our products may fall into negative favor with the general public.
Because our consumers may associate the public figures that market and endorse our products with us, any negative publicity on behalf of
such individuals may cause negative publicity about us and our products. This negative publicity could materially and adversely affect our
brands and reputation and our revenue and profits.
Negative information, including inaccurate information, about us on social media may harm our reputation and brands, which could
have a material and adverse effect on our business, financial condition and results of operations.
There has been a marked increase in using social media platforms and similar channels that provide individuals with access to a
broad audience of consumers and other interested persons. The availability of information on social media platforms is virtually
immediate, as is its effect. Many social media platforms provide the content their subscribers and participants post, often without filters or
checks on accuracy of the content posted. The opportunity for dissemination of information, including inaccurate information, is
potentially limitless. Information about our business and/or products may be circulated on such platforms at any time. Negative views
regarding our products and the efficacy of our eating approaches have been posted on various social media platforms, may continue to be
posted in the future, and are out of our control. Regardless of their accuracy or authenticity, such information and views may be adverse to
our interests and may harm our reputation and brands. The harm may be immediate without affording an opportunity for redress or
correction. Ultimately, the risks associated with any such negative publicity cannot be eliminated or completely mitigated and may
materially and adversely affect our business, financial condition and results of operations.
We must appropriately allocate resources to maintain consumer awareness of our brands, build brand loyalty and generate interest in
our products. Our marketing strategies and channels will evolve, and our programs may or may not be successful.
To remain competitive and expand and keep shelf placement for our products, we may need to increase our marketing and
advertising spending to maintain and increase consumer awareness, protect and grow our existing market share or promote new products,
which could affect our operating results. Substantial advertising and promotional expenditures may be required to maintain or improve the
market position of our brands or to introduce new products to the market. We along with participants in our industry are increasingly
engaging with non-traditional and evolving media channels, including consumer outreach through social media and web-based
communications, which may not prove successful. An increase in our marketing and advertising efforts may not maintain our current
reputation or lead to increased awareness for our brands. Moreover, we may not maintain current awareness of our brands due to any
potential fragmentation of our marketing efforts as we continue to focus primarily on a low-carb, low-sugar and protein-rich nutritional
approach for everyday snacking consumers. In addition, as media becomes increasingly fragmented, with consumers viewing media more
and more through a variety of different platforms, channels and devices such as mobile devices and online streaming and less from
traditional broadcast and cable television outlets, our costs to reach a comparable number of target consumers for our advertising activities
has increased.
We also consistently evaluate our product lines to determine whether to discontinue certain products. Discontinuing products may
increase our profitability but could reduce our sales and cause consumers to shop other brands. The discontinuation of product lines may
have an adverse effect on our business, financial condition and results of operations.
Our geographic focus makes us particularly vulnerable to economic and other events and trends in North America.
We operate mainly in North America and, therefore, are particularly susceptible to adverse regulations, economic climate,
consumer trends, market fluctuations, including commodity price fluctuations or supply shortages of key ingredients, and other adverse
events in North America. The concentration of our businesses in North America could present challenges and may increase the likelihood
that an adverse event in North America would disproportionately materially and adversely affect product sales, financial condition and
operating results.
Pandemics, epidemics or disease outbreaks, such as COVID, have in the past and may in the future disrupt our business,
including, among other things, consumption and trade patterns, our supply chain and production processes, each of which could
materially affect our operations, liquidity, financial condition and results of operations.
The actual or perceived effects of a disease outbreak, epidemic, pandemic or similar widespread public health concern, such as
COVID-19, could negatively affect our operations, liquidity, financial condition and results of operations. The COVID-19 pandemic
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situation continues to remain dynamic and subject to rapid and possibly material change, including but not limited to changes that may
materially affect the operations of our customers and supply chain partners in the future, which ultimately could cause material negative
effects on our business and results of operations. For example, the operations of several of our contract manufacturers were affected at the
height of the COVID-19 pandemic’s effect on the availability of labor.
Pandemics, epidemics or disease outbreaks may affect demand for our products because quarantines or other government
restrictions on movement may cause erratic consumer purchase behavior. Our business experienced these effects during fiscal year 2022.
Future governmental or societal impositions of restrictions on public gatherings, especially if prolonged, may have adverse effects on
consumption rates and in-person traffic to retail stores and, in turn, our business. Even the perceived risk of infection or health risk may
adversely affect traffic to our store-based retail customers and, in turn, our business, liquidity, financial condition and results of operations,
particularly if any mobility restrictions are in place for significant time.
The spread of pandemics, epidemics or disease outbreaks such as COVID-19 may also disrupt our third-party business partners’
ability to meet their obligations to us, which may negatively affect our operations. These third parties include those who supply our
ingredients, packaging, and other necessary operating materials, contract manufacturers, distributors, and logistics and transportation
services providers. For example, the operations of several of our contract manufacturers were affected by the COVID-19 pandemic’s effect
on the availability of labor. Ports and other channels of entry may be closed or operate at only a portion of capacity, as workers may be
prohibited or otherwise unable to report to work and means of transporting products within regions or countries may be limited for the
same reason. Because of the COVID-19 pandemic, transport restrictions have been put in place and global supply was and may become
again in the future constrained, each of which may cause and have caused price increases or shortages of certain ingredients and raw
materials used in our products. In addition we may experience disruptions to our operations. Further, our contract manufacturers’ ability to
manufacture our products was, and may again in the future be, impaired by disruption to their employee staffing, procurement,
manufacturing, or warehousing capabilities because of COVID-19 or similar outbreaks.
Our results of operations depend on, among other things, our ability to maintain and increase sales volume with our existing
customers, to attract new consumers and to provide products that appeal to consumers at prices they are willing and able to pay. Our ability
to implement our innovation, advertising, display and promotion activities designed to maintain and increase our sales volumes on a timely
basis may be negatively affected because of modifications to retailer shelf reset timing or retailer pullback on in-store display and
promotional activities during pandemic or similar situations. Retailers may also alter their normal inventory receiving and product
restocking practices during pandemics, epidemics or disease outbreaks such as COVID-19, which may negatively affect our business.
Workforce limitations and travel restrictions resulting from pandemics, epidemics or disease outbreaks such as COVID-19 and
related government actions may affect many aspects of our business. If a significant percentage of our workforce cannot work or we cannot
visit our contract manufacturers’ locations, including because of illness, travel or government restrictions related to pandemics or disease
outbreaks, our operations may be negatively affected. In addition, pandemics or disease outbreaks could cause a widespread health crisis
that could adversely affect the economies and financial markets of many countries where we offer products, resulting in an economic
downturn that could affect customers’ and consumers’ demand for our products.
Adverse and uncertain economic conditions, such as decreases in per capita income and level of disposable income, increased
unemployment or a decline in consumer confidence because of pandemic or similar situations, could have an adverse effect on distributor,
retailer and consumer demand for our products. Consumers may shift purchases to lower-priced or other perceived value offerings during
economic downturns.
We believe the effects on consumer demand and shopping behavior because of the COVID-19 pandemic could continue,
including because of new virus variants and the effect these variants have on consumer shopping patterns.
Our efforts to manage and mitigate these factors may be unsuccessful, and the effectiveness of these efforts depends on factors
beyond our control, including the duration and severity of any pandemic, epidemic or disease outbreak, and third-party actions taken to
contain its spread and mitigate public health effects.
Risks Related to our Operating Model
Ingredient and packaging costs are volatile and may rise significantly, which may negatively affect the profitability of our business.
We negotiate the prices for large quantities of core ingredients, such as nuts, protein, fiber and packaging materials. Several
ingredients are farmed or manufactured outside of the United States. Costs of ingredients and packaging are volatile and can fluctuate due
to conditions difficult to predict, including global competition for resources, fluctuations in currency and exchange rates, weather
conditions, the effects of climate change, natural or man-made disasters, consumer demand, geopolitical events, and changes in
governmental trade and agricultural programs and environmental regulations affecting the production or manufacturing of ingredients and
packaging. Volatility in the prices of the core ingredients and other supplies we purchase increased in fiscal year 2023 and, while these
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price increases have begun to moderate, these prices may remain elevated during fiscal year 2024. As a result, our cost of goods sold
increased in fiscal year 2023, and our profitability was reduced.
We do not use hedges for availability of any core ingredients. Any material upward movement in core ingredient or packaging
pricing could negatively affect our margins if we cannot find efficiencies or pass these costs on to our consumers, or our sales if we are
forced to increase our prices. If we are unsuccessful in managing our ingredient and packaging costs, if we cannot increase our prices to
cover increased costs or if such price increases reduce our sales volumes, then such increases in costs will materially and adversely affect
our business, financial condition and results of operations. For more information on the effects of supply chain cost increases on our results
of operations during fiscal year 2023, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in
this Form 10-K.
Certain of our core ingredient contracts have minimum volume commitments that could require purchases without matching
revenue during weaker sales periods. Future core ingredient and packaging prices may be affected by new laws or regulations, tariffs,
suppliers’ allocations to other purchasers, interruptions in production by suppliers, natural disasters, volatility in the price of crude oil and
related petrochemical products and changes in exchange rates.
Shortages or interruptions in the supply or delivery of our core ingredients, packaging, products or equipment we purchase could
materially and adversely affect our operating results as we rely on a limited number of third-party suppliers to supply our core
ingredients and packaging and a limited number of contract manufacturers to manufacture our products.
The core ingredients used in manufacturing our products include nuts, protein and fiber. We rely on a limited number of third-
party suppliers to provide these core ingredients, a portion of which are international companies. There may be a limited market supply of
any of these core ingredients. Any disruption in supply could materially and adversely affect our business, particularly our profitability and
margins. Events that adversely affect our suppliers could impair our ability to obtain core ingredient inventories in the quantities desired.
Such events include problems with our suppliers’ businesses, finances, labor relations, sustainability concerns, evolving applicable
environmental regulations, ability to import core ingredients, delays in imported core ingredients being processed through local customs,
costs, production, insurance, reputation and weather conditions during growing, harvesting or shipping, including flood, drought, frost and
earthquakes, man-made disasters or other catastrophic occurrences, and geopolitical events such as the continuing conflict between
Ukraine and Russia.
Our financial performance depends largely on our ability to purchase core ingredients and packaging in sufficient quantities at
competitive prices. We may not have continued supply, pricing or exclusive access to core ingredients and packaging from these sources.
Any of our suppliers could discontinue or seek to alter their relationships with us. We may be adversely affected by increased demand for
our specific core ingredients, a reduction in overall supply of required core ingredients, suppliers raising their prices, and increases in the
cost of packaging and distributing core ingredients. Additionally, we may be adversely affected if suppliers stop selling to us or enter into
arrangements that impair their abilities to provide us with core ingredients and packaging.
We rely on a limited number of contract manufacturers to manufacture our products. If any of these manufacturers:
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experience adverse effects on their businesses, including an inability to fulfill their labor or other human capital needs;
cannot continue manufacturing our products at required levels, on a timely basis, or at all; or
choose to cancel or not renew our contract with them to manufacture our products;
we may be forced to seek other manufacturers. We may not be able to identify and qualify new manufacturers promptly that could allocate
sufficient capacity to meet our requirements, which could adversely affect our ability to make timely deliveries of products. Furthermore,
we may be unable to negotiate pricing or other terms with existing or new manufacturers as favorable as what we currently enjoy. In
addition, there is no guarantee a new manufacturing partner could accurately replicate the production process and taste profile of the
existing products. In addition, occasionally we determine to select new contract manufacturers to replace existing manufacturers to produce
our products. If the transition to a new manufacturer is delayed or we experience product quality or other production issues during the
transition to the new manufacturer, our business may be negatively affected until these issues are resolved.
Our contract manufacturers also independently contract for and obtain certain ingredients and packaging for our products. If we or
our contract manufactures cannot obtain certain ingredients or packaging in the required amounts or at all, their ability to manufacture our
products could be adversely affected. It could take a significant period of time to locate and qualify such alternative production sources or
alternative ingredients or packaging, which could materially and adversely affect our business.
If having our products available for consumer purchase through our retail customers is disrupted because of an inability to obtain
ingredients or packaging, labor challenges at our logistics providers or our contract manufacturers, or if our customers experience delays in
stocking our products in their locations, we will experience a reduction in sales at retail and our results of operations could be material and
adversely affected.
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We are subject to risks associated with protection of our trade secrets by our third-party contract manufacturers. If our contract
manufacturers fail to protect our trade secrets, either intentionally or unintentionally, our business, financial condition and results of
operations could be materially and adversely affected. If we experience significant increased demand for our products, or need to replace
an existing supplier or manufacturer, additional supplies of core ingredients or manufacturers may not be available when required, on
acceptable terms, or at all. Suppliers may not allocate sufficient capacity to meet our requirements, fill our orders promptly or meet our
strict quality standards. Even if our existing suppliers and manufacturers can expand their capacities to meet our needs, or we can find new
sources of core ingredients or new contract manufacturers, we may encounter delays in production, inconsistencies in quality and added
costs. We may not be able to pass increased costs onto the consumer immediately, if at all, which may decrease or eliminate our
profitability. Any manufacturing and/or supply disruptions or cost increases could have an adverse effect on our ability to meet consumer
demand for our products and result in lower net sales and profitability, both in the short and long-term.
We rely in large part on our third-party contract manufacturers to maintain the quality of our products. The failure or inability of
contract manufacturers to comply with the specifications and requirements of our products could cause product recalls, which could
materially and adversely affect our reputation and subject us to significant liability should the consumption of any of our products cause or
be claimed to cause illness or injury. Our products implicate risks such as product contamination, spoilage, product tampering, other
adulteration, mislabeling and misbranding. We also license certain products that contain our brands and logos, but which are produced and
distributed exclusively by third parties of whom we have limited control. In addition, we do not own our warehouse facilities, but they are
managed for us by a third party.
Under certain circumstances, we may be required to, or may voluntarily, recall or withdraw products. A widespread recall or
withdrawal of any of ours or licensed products may negatively and significantly affect our sales and profitability and could cause
significant losses depending on the costs of the recall, destruction of product inventory, reduction in product availability, and reaction of
competitors and consumers.
We may be subject to claims or lawsuits, including class actions lawsuits (which could significantly increase any adverse
settlements or rulings) or judgments, resulting in liability for actual or claimed injuries, illness or death. Any of these events could
materially and adversely affect our business, financial condition and results of operations. Whether or not a claim or lawsuit is
unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could
adversely affect our reputation with existing and potential consumers and our corporate and brand image. Moreover, claims or liabilities of
this sort might not be covered by our insurance or by any rights of indemnity or contribution we may have against others. We maintain
product liability insurance in an amount we believe to be adequate. However, we may incur claims or liabilities for which we are not
insured or that exceed our insurance coverage. A product liability judgment against us or a product recall could materially and adversely
affect our business, financial condition and results of operations.
We rely on sales to a limited number of retailers for a substantial portion of our net sales and losing one or more such retailers may
materially harm our business. In addition, we maintain “at-will” contracts with these retailers, which do not require recurring or
minimum purchase amounts of our products.
A substantial majority of our sales are generated from a limited number of retailers. Sales to our largest retailer, Walmart,
represented approximately 31% of consolidated sales in fiscal year 2023, of which approximately 24% is through their mass retail channel
and approximately 7% is through their Sam’s club and e-commerce channels. Sales to our next largest retailer, Amazon, represented
approximately 16% of consolidated sales in fiscal year 2023. Although the composition of our significant retailers may vary from period-
to-period, we expect most of our sales will continue to come from a relatively small number of retailers for the foreseeable future. These
retailers may take actions that affect us for reasons we cannot anticipate or control, such as their financial condition, changes in their
business strategy or operations, including their inability to meet their labor or other human capital needs, the perceived quality of their
products and introducing competing products. There can be no assurance that Walmart or Amazon or our other significant customers will
continue to purchase our products in the same quantities or on the same terms as in the past, particularly as increasingly powerful retailers
continue to demand lower pricing.
Our retailers rarely provide us with firm, long- or short-term volume purchase commitments. As a result, we could have periods
with little to no orders for our products while still incurring costs related to workforce maintenance, marketing, general corporate and debt
service. Furthermore, despite operating in different channels, our retailers sometimes compete for the same consumers. Because of actual
or perceived conflicts resulting from competition, retailers may take actions that negatively affect us. We may not find new retailers to
supplement our revenue in periods when we experience reduced purchase orders or recover fixed costs because of experiencing reduced
purchase orders. Periods of reduced purchase orders could materially and adversely affect our business, financial condition and results of
operations.
Conversely, occasionally, we may experience unanticipated increases in orders for our products from these retailers that can
create supply chain problems and may cause unfilled orders. If we cannot meet increased demand for our products, our reputation with
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these retailers, and ultimately our consumers, may be harmed. Unanticipated fluctuations in product requirements could cause fluctuations
in our results from quarter-to-quarter. Consolidation among retailers may also materially and adversely affect our results. An increase in
the concentration of our sales to large customers may negatively affect our profitability due to the effect of higher shelving fees and
reduced volumes of product sold. Furthermore, as retailers consolidate or account for a larger percentage of our sales, they may reduce the
number of branded products they offer to accommodate private label products and pressure us to lower the prices of our products.
The loss of, a disruption in or an inability to efficiently operate our fulfillment network could materially and adversely affect our
business, financial condition, and results of operations.
For our U.S. operations, we utilize distribution centers in Greenfield, Indiana. A substantial portion of our inventory is shipped
directly to our retailers from these centers by a third-party logistics provider. Most of our other customers pick-up their orders at our
distribution centers and arrange for delivery to their fulfillment network. A small percentage of our customers are shipped certain products
directly from a co-manufacturing location. We rely significantly on the orderly operation of our distributions centers and logistics
providers. If complications arise, a particular facility is damaged or destroyed or if either our third-party logistics partners or our customers
who transport their own orders to their fulfillment network cannot meet their labor or other human capital needs for delivery drivers or
other warehouse personnel or if trucking regulations affect current trucking norms (such as a shift to electric vehicles), our ability to
deliver inventory timely or cost effectively could be significantly impaired, which could materially and adversely affect our business
because of lost consumer purchases at retail thereby negatively affecting our operations.
We rely on a single-sourced logistics provider for distribution and product shipments in the United States from our distribution
centers. Our utilization of delivery services for shipments is subject to risks that may affect the ability to provide delivery services that
adequately meet our shipping needs including increases in fuel prices, labor shortages, employee strikes and inclement weather.
Occasionally, we may change third-party logistics providers and we could face logistical difficulties that could adversely affect deliveries.
In addition, we could incur costs and expend resources in connection with such change and fail to obtain terms as favorable as those we
currently receive.
Disruptions at our distribution facilities or in our operations due to natural or man-made disasters, pandemics or other disease
outbreaks, fire, flooding, terrorism or other catastrophic events, system failure, labor shortages or disagreements or shipping problems may
cause delays in the delivery of products to retailers and could materially and adversely affect our results of operations.
Severe weather conditions, natural disasters such as fires, floods, droughts, hurricanes, earthquakes and tornadoes, government
regulation related to climate change, and the effects of climate change and geopolitical events can affect crop supplies, and supply
chain infrastructure, and negatively affect the operating results of our business.
Severe weather conditions and natural disasters, such as fires, floods, droughts, frosts, hurricanes, earthquakes, tornadoes, insect
infestations and plant disease, and geopolitical events may affect the supply of core ingredients and packaging used to make and protect
food products or may prevent the manufacturing or distribution of food products by third parties. In addition, a number of these weather
conditions could become even more severe over time because of the effects of climate change. Competing manufacturers might be affected
differently by weather conditions, natural disasters, and geopolitical events depending on the location of their sources of supplies and
manufacturing or distribution facilities. If supplies of core ingredients and packaging available to us are reduced, we may not find enough
supplemental supply sources on favorable terms, which could materially and adversely affect our business, financial condition and results
of operations. In addition, because we rely on few contract manufacturers for most of our manufacturing needs and because our
distribution warehouses are all in a similar geographic location, adverse weather conditions could affect the ability for those third-party
operators to manufacture, store or move our products.
We intend to grow through mergers and acquisitions or joint ventures, and we may not successfully integrate, operate or realize the
anticipated benefits of such business combinations.
As part of our strategic initiatives, we intend to pursue mergers and acquisitions or joint ventures. Our acquisition strategy is
based on identifying and acquiring brands with products that complement our existing products and identifying and acquiring brands in
new categories and new geographies to expand our platform of nutritional snacks and potentially other food products. Although we
regularly evaluate multiple acquisition candidates, we cannot be certain that we can successfully identify suitable acquisition candidates,
negotiate acquisitions of identified candidates on favorable terms, or integrate acquisitions we complete.
Acquisitions involve numerous risks and uncertainties, including intense competition for suitable acquisition targets, which could
increase target prices and/or materially and adversely affect our ability to consummate deals on favorable terms, the potential unavailability
of financial resources necessary to consummate acquisitions, the risk we improperly value and price a target, the potential inability to
identify all of the risks and liabilities inherent in a target company or assets notwithstanding our diligence efforts, the diversion of
management’s attention from the day-to-day operations of our business and additional strain on our existing personnel, increased leverage
resulting from the additional debt financing that may be required to complete an acquisition, dilution of our net current book value per
share if we issue additional equity securities to finance an acquisition, difficulties in identifying suitable acquisition targets or in
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completing any transactions identified on sufficiently favorable terms and the need to obtain regulatory or other governmental approvals
that may be necessary to complete acquisitions.
Any future acquisitions may pose risks associated with entry into new geographic markets, including outside the United States
and our current international markets, distribution channels, lines of business or product categories, where we may not have significant
prior experience and where we may not be as successful or profitable as we are in businesses and geographic regions where we have
greater familiarity and brand recognition. Potential acquisitions may entail significant transaction costs and require significant management
time and distraction from our core business, even where we cannot consummate or decide not to pursue a particular transaction.
Besides the risks above, even when acquisitions are completed, integration of acquired entities can involve significant difficulties.
These include failure to achieve financial or operating objectives regarding an acquisition, systems, operational and managerial controls
and procedures, the need to modify systems or to add management resources, difficulties in the integration and retention of consumers or
personnel and the integration and effective deployment of operations or technologies, amortization of acquired assets (which would reduce
future reported earnings), possible adverse short-term effects on cash flows or operating results, integrating personnel with diverse
backgrounds and organizational cultures, coordinating sales and marketing functions and failure to obtain and retain key personnel of an
acquired business. Failure to manage these acquisition growth risks could have an adverse effect on our business.
Our insurance policies may not provide adequate levels of coverage against claims.
We believe that we maintain insurance policies customary for businesses of our size and type. However, there are losses we may
incur that cannot be insured against or that we believe are not economically reasonable to insure. Such losses could have a material adverse
effect on our business, financial condition and results of operations.
Loss of our key executive officers or other personnel, or an inability to attract and retain such management and other personnel, could
negatively affect our business.
Our future success depends to a significant degree on the skills, experience and efforts of our key executives and the strength of
our talent positions throughout the organization. The sudden loss of key personnel or our failure to appropriately plan for any expected key
executive succession could materially and adversely affect our business and prospects, as we may not be able to find suitable individuals to
replace them on a timely basis, if at all. Additionally, we also depend on our ability to attract and retain qualified personnel to operate and
expand our business. If we fail to attract talented new employees, our business and results of operations could be negatively affected.
We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business.
Our ability to compete effectively depends in part upon protection of our rights in trademarks, trade dress, copyrights and other
intellectual property rights we own or license. Our use of contractual provisions, confidentiality procedures and agreements, and
trademark, copyright, unfair competition, trade secret and other laws to protect our intellectual property and other proprietary rights may
not be adequate. We may not be able to preclude third parties from using our intellectual property regarding food or beverage products and
may not be able to leverage our branding beyond our current product offerings. In addition, our trademark or other intellectual property
applications may not always be granted. Third parties may oppose our intellectual property applications, or otherwise challenge our use of
trademarks or other intellectual property. Third parties may infringe, misappropriate, or otherwise violate our intellectual property.
Changes in applicable laws could lessen or remove the current legal protections available for intellectual property. Any legal action we
may bring to protect our brand and other intellectual property could be unsuccessful, result in substantial costs and could divert
management’s attention from other business concerns. A successful claim of trademark, copyright or other intellectual property
infringement, misappropriation, or other violation against us could prevent us from providing our products or services or could require us
to redesign or rebrand our products or packaging if we cannot license such third-party intellectual property on reasonable terms. Certain of
our intellectual property licenses have fixed terms, and even for those that do not, we cannot guarantee all our intellectual property licenses
will remain in effect indefinitely. Termination or breaches of intellectual property licenses granted by or to us could cause the loss of
profits generated under such licenses. Any of the foregoing outcomes could materially and adversely harm our business, financial
condition or results of our operations.
Any inadequacy, failure or interruption of our information technology systems may harm our ability to effectively operate our business,
and our business is subject to online security risks, including security breaches and identity theft.
We rely heavily on information systems for management of our supply chain, inventory, payment of obligations, collection of
cash, human capital management, financial tools and other business processes and procedures. Our ability to efficiently and effectively
manage our business functions depends significantly on the reliability and capacity of these systems. Our operations depend upon our
ability to protect our computer equipment and systems against damage from physical theft, fire, power loss and outages,
telecommunications failure or other catastrophic events and from internal and external security breaches, viruses and other disruptive
problems. The failure of these systems to operate effectively, whether from maintenance problems, upgrading or transitioning to new
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platforms, or a breach in security of these systems, could result in interruptions or delays in our operations, reduce efficiency or negatively
affect our operations. If our information technology systems fail and our redundant systems or disaster recovery plans are not adequate to
address such failures, or if our business interruption or cyber-security insurance does not sufficiently compensate us for any losses we may
incur, our revenue and profits could be reduced, and the reputation of our brand and our business could be materially adversely affected. In
addition, remediation of any problems with our systems could result in significant, unplanned expenses.
We have instituted controls, including information system governance controls intended to protect our computer systems and our
information technology systems and networks. We also have business continuity plans that attempt to anticipate and mitigate failures.
However, we cannot control or prevent every potential technology failure, adverse environmental event, third-party service interruption or
cybersecurity risk.
Unauthorized users who penetrate our information security systems could misappropriate proprietary, employee, or consumer
information. As a result, it may become necessary to expend additional amounts of capital and resources to protect against, or to alleviate,
problems caused by unauthorized access. Data security breaches could cause damaged reputation with consumers and reduced demand for
our products. Additional expenditures may not prove to be a timely remedy against breaches by unauthorized users who are able to
penetrate our information security. Besides purposeful security breaches, the inadvertent transmission of computer viruses could adversely
affect our computer systems and, in turn, harm our business.
We increasingly rely on cloud computing and other technologies that result in third parties holding significant amounts of
customer, consumer or employee information on our behalf. There has been an increase over the past several years in the frequency and
sophistication of attempts to compromise the security of these systems. If the security and information systems we or our outsourced third-
party providers use to store or process such information are compromised or if we, or such third parties, otherwise fail to comply with
applicable laws and regulations, we could face litigation and the imposition of penalties that could adversely affect our financial
performance. Our reputation as a brand or as an employer could also be adversely affected by these types of security breaches or regulatory
violations, which could impair our ability to attract and retain qualified employees.
Many states require that consumers be notified if a security breach results in disclosing their personal financial account or other
information. Additional states and governmental entities are considering such “notice” laws. In addition, other public disclosure laws may
require that material security breaches be reported. If we experience a security breach, and such notice or public disclosure is required in
the future, our reputation and our business may be harmed.
Except for limited information voluntarily submitted by users of our website, we typically do not collect or store consumer data or
personal information, although we do share information to third-party providers to provide consumer advertising. However, third-party
providers, including our licensees, contract manufacturers, e-commerce contractors and third-party sellers may do so. The website
operations of such third parties may be affected by reliance on other third-party hardware and software providers, technology changes,
risks related to the failure of computer systems through which these website operations are conducted, telecommunications failures, data
security breaches and similar disruptions.
If we or our third-party providers fail to maintain or protect our respective information technology systems and data integrity
effectively, fail to implement new systems, update or expand existing systems, fail to provide necessary privacy law disclosures or fail to
anticipate, plan for or manage significant disruptions to or compromises of systems involved in our operations, we could:
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lose existing customers;
have difficulty preventing, detecting, and controlling fraud;
have disputes with customers, suppliers, distributors or others;
be subject to regulatory sanctions, including sanctions stemming from violations of the Health Insurance Portability and
Accountability Act of 1996 or other federal or state privacy laws;
suffer reputational harm, and
incur unexpected costs to remediate any unauthorized access of our systems and implement protective measures against future
attacks.
Because of these possible outcomes we could incur increases in operating expenses and our results of operations could be
materially and adversely affected. While we maintain insurance against losses related to unauthorized access to our systems, there can be
no assurance our level of coverage will be sufficient to address the losses we sustain.
Regulatory Risks and Litigation Risks
All of our products must comply with federal, state and local regulations. Any non-compliance with the FDA or other applicable
regulations could harm our business.
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Our products must comply with various rules and regulations, including those regarding product manufacturing, food safety,
required testing and appropriate labeling of our products. The FDA has not defined nutrient content claims regarding low-carbohydrates,
but it has not objected to using net carbohydrate information on food labels if the label adequately explains how the term is used so it
would not be false or misleading to consumers. The FDA requires all carbohydrates per serving to be listed on the Nutrition Facts Panel
(“NFP”) of a package. Besides the information on the NFP, we use the term “net carbohydrate” (or “net carbs”) on our existing product
packaging. We determine the number of net carbs in a serving by subtracting fiber, and sugar alcohols if any, from the total carbohydrates
listed on the NFP. It is possible that FDA regulations and/or their interpretations may materially change related to, for example, definitions
of certain of our core ingredients, such as fiber, labeling requirements for describing other ingredients or nutrients, such as sugar alcohols
or protein, or disclosures of any ingredient labeled as genetically modified (“GMO”). As such, there is a risk that our products could
become non-compliant with the FDA’s regulations, and any such non-compliance could harm our business.
In addition, if FDA or other regulations restrict us from labeling and marketing certain ingredients or product attributes, such as
fiber or “net carb” count, we may not effectively reach our target demographics, promote what we believe to be the benefits of our
products or communicate that our products are composed of what we consider to be low-carb, low-sugar and protein-rich ingredients.
We must rely on the contract manufacturers we engage to produce our products to maintain compliance with applicable regulatory
requirements. Although we require our contract manufacturers to be compliant with regulatory requirements, we do not have direct control
over such facilities. Failure of our contract manufacturers to comply with applicable regulation could have a material and adverse effect on
our ability to sell our products to our customers and our results of operations.
Conflicts between state and federal law regarding definitions of our core ingredients, and labeling requirements, may lead to non-
compliance with state and local regulations. For example, certain states may maintain narrower definitions of certain ingredients, and more
stringent labeling requirements, of which we are unaware. Any non-compliance at the state or local level could materially and adversely
affect our business, financial condition and results of operations.
Our advertising is regulated for accuracy, and if our advertising is determined to be false or misleading, we may face fines or sanctions.
Our advertising is subject to regulation by the FTC under the Federal Trade Commission Act, which prohibits dissemination of
false or misleading advertising. In addition, the National Advertising Division of the Council of Better Business Bureaus, Inc., which we
refer to as NAD, administers a self-regulatory program of the advertising industry to ensure truth and accuracy in national advertising.
NAD both monitors national advertising and entertains inquiries and challenges from competing companies and consumers. Should our
advertising be determined to be false or misleading, we may have to pay damages, revise or withdraw our campaign and possibly face fines
or sanctions, which could have a material adverse effect on our sales and operating results.
Changes in the legal and regulatory environment could limit our business activities, increase our operating costs, reduce demand for
our products or result in litigation.
Elements of our business, including the production, storage, distribution, sale, display, advertising, marketing, labeling, health and
safety practices, transportation and use of many of our products, are subject to various laws and regulations administered by federal, state
and local governmental agencies in the United States, and the laws and regulations administered by government entities and agencies
outside the United States in markets in which our products or components thereof, such as core ingredients and packaging, may be made,
manufactured or sold. These laws, regulations and interpretations thereof may change, sometimes dramatically, because of a variety of
factors, including political, economic or social events. Such factors may include changes in:
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food and drug laws (including FDA regulations);
laws related to product labeling, advertising and marketing practices;
laws and programs restricting the sale and advertising of certain of our products;
laws and programs aimed at reducing, restricting or eliminating ingredients present in certain of our products;
laws and programs aimed at reducing, restricting or eliminating ingredients or packaging present in certain of our products to
meet government objectives to combat climate change or certain labor practices;
laws and programs aimed at discouraging the consumption of products or ingredients or altering the package or portion size of
certain of our products;
state consumer protection and disclosure laws;
taxation requirements, including the imposition or proposed imposition of new or increased taxes or other limitations on the sale
of our products; competition laws;
anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), and the UK Bribery
Act of 2010 (the “Bribery Act”);
economic sanctions and anti-boycott laws, including laws administered by the U.S. Department of Treasury, Office of Foreign
Assets Control (“OFAC”) and the European Union (“EU”);
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laws relating to export, re-export, transfer, tariffs and import controls, including the Export Administration Regulations, the EU
Dual Use Regulation and the customs and import laws administered by the U.S. Customs and Border Protection and other local
governments where are contract manufacturers are located;
employment laws;
privacy laws;
laws regulating the price we may charge for our products;
regulatory requirements from any required disclosures related to climate change; and
farming, transportation and environmental laws.
New laws, regulations or governmental policies and their related interpretations, or changes in any of the foregoing, including
taxes, tariffs or other limitations on the sale of our products, ingredients in our products or commodities used in the production of our
products, may alter the environment in which we do business and, therefore, may affect our operating results or increase our costs or
liabilities. In addition, if we fail to adhere to such laws and regulations, we could be subject to regulatory investigations, civil or criminal
sanctions, and class action litigation, which has increased in the industry in recent years.
Litigation or legal proceedings could expose us to significant liabilities and have a negative effect on our reputation.
Occasionally, we may defend against various claims and litigation. We evaluate these claims and litigation, assess the likelihood
of unfavorable outcomes, and estimate, if possible, potential losses when appropriate. We may establish reserves, as appropriate based on
the information available to management at the time. These assessments and estimates involve a significant amount of management
judgment and may differ materially from actual outcomes.
There is an additional risk that potential litigation may lead to adverse publicity, consumer confusion, distrust and additional
legal challenges for us. Should we become subject to related or additional unforeseen lawsuits, including claims related to our products,
labeling or advertising, which may vary under state and federal rules and regulations, consumers may avoid purchasing our products or
seek alternative products, even if the basis for the claims against us is unfounded.
Risks Related to our Capital Structure
Our indebtedness could materially and adversely affect our financial condition and ability to operate our company, and we may incur
additional debt.
As of August 26, 2023, we had approximately $285 million in outstanding term loan indebtedness and a revolving credit facility
with availability of up to $75 million with no amounts drawn on that revolving credit facility. Our current and future debt level and the
terms of our debt arrangements could materially and adversely affect our financial condition and limit our ability to successfully implement
our growth strategies. In addition, under the credit facilities governing our indebtedness, we have granted the lenders a security interest in
substantially all of our assets, including the assets of our subsidiaries and an affiliate.
Our ability to meet our debt service obligations will depend on our future performance, which will be affected by the other risk
factors described herein. If we do not generate enough cash flow to pay our debt service obligations, we may have to refinance all or part
of our existing debt, sell our assets, borrow more money or raise equity. We may not be able to take any of these actions timely, on terms
satisfactory to us, or at all.
The credit facilities governing our debt arrangements contain financial and other covenants.
The credit facilities governing our existing debt arrangements contain certain financial and other covenants. Our revolving credit
facility has a maximum total net leverage ratio equal to or less than 6.00:1.00 contingent on credit extensions in excess of 30% of the total
amount of commitments available under the revolving credit facility, and limitations on our ability to, among other things, incur and/or
undertake asset sales and other dispositions, liens, indebtedness, certain acquisitions and investments, consolidations, mergers,
reorganizations and other fundamental changes, payment of dividends and other distributions to equity and warrant holders, and
prepayments of material subordinated debt, in each case, subject to customary exceptions materially consistent with credit facilities of such
type and size. Any failure to comply with the restrictions of the credit facilities may cause an event of default. The credit facilities
governing our existing debt arrangements bear interest at variable rates. If market interest rates increase, variable rate debt will create
higher debt service requirements, which could materially and adversely affect our cash flow.
Changes in interest rates may adversely affect our earnings and cash flows.
Our indebtedness under our revolving credit facility bears interest at variable interest rates that use the Secured Overnight
Financing Rate (“SOFR”) as a benchmark rate. SOFR is calculated based on short-term repurchase agreements, backed by Treasury
securities. SOFR is observed and backward looking, which stands in contrast with the London Inter-Bank Offered Rate (“LIBOR”) under
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the previous methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting
panel members. Given that SOFR is a secured rate backed by government securities, it is a rate that does not take into account bank credit
risk, as was the case with LIBOR. SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of
financial institutions. Because of these and other differences, there is no assurance that SOFR will perform in the same way as LIBOR
would have performed at any time, and there is no guarantee that it is a comparable substitute for LIBOR. Whether or not SOFR attains
market traction as a LIBOR replacement tool remains in question
At this time, it is not possible to predict the effect of any establishment of alternative reference rates or any other reforms that may
be enacted in the United Kingdom or elsewhere. Uncertainty as to the nature of such potential changes, alternative reference rates,
including SOFR, or other reforms may adversely affect the trading market for LIBOR- or SOFR-based securities, including ours. As a
result, our interest expense may increase, our ability to refinance some or all of our existing indebtedness may be affected, and our
available cash flow may be adversely affected.
We may need additional capital in the future, and it may not be available on acceptable terms or at all.
We have historically relied upon cash generated by our operations to fund our operations and strategy. We may also need to
access the debt and equity capital markets, however, these sources of financing may not be available on acceptable terms, or at all. Our
ability to obtain additional financing will be subject to several factors, including market conditions, our operating performance, investor
sentiment and our ability to incur additional debt in compliance with agreements governing our outstanding debt. These factors may make
the timing, amount, terms or conditions of additional financing unattractive to us. If we cannot generate sufficient funds from operations or
raise additional capital, our growth could be impeded.
We have incurred and will continue to incur significant costs because of operating as a public company, and our management has been
and will continue to be required to devote substantial time to compliance efforts.
We have incurred and expect to continue to incur significant legal, accounting, insurance and other expenses because of being a
public company. The Dodd-Frank Wall Street Reform and Customer Protection Act (the “Dodd-Frank Act”) and the Sarbanes-Oxley Act
of 2002 (the “Sarbanes-Oxley Act”), and related rules implemented by the SEC and listing exchange rules and requirements, have required
changes in corporate governance practices of public companies. In addition, rules that the SEC is implementing or is required to implement
pursuant to the Dodd-Frank Act are expected to require additional changes. Compliance with these and other similar laws, rules and
regulations, including compliance with Section 404 of the Sarbanes-Oxley Act (“Section 404”), has and will continue to substantially
increase expense, including our legal and accounting costs, and make some activities more time-consuming and costly. We may be unable
to hire, train or retain necessary staff and may be reliant on engaging outside consultants or professionals, which could adversely affect our
business if our internal infrastructure is inadequate to fulfill our public company obligations. These laws, regulations and rules, including
new compensation clawback rules, could also make it more expensive for us to obtain director and officer liability insurance and we may
be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These
laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our
board committees or as our executive officers.
In addition, more investors and other market professionals are expecting more detailed environmental, social and governance or
ESG reporting from public companies of our size that are currently produced by public companies with human and financial resources that
are greater than ours. Furthermore, the SEC has proposed rule changes that would require registrants to include certain climate-related
disclosures, including greenhouse gas emission data with third-party attestation and climate-related financial statement metrics in a note to
their audited financial statements. These SEC proposals related to the enhancement and standardization of climate-related disclosures may
require us to change our accounting policies, to alter our operational policies and to implement new or enhance existing systems so that
they reflect new or amended financial reporting standards, or to restate our published financial statements. Such changes may have an
adverse effect on our business, financial position and operating results, or cause an adverse deviation from our revenue and operating profit
targets, which may negatively affect our financial results.
As a result, we expect to incur additional expenses to meet these reporting expectations as well as any climate related reporting
mandated in the future by government regulations.
If we cannot implement appropriate systems, procedures and controls, we may not be able to successfully procure, offer or ship our
products, grow our business and account for transactions in an appropriate and timely manner.
Our ability to successfully offer our products, grow our business and account for transactions in an appropriate and timely manner
requires an effective planning and management process and certain other automated management and accounting systems. We have an
integrated enterprise resource planning system and certain other automated management and accounting systems. We periodically update
our operations and financial systems, procedures and controls; however; we still rely on certain manual processes and procedures that may
not scale proportionately with our business growth. Our systems will continue to require automation, modifications and improvements to
29
respond to current and future changes in our business. Failure to implement promptly appropriate internal systems, procedures and controls
could materially and adversely affect our business, financial condition and results of operations.
If we do not maintain effective internal control over financial reporting, we may not be able to accurately report our financial results in
a timely manner or prevent fraud, which may adversely affect investor confidence in our financial reporting and adversely affect our
business and operating results and the market price for our common stock.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports. In May 2021 we
identified a material weakness in our internal control over financial reporting. In the future, we may discover areas of our internal control
over financial reporting that need improvement. In addition, our internal financial and accounting team is leanly staffed, which can lead to
inefficiencies regarding segregation of duties. If we fail to properly and efficiently maintain an effective internal control over financial
reporting, we could fail to report our financial results accurately.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or
detected on a timely basis. Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud.
Remediation measures may from time to time be time consuming and costly and there is no assurance that the remedial measures we have
taken to date, or any remedial measures we may take in the future, will be sufficient to avoid potential future material weaknesses. A
material weakness will not be considered remediated until a sustained period of time has passed to allow management to test the design
and operational effectiveness of the corrective actions.
We may identify material weaknesses in the future, which could limit our ability to prevent or detect a material misstatement of
our annual or interim financial statements. The occurrence of, or failure to remediate, any material weakness we have identified or any
other material weakness could result in our failure to maintain compliance with legal requirements, including Section 404 of the Sarbanes-
Oxley Act and rules regarding timely filing of periodic reports, in addition to applicable stock exchange listing requirements, could cause
investors to lose confidence in our financial reporting and could have an adverse effect on our the market price of our common stock.
Our only significant asset is ownership of 100% of Atkins Intermediate Holdings, LLC and such ownership may not be sufficient to pay
dividends or make distributions or loans to enable us to pay any dividends on our common stock or satisfy our other financial
obligations.
We have no direct operations and no significant assets other than the direct ownership of 100% of Atkins Intermediate Holdings,
LLC. We currently depend on Atkins Intermediate Holdings, LLC for distributions, loans and other payments to generate the funds
necessary to meet our financial obligations and to pay any dividends regarding our common stock. Legal and contractual restrictions in
agreements governing our debt arrangements and future indebtedness of Atkins Intermediate Holdings, LLC, and the financial condition
and operating requirements of Atkins Intermediate Holdings, LLC, may limit our ability to obtain funds in a timely manner from Atkins
Intermediate Holdings, LLC. The earnings from, or other available assets of, Atkins Intermediate Holdings, LLC may not be sufficient to
pay dividends, make distributions or loans to enable us to pay any dividends on our common stock, or satisfy our other financial
obligations.
Risks Related to our Common Stock
Our stock price may be volatile.
Our common stock is traded on the Nasdaq Capital Market (“Nasdaq”). The market price of our common stock has fluctuated in
the past and could fluctuate substantially in the future, based on a variety of factors, including future announcements covering us or our
key customers or competitors, government regulations, litigation, changes in earnings estimates by analysts, fluctuations in quarterly
operating results or general conditions in our industry and may be exacerbated by historical limited trading volume in our common stock.
Furthermore, stock prices for many companies fluctuate widely for reasons that may be unrelated to their operating results. Those
fluctuations and general economic, political and market conditions, such as recessions or international currency fluctuations and demand
for our services, may adversely affect the market price of our common stock.
We do not expect to declare any dividends in the foreseeable future.
We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently,
investors may need to rely on sales of their shares of common stock after the price has appreciated, which may never occur, as the only
way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.
30
There may be future sales or other dilution of the Company’s equity, which may adversely affect the market price of our common stock.
We are not generally restricted from issuing additional shares of common stock, or any securities convertible into or exchangeable
for, or that represent the right to receive, shares of common stock. Issuing any additional shares of common stock or preferred shares or
securities convertible into, exchangeable for or that represent the right to receive shares of common stock or the exercise of such securities
could be substantially dilutive to holders of our common stock.
The market price of our common stock could decline because of sales of our common stock made in the future or the perception
that such sales could occur. Because our decision to issue securities in any future offering will depend on market conditions and other
factors beyond our control, we cannot predict or estimate the amount, timing or nature of future offerings, if any. Thus, our stockholders
bear the risk of future offerings reducing the market price of our common stock and diluting their holdings in the Company.
Anti-takeover provisions in our amended and restated certificate of incorporation and second amended and restated bylaws, and
provisions of Delaware law, could impair a takeover attempt.
Our amended and restated certificate of incorporation and second amended and restated bylaws contain provisions that may
discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. We are also subject to anti-takeover
provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may make the removal of
management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market
prices for our securities. These provisions include:
•
•
•
•
•
•
•
•
no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
the right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the
resignation, death, or removal of a director in certain circumstances, which prevents stockholders from filling vacancies on our
board of directors;
the ability of our board of directors to determine whether to issue shares of our preferred stock and to determine the price and
other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to
significantly dilute the ownership of a hostile acquirer;
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting
of our stockholders;
a prohibition on stockholders calling a special meeting, which forces stockholder action to be taken at an annual meeting of our
stockholders or at a special meeting of our stockholders called by the chairman of the board or the chief executive officer pursuant
to a resolution adopted by a majority of the board of directors;
the requirement that a meeting of stockholders may be called only by the board of directors, which may delay the ability of our
stockholders to force consideration of a proposal or to take action, including the removal of directors;
providing that directors may be removed prior to the expiration of their terms by stockholders only for cause and upon the
affirmative vote of a majority of the voting power of all outstanding shares of the combined company; and,
advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to
propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting
a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
Other Risks
Disruptions in the worldwide economy may materially and adversely affect our business, financial condition and results of operations.
Adverse and uncertain economic conditions, such as those caused by the inflationary environment first experienced in fiscal year
2022 and which continued in fiscal year 2023, geopolitical events and COVID-19, have, in the past affected, and, in the future, may affect
distributor, retailer and consumer demand for our products. In addition, our ability to manage normal commercial relationships with our
suppliers, contract manufacturers, distributors, retailers, consumers and creditors may suffer. Consumers may shift purchases to lower-
priced or other perceived value offerings during economic downturns and periods of high inflation, making it more difficult to sell our
premium products. Due to the relative costs of our products, during economic downturns and periods of high inflation, it may be more
difficult to convince consumers to switch to or continue to use our brands or convince new users to choose our brands without expensive
sampling programs and price promotions. In addition, consumers may choose to purchase private-label products rather than branded
products because they are generally less expensive. Distributors and retailers may become more conservative in their ordering in response
to these conditions and seek to reduce their inventories. Our results of operations depend on, among other things, our ability to maintain
and increase sales volume with our existing distributors and retailers, to attract new consumers and to provide products that appeal to
31
consumers at prices they are willing and able to pay. Prolonged unfavorable economic conditions may have an adverse effect on our sales
and profitability.
Our international operations expose us to regulatory, economic, political and social risks in the countries in which we operate.
The international nature of our operations involves several risks, including changes in U.S. and foreign regulations, tariffs, taxes
and exchange controls, economic downturns, inflation and political and social instability in the countries in which we operate and our
dependence on foreign personnel. Moreover, although our products in our foreign operations typically mirror those in the United States,
consumers outside the United States may have different tastes, preferences, nutritional approaches and perceptions of our brands and
business operations than U.S. consumers. Our international business is small compared to our U.S. business, and as a result, our operations
are more spread out which can add to our costs and limit our ability to react effectively and timely to adverse events. We cannot be certain
that we can enter and successfully compete in additional foreign markets or that we can continue to compete in the foreign markets in
which we currently operate.
Doing business outside the United States requires us to comply with the laws and regulations of the U.S. government and various
foreign jurisdictions, which place restrictions on our operations, trade practices, partners and investment decisions. In particular, our
operations are subject to U.S. and foreign anti-corruption and trade control laws and regulations, such as the FCPA, export controls and
economic sanctions programs, including those administered by the OFAC. Because of doing business in foreign countries and with foreign
partners, we are exposed to a heightened risk of violating anti-corruption and trade control laws and sanctions regulations. The FCPA
prohibits us from providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any
improper business advantage.
Our continued expansion outside the United States, including in developing countries, and our development of new partnerships
and joint venture relationships worldwide, could increase the risk of FCPA, OFAC or other sanctions violations in the future. Violations of
anti-corruption and trade control laws and sanctions regulations may cause reputational damage and are punishable by civil penalties,
including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or
restrictions of licenses, and criminal fines and imprisonment.
Finally, our business could be negatively affected by changes in the U.S. and Canadian political environments, in particular. We
operate primarily in the U.S. and Canada and we ship a large number of products between the U.S. and Canada. Adverse changes to trade
agreements, import or export regulations, customs duties or tariffs by either or both governments may have a negative effect on our
business, financial conditions and results of operations.
Our international operations expose us to fluctuations in exchange rates, which may materially and adversely affect our operating
results.
We source large quantities of our core ingredients from foreign suppliers, and as a result, any material upward movement in
foreign exchange rates relative to the U.S. dollar will adversely affect our profitability. Furthermore, the substantial majority of our
revenue is generated domestically, while a substantial portion of our third-party manufacturing is completed in Canada. Any U.S. dollar
weakness may therefore materially and adversely affect revenue and cash flows while also increasing supply and manufacturing costs.
Our amended and restated certificate of incorporation provides that, to the extent allowed by law, the doctrine of “corporate
opportunity” does not apply with respect to the directors, officers, employees or representatives of Conyers Park Sponsor, LLC
(“Conyers Park Sponsor”) Centerview Capital Holdings LLC (“Centerview Capital”) and Centerview Partners and their respective
affiliates, excepted as provided below.
The doctrine of corporate opportunity generally provides that a corporate fiduciary may not develop an opportunity using
corporate resources, acquire an interest adverse to that of the corporation or acquire property that is reasonably incident to the present or
prospective business of the corporation or in which the corporation has a present or expectancy interest, unless that opportunity is first
presented to the corporation and the corporation chooses not to pursue that opportunity. The doctrine of corporate opportunity is intended
to preclude officers, directors or other fiduciaries from personally benefiting from opportunities that belong to the corporation. Our
amended and restated certificate of incorporation provides that, to the extent allowed by law, the doctrine of “corporate opportunity” does
not apply with respect to the directors, officers, employees or representatives of Centerview Capital, Centerview Partners, our original
sponsor, and their respective affiliates. The doctrine of corporate opportunity shall apply with respect to any of our directors or officers
with respect to a corporate opportunity that was offered in writing to such person solely in his or her capacity as our director or officer and
such opportunity is one which they are legally and contractually permitted to undertake and would otherwise be reasonable for us to
pursue. Therefore, except as provided above, these parties have no duty to communicate or present corporate opportunities to us, and have
the right to either hold any corporate opportunity for their (and their affiliates’) own account and benefit or to recommend, assign or
otherwise transfer such corporate opportunity to persons other than us.
32
As a result, certain of our stockholders, directors and their respective affiliates are not prohibited from operating or investing in
competing businesses. We therefore may find ourselves in competition with certain of our stockholders, directors or their respective
affiliates, and we may not know of, or be able to pursue, transactions that could potentially be beneficial to us. Accordingly, we may lose a
corporate opportunity or suffer competitive harm, which could negatively affect our business or prospects.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity
Not applicable
Item 2. Properties.
Our corporate headquarters is located at 1225 17th Street, Suite 1000, Denver, CO 80202. We lease this property, which occupies
approximately 27,600 square feet. In addition, we lease or otherwise have rights to use office space and storage space in El Segundo,
California, Broomfield, Colorado, Bentonville metro-area, Arkansas, and Naples, Florida. We also lease two distribution centers in
Greenfield, Indiana. We utilize over 1.29 million square feet of floor space among our distribution centers.
Item 3. Legal Proceedings.
From time to time, we have been and may again become involved in legal proceedings arising in the ordinary course of our
business. We are not presently a party to any litigation that we believe to be material and we are not aware of any pending or threatened
litigation against us that we believe could have a material adverse effect on our business, operating results, financial condition or cash
flows.
Item 4. Mine Safety Disclosures.
Not applicable.
33
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information and Holders
Our common stock is currently quoted on the Nasdaq Capital Market under the symbol “SMPL.”
As of October 18, 2023, there were 99,603,880 shares outstanding and 13 record holders of our common stock.
Dividends
We currently do not pay dividends and have not paid any cash dividends on our common stock to date. We currently intend to
retain our future earnings to finance the development and expansion of our business and as such, we do not expect to pay any cash
dividends on our common stock in the foreseeable future. The payment of future dividends, if any, will be at the discretion of our Board of
Directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in current and/or
future financing instruments, provisions of applicable law, and any other factors our Board of Directors deems relevant.
Issuer Purchases of Equity Securities
We adopted a $50.0 million stock repurchase program on November 13, 2018. On April 13, 2022 and October 21, 2022, we
announced that our Board of Directors had approved the addition of $50.0 million and $50.0 million, respectively, to our stock repurchase
program, resulting in authorized stock repurchases of up to an aggregate of $150.0 million. We did not repurchase any shares of our
common stock under our stock repurchase program during the quarter ended August 26, 2023. As of August 26, 2023, approximately
$71.5 million remained available under the stock repurchase program. Under the stock repurchase program, we may repurchase shares
from time to time in the open market or in privately negotiated transactions. The stock repurchase program does not obligate us to acquire
any specific number of shares or acquire shares over any specific period of time. We may suspend or discontinue the stock repurchase
program at any time, and the stock repurchase program does not have an expiration date.
34
Performance Graph
The following stock performance graph compares the cumulative total stockholder return over the last five fiscal years for (i) the
Company’s common stock, (ii) the Standard & Poor’s 500 Index, and (iii) the Standard & Poor’s 500 Packaged Foods & Meats Index. The
graph assumes the value of the investment in our common stock and each index was $100.00 on August 25, 2018 and assumes
reinvestment of any dividends.
The stock price performance below is not necessarily indicative of future stock price performance.
$300.00
$275.00
$250.00
$225.00
$200.00
$175.00
$150.00
$125.00
$100.00
$75.00
$50.00
$25.00
$0.00
August 25, 2018
August 31, 2019
August 29, 2020
August 28, 2021
August 27, 2022
August 26, 2023
The Simply Good Foods Company
S&P 500 Index
S&P 500 Packaged Foods & Meats Index
Annual Return Percentage
Fiscal Years Ending
Company Name / Index
The Simply Good Foods Company
S&P 500 Index
S&P 500 Packaged Foods & Meats Index
August 25, 2018 August 31, 2019 August 29, 2020 August 28, 2021 August 27, 2022 August 26, 2023
$
$
$
100.00 $
164.79 $
141.21 $
196.61 $
175.25 $
100.00 $
101.80 $
122.03 $
156.86 $
141.15 $
100.00 $
107.49 $
116.37 $
116.07 $
129.17 $
191.66
153.26
123.53
Item 6. Reserved.
Not applicable.
35
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
Consolidated Financial Statements and related notes included in Item 8 of this Report. In addition to historical information, the following
discussion contains forward-looking statements, including, but not limited to, statements regarding the Company’s expectation for future
performance, liquidity and capital resources that involve risks, uncertainties and assumptions that could cause actual results to differ
materially from the Company’s expectations. The Company’s actual results may differ materially from those contained in or implied by
any forward-looking statements. Factors that could cause such differences include those identified below and those described in
“Cautionary Note Regarding Forward-Looking Statements,” and in Item 1A “Risk Factors” of this Report. The Company assumes no
obligation to update any of these forward-looking statements.
Our fiscal year ends the last Saturday in August. Our fiscal years 2023, 2022, and 2021 ended August 26, 2023, August 27, 2022,
and August 28, 2021, respectively, and were each fifty-two week periods. Our fiscal quarters are comprised of thirteen weeks each, except
for fifty-three week fiscal periods for the which the fourth quarter is comprised of fourteen weeks, and end on the thirteenth Saturday of
each quarter (fourteenth Saturday of the fourth quarter, when applicable). Our fiscal quarters for fiscal 2023 ended on
November 26, 2022, February 25, 2023, May 27, 2023 and August 26, 2023.
Unless the context requires otherwise in this Report, the terms “we,” “us,” “our,” the “Company” and “Simply Good Foods”
refer to The Simply Good Foods Company and its subsidiaries.
Overview
The Simply Good Foods Company is a consumer packaged food and beverage company that aims to lead the nutritious snacking
movement with trusted brands that offer a variety of convenient, innovative, great-tasting, better-for-you snacks and meal replacements, as
well as other product offerings. The product portfolio we develop, market and sell consists primarily of protein bars, ready-to-drink
(“RTD”) shakes, sweet and salty snacks and confectionery products marketed under the Atkins® and Quest® brand names. We believe
Simply Good Foods is poised to expand its wellness platform through innovation and organic growth along with acquisition opportunities
in the nutritional snacking space.
Our nutritious snacking platform consists of brands that specialize in providing products for consumers that follow certain
nutritional philosophies and health-and-wellness trends: Atkins® for those following a low-carb lifestyle and Quest® for consumers
seeking a variety of protein-rich foods and beverages that also limit sugars and simple carbs. We distribute our products in major retail
channels, primarily in North America, including grocery, club, and mass merchandise, as well as through e-commerce, convenience,
specialty, and other channels. Our portfolio of nutritious snacking brands gives us a strong platform with which to introduce new products,
expand distribution, and attract new consumers to our products.
Business Trends
Our consolidated results of operations for the fiscal year ended August 26, 2023 improved from the end of fiscal year 2022,
driven by net sales growth, while navigating a challenging supply chain environment, inflation, and macroeconomic uncertainty. We
continue to actively monitor the dynamic macroeconomic inflationary environment in the United States and elsewhere, elevated levels of
supply chain costs, and consumer behavior. Current or future governmental policies may increase the risk of inflation and possible
economic recession, which could further increase the costs of ingredients, packaging, logistics and finished goods for our business as well
as negatively effect consumer behavior and demand for our products.
Our business performance for the fiscal year ended August 26, 2023 was affected by unfavorable raw material costs, higher co-
manufacturing costs, and supply chain challenges, including supply chain disruptions resulting from labor shortages and disruptions in
sourcing ingredients. The supply chain environment showed signs of improvement during the year and we expect to see improvement
during fiscal year 2024 in the overall cost environment and in our gross margin.
We have continued to proactively engage with our retail customers, contract manufacturers, and logistics and transportation
providers, to meet demand for our products and to remain informed of any challenges within our business operations. Additionally, we
instituted price increases effective in the first and fourth quarters of fiscal year 2022. Management believes these price increases and
additional cost savings initiatives have partially offset the unfavorable supply chain cost pressures discussed above.
Based on information available to us as of the date of this Report, we believe we will be able to deliver products at acceptable
levels to fulfill customer orders on a timely basis; therefore, we expect our products will continue to be available for purchase to meet
consumer meal replacement and snacking needs for the foreseeable future. We continue to monitor customer and consumer demand along
with our supply chain and logistics capabilities and intend to adapt our plans as needed to continue to drive our business and meet our
obligations.
36
Please also see the information under Item 1A. “Risk Factors” for additional information regarding the risks of inflation, higher
raw material, packaging, co-manufacturing, and logistics costs, and supply chain challenges.
Our Reportable Segment
For each of the fifty-two weeks ended August 26, 2023 and August 27, 2022, we determined our operations are organized into
one, consolidated operating segment and reportable segment based on the following:
•
•
•
Our Atkins® and Quest® brands are closely aligned in the nature of our production processes, the brands’ product offerings, and
the methods used to distribute our products to customers;
Our organizational structure is designed to support entity-wide business functions across brands, products, customers, and
geographic regions; and,
Our chief operating decision maker reviews operating results and forecasts at the consolidated level.
Previously, during the fifty-two weeks ended August 28, 2021, we had two operating segments, Atkins and Quest, which were
aggregated into one reporting segment due to similar financial, economic and operating characteristics.
Key Financial Definitions
Net sales. Net sales consist primarily of product sales less the cost of promotional activities, slotting fees and other sales credits
and adjustments, including product returns.
Cost of goods sold. Cost of goods sold consists primarily of the costs we pay to our contract manufacturing partners to produce
the products sold. These costs include the purchase of raw ingredients, packaging, shipping and handling, warehousing, depreciation of
warehouse equipment, and a tolling charge for the contract manufacturer. Cost of goods sold includes products provided at no charge as
part of promotions and the non-food materials provided with customer orders.
Operating expenses. Operating expenses consist primarily of selling and marketing, general and administrative, and depreciation
and amortization expense. The following is a brief description of the components of operating expenses:
•
•
•
Selling and marketing. Selling and marketing expenses comprise broker commissions, customer marketing, media and other
marketing costs.
General and administrative. General and administrative expenses comprise expenses associated with corporate and administrative
functions that support our business, including employee compensation, stock-based compensation, professional services,
integration costs, restructuring costs, insurance and other general corporate expenses.
Depreciation and amortization. Depreciation and amortization costs consist of costs associated with the depreciation of fixed
assets and capitalized leasehold improvements and amortization of intangible assets.
Results of Operations
During the fifty-two weeks ended August 26, 2023, our net sales increased $74.0 million, or 6.3%, to $1,242.7 million compared
to net sales of $1,168.7 million for the fifty-two weeks ended August 27, 2022. Unfavorable raw material, packaging, and co-
manufacturing costs and supply chain challenges in the fifty-two weeks ended August 26, 2023 resulted in decreased gross profit margin as
compared to the fifty-two weeks ended August 27, 2022. As previously discussed above in “Business Trends,” while we expect
inflationary cost pressures and supply chain challenges will continue, we do expect to see improvement during fiscal year 2024 in the
overall cost environment and in our gross margin.
In assessing the performance of our business, we consider a number of key performance indicators used by management and
typically used by our competitors, including the non-GAAP measures EBITDA and Adjusted EBITDA. Because not all companies use
identical calculations, this presentation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of
other companies. See “Reconciliation of EBITDA and Adjusted EBITDA” below for a reconciliation of EBITDA and Adjusted EBITDA
to net income for each applicable period.
A discussion regarding our financial condition and results of operations for the fifty-two weeks ended August 26, 2023 compared
to the fifty-two weeks ended August 27, 2022 is presented below. A discussion regarding our financial condition and results of operations
for the fifty-two weeks ended August 27, 2022 compared to the fifty-two weeks ended August 28, 2021 can be found under Item 7 of our
Annual Report on Form 10-K for the fiscal year ended August 27, 2022, filed with the SEC on October 21, 2022.
37
Comparison of Results for the Fifty-Two Weeks Ended August 26, 2023 and the Fifty-Two Weeks Ended August 27, 2022
The following table presents, for the periods indicated, selected information from our consolidated financial results, including
information presented as a percentage of net sales:
(In thousands)
Net sales
Cost of goods sold
Gross profit
Operating expenses:
Selling and marketing
General and administrative
Depreciation and amortization
Total operating expenses
Income from operations
Other income (expense):
Interest income
Interest expense
Loss in fair value change of warrant liability
(Loss) gain on foreign currency transactions
Other expense
Total other expense
Income before income taxes
Income tax expense
Net income
Other financial data:
52-Weeks Ended
August 26, 2023
% of Net
Sales
52-Weeks Ended
August 27, 2022
% of Net
Sales
$
1,242,672
100.0 % $
1,168,678
100.0 %
789,252
63.5 %
453,420
36.5 %
723,117
445,561
61.9 %
38.1 %
119,489
111,566
17,416
9.6 %
9.0 %
1.4 %
121,685
10.4 %
103,832
17,285
8.9 %
1.5 %
248,471
20.0 %
242,802
20.8 %
204,949
16.5 %
202,759
17.3 %
1,144
0.1 %
(30,068)
(2.4) %
—
(344)
11
— %
— %
— %
15
(21,881)
(30,062)
191
(453)
— %
(1.9) %
(2.6) %
— %
— %
(29,257)
(2.4) %
(52,190)
(4.5) %
175,692
14.1 %
150,569
12.9 %
42,117
3.4 %
$
133,575
10.7 % $
41,995
108,574
3.6 %
9.3 %
Adjusted EBITDA (1)
20.0 %
(1) Adjusted EBITDA is a non-GAAP financial metric. See “Reconciliation of EBITDA and Adjusted EBITDA” below for a reconciliation of net
19.8 % $
234,043
245,555
$
income to EBITDA and Adjusted EBITDA for each applicable period.
Net sales. Net sales of $1,242.7 million represented an increase of $74.0 million, or 6.3%, for the fifty-two weeks ended
August 26, 2023 compared to the fifty-two weeks ended August 27, 2022. The increase was primarily attributable to the price increase
effective in the fourth quarter of fiscal year 2022, which drove growth of 6.6% in North America net sales for the fifty-two weeks ended
August 26, 2023 compared to the fifty-two weeks ended August 27, 2022. The increase in North America net sales was partially offset by a
3.8% decline in our international business and a 0.6% headwind to net sales growth related to our shift from direct sales to licensing the
Quest® frozen pizza business in the third quarter of fiscal year 2022.
Cost of goods sold. Cost of goods sold increased $66.1 million, or 9.1%, for the fifty-two weeks ended August 26, 2023 compared
to the fifty-two weeks ended August 27, 2022. The cost of goods sold increase was primarily driven by higher raw material, packaging and
logistics costs.
Gross profit. Gross profit of $453.4 million increased $7.9 million, or 1.8%, for the fifty-two weeks ended August 26, 2023
compared to the fifty-two weeks ended August 27, 2022. Gross profit as a percentage of net sales was 36.5% for the fifty-two weeks ended
August 26, 2023, a decrease of 160 basis points from 38.1% of net sales for the fifty-two weeks ended August 27, 2022. This decrease in
gross profit margin was primarily driven by unfavorable raw material, packaging, and co-manufacturing costs and supply chain challenges,
partially offset by the price increase effective in the fourth quarter of fiscal year 2022.
Operating expenses. Operating expenses increased $5.7 million, or 2.3%, for the fifty-two weeks ended August 26, 2023
compared to the fifty-two weeks ended August 27, 2022 due to the following:
38
•
•
•
Selling and marketing. Selling and marketing expenses decreased $2.2 million, or 1.8%, for the fifty-two weeks ended August 26,
2023 compared to the fifty-two weeks ended August 27, 2022, primarily related to a reduction in marketing spend.
General and administrative. General and administrative expenses increased $7.7 million, or 7.4%, for the fifty-two weeks ended
August 26, 2023 compared to the fifty-two weeks ended August 27, 2022. The increase was primarily attributable to $2.4 million
of fees related to the extension of the Term Loan (as defined below), $3.4 million of executive officer transition costs, and an
increase of $2.8 million in stock-based compensation expense in the fifty-two weeks ended August 26, 2023. These increases
were partially offset by the discontinuation of costs related to business integration activities and restructuring charges of
$0.6 million and a reduction in employee-related expenses in the fifty-two weeks ended August 26, 2023.
Depreciation and amortization. Depreciation and amortization expenses were $17.4 million and $17.3 million for the fifty-two
weeks ended August 26, 2023 compared to the fifty-two weeks ended August 27, 2022, respectively.
Interest income. Interest income was $1.1 million for the fifty-two weeks ended August 26, 2023 compared to an immaterial
amount of interest income for the fifty-two weeks ended August 27, 2022, primarily due to the increase in interest rates.
Interest expense. Interest expense increased $8.2 million for the fifty-two weeks ended August 26, 2023 compared to the fifty-
two weeks ended August 27, 2022 primarily due to the increase in interest rates on our Term Facility (as defined below) to 7.9% as of
August 26, 2023 from 6.2% as of August 27, 2022. Additionally, interest expense related to the amortization of deferred financing costs
and debt discount increased $0.2 million for the fifty-two weeks ended August 26, 2023 compared to the fifty-two weeks ended August 27,
2022.
Loss in fair value change of warrant liability. There were no outstanding liability-classified warrants issued through a private
placement (“Private Warrants”) during the fifty-two weeks ended August 26, 2023. During the fifty-two weeks ended August 27, 2022, we
recorded a non-cash loss of $30.1 million related to changes in valuation of our liability-classified Private Warrants, which was primarily
driven by movements in our stock price. On January 7, 2022, the Private Warrants were exercised on a cashless basis, resulting in a net
issuance of 4,830,761 shares of our common stock.
(Loss) gain on foreign currency transactions. Foreign currency transactions resulted in an immaterial loss and an immaterial
gain for the fifty-two weeks ended August 26, 2023 and August 27, 2022, respectively. During the fifty-two weeks ended August 27, 2022,
we recognized a foreign currency translation gain of $1.1 million related to the liquidation of a foreign subsidiary. The remaining variance
is attributable to changes in foreign currency rates related to our international operations.
Income tax expense. Income tax expense increased $0.1 million for the fifty-two weeks ended August 26, 2023 compared to the
fifty-two weeks ended August 27, 2022. The increase in our income tax expense is primarily driven by higher income from operations and
changes in permanent differences.
Net income. Net income was $133.6 million for the fifty-two weeks ended August 26, 2023, an increase of $25.0 million,
compared to net income of $108.6 million for the fifty-two weeks ended August 27, 2022. The increase was primarily driven by the $30.1
million non-cash fair value loss incurred in the fifty-two weeks ended August 27, 2022 related to the measurement of our liability-
classified Private Warrants which did not repeat in fiscal year 2023, and growth in net sales.
Adjusted EBITDA. Adjusted EBITDA increased $11.5 million, or 4.9%, for the fifty-two weeks ended August 26,
2023 compared to the fifty-two weeks ended August 27, 2022, driven primarily by net sales growth due to the price increase effective in
the fourth quarter of fiscal year 2022, partially offset by unfavorable raw material, packaging, and co-manufacturing costs and supply chain
challenges in the fifty-two weeks ended August 26, 2023 as previously discussed. For a reconciliation of Adjusted EBITDA to its most
directly comparable GAAP measure, see “Reconciliation of EBITDA and Adjusted EBITDA” below.
39
Reconciliation of EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are non-GAAP financial measures commonly used in our industry and should not be construed
as alternatives to net income as an indicator of operating performance or as alternatives to cash flow provided by operating activities as a
measure of liquidity (each as determined in accordance with GAAP). Simply Good Foods defines EBITDA as net income or loss before
interest income, interest expense, income tax expense, depreciation and amortization, and Adjusted EBITDA as further adjusted to exclude
the following items: stock-based compensation expense, executive transition costs, term loan transaction fees, integration costs,
restructuring costs, loss in fair value change of warrant liability, and other non-core expenses. We believe that EBITDA and Adjusted
EBITDA, when used in conjunction with net income, are useful to provide additional information to investors. Management uses EBITDA
and Adjusted EBITDA to supplement net income because these measures reflect operating results of the on-going operations, eliminate
items that are not directly attributable to our underlying operating performance, enhance the overall understanding of past financial
performance and future prospects, and allow for greater transparency with respect to the key metrics management uses in its financial and
operational decision making. We also believe that EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and
other interested parties in the evaluation of companies in our industry. EBITDA and Adjusted EBITDA may not be comparable to other
similarly titled captions of other companies due to differences in the non-GAAP calculation.
The following unaudited table provides a reconciliation of EBITDA and Adjusted EBITDA to its most directly comparable
GAAP measure, which is net income, for the fifty-two weeks ended August 26, 2023 and August 27, 2022:
(In thousands)
Net income
Interest income
Interest expense
Income tax expense
Depreciation and amortization
EBITDA
Stock-based compensation expense
Executive transition costs
Term loan transaction fees
Integration of Quest
Restructuring
Loss in fair value change of warrant liability
Other (1)
52-Weeks Ended
52-Weeks Ended
August 26, 2023
August 27, 2022
$
133,575 $
108,574
(1,144)
30,068
42,117
20,253
224,869
14,480
3,390
2,423
—
—
—
393
(15)
21,881
41,995
19,299
191,734
11,697
—
—
468
98
30,062
(16)
234,043
Adjusted EBITDA
(1) Other items consist principally of exchange impact of foreign currency transactions and other expenses.
245,555 $
$
40
Liquidity and Capital Resources
Overview
We have historically funded our operations with cash flow from operations and, when needed, with borrowings under our Credit
Agreement (as defined below). Our principal uses of cash have been working capital, debt service, repurchases of our common stock, and
acquisition opportunities.
We had $87.7 million in cash as of August 26, 2023. We believe our sources of liquidity and capital will be sufficient to finance
our continued operations, growth strategy and additional expenses we expect to incur for at least the next twelve months. As circumstances
warrant, we may issue debt and/or equity securities from time to time on an opportunistic basis, dependent upon market conditions and
available pricing. We make no assurance that we can issue and sell such securities on acceptable terms or at all.
Our material future cash requirements from contractual and other obligations relate primarily to our principal and interest
payments for our Term Facility, as defined and discussed below, and our operating and finance leases. Refer to Note 6, Long-Term Debt
and Line of Credit, and Note 9, Leases, of the Consolidated Financial Statements included in Item 8 of this Report for additional
information related to the expected timing and amount of payments related to our contractual and other obligations.
Debt and Credit Facilities
On July 7, 2017, we entered into a credit agreement with Barclays Bank PLC and other parties (as amended to date, the “Credit
Agreement”). The Credit Agreement at that time provided for (i) a term facility of $200.0 million (“Term Facility”) with a seven-year
maturity and (ii) a revolving credit facility of up to $75.0 million (the “Revolving Credit Facility”) with a five-year maturity. Substantially
concurrent with the consummation of the business combination which formed the Company between Conyers Park Acquisition Corp. and
NCP-ATK Holdings, Inc. on July 7, 2017, the full $200.0 million of the Term Facility (the “Term Loan”) was drawn.
On November 7, 2019, we entered into a second amendment (the “Incremental Facility Amendment”) to the Credit Agreement to
increase the principal borrowed on the Term Facility by $460.0 million. The Term Facility together with the incremental borrowing make
up the Initial Term Loans (as defined in the Incremental Facility Amendment). The Incremental Facility Amendment was executed to
partially finance the acquisition of Quest Nutrition, LLC on November 7, 2019. No amounts under the Term Facility were repaid as a result
of the execution of the Incremental Facility Amendment.
Effective as of December 16, 2021, we entered into a third amendment (the “Extension Amendment”) to the Credit Agreement.
The Extension Amendment provided for an extension of the stated maturity date of the Revolving Commitments and Revolving Loans
(each as defined in the Credit Agreement) from July 7, 2022 to the earlier of (i) 91 days prior to the then-effective maturity date of the
Initial Term Loans and (ii) December 16, 2026.
On January 21, 2022, we entered into the “2022 Repricing Amendment” to the Credit Agreement. The 2022 Repricing
Amendment, among other things, (i) reduced the interest rate per annum applicable to the Initial Term Loans outstanding under the Credit
Agreement immediately prior to the effective date of the 2022 Repricing Amendment, (ii) reset the prepayment premium for the existing
Initial Term Loans to apply to Repricing Transactions (as defined in the Credit Agreement) that occur within six months after the effective
date of the 2022 Repricing Amendment, and (iii) implemented SOFR and related replacement provisions for LIBOR.
On April 25, 2023, we entered into the “2023 Repricing Amendment” to the Credit Agreement. The 2023 Repricing Amendment,
(i) reduced the interest rate per annum applicable to the Initial Term Loans outstanding under the Credit Agreement immediately prior to
April 25, 2023, and (ii) provided for an extension of the maturity date of the Initial Term Loans from July 7, 2024, to March 17, 2027.
The 2023 Repricing Amendment did not change the interest rate on the Revolving Credit Facility, which continues to bear interest
based upon our consolidated net leverage ratio as of the end of the fiscal quarter for which consolidated financial statements are delivered
to the Administrative Agent under the Credit Agreement. No additional debt was incurred, or any proceeds received by us in connection
with the 2023 Repricing Amendment. No amounts under the Term Facility were repaid as a result of the execution of the 2023 Repricing
Amendment.
Effective as of the 2023 Repricing Amendment, the interest rate per annum for the Initial Term Loans is based on either:
i. A base rate equaling the higher of (a) the “prime rate,” (b) the federal funds effective rate plus 0.50%, or (c) the Adjusted Term
SOFR Rate (as defined in the Credit Agreement) applicable for an interest period of one month plus 1.00% plus (x) 1.50% margin
for the Term Loan or (y) 2.00% margin for the Revolving Credit Facility; or
ii. SOFR plus a credit spread adjustment equal to 0.10% for one-month SOFR, 0.15% for up to three-month SOFR and 0.25% for up
to six-month SOFR, subject to a floor of 0.50%, plus (x) 2.50% margin for the Term Loan or (y) 3.00% margin for the Revolving
Credit Facility.
41
In connection with the closing of the 2023 Repricing Amendment, we expensed $2.4 million primarily for third-party fees and
capitalized an additional $2.7 million primarily for the payment of upfront lender fees (original issue discount).
The Simply Good Foods Company is not a borrower under the Credit Agreement and has not provided a guarantee of the Credit
Agreement. Simply Good Foods USA, Inc., is the administrative borrower and certain other subsidiary holding companies are co-
borrowers under the Credit Agreement. Each of our domestic subsidiaries that is not a named borrower under the Credit Agreement has
provided a guarantee on a secured basis. As security for the payment or performance of the debt under the Credit Agreement, the
borrowers and the guarantors have pledged certain equity interests in their respective subsidiaries and granted the lenders a security interest
in substantially all of their domestic assets. All guarantors other than Quest Nutrition, LLC are holding companies with no assets other than
their investments in their respective subsidiaries.
The Credit Agreement contains certain financial and other covenants that limit our ability to, among other things, incur and/or
undertake asset sales and other dispositions, liens, indebtedness, certain acquisitions and investments, consolidations, mergers,
reorganizations and other fundamental changes, payment of dividends and other distributions to equity and warrant holders, and
prepayments of material subordinated debt, in each case, subject to customary exceptions materially consistent with credit facilities of such
type and size. The Revolving Credit Facility has a maximum total net leverage ratio equal to or less than 6.00:1.00 contingent on credit
extensions in excess of 30% of the total amount of commitments available under the Revolving Credit Facility. Any failure to comply with
the restrictions of the credit facilities may result in an event of default. We were in compliance with all financial covenants as of
August 26, 2023 and August 27, 2022, respectively.
As of August 26, 2023, the outstanding balance of the Term Facility was $285.0 million. We are not required to make principal
payments on the Term Facility over the twelve months following the period ended August 26, 2023. The outstanding balance of the Term
Facility is due upon its maturity in March 2027. As of August 26, 2023, there were no amounts drawn against the Revolving Credit
Facility.
Stock Repurchase Program
On October 21, 2022, we announced that our Board of Directors had approved the addition of $50.0 million to our stock
repurchase program, resulting in authorized stock repurchases of up to an aggregate of $150.0 million. During the fifty-two weeks ended
August 26, 2023, we repurchased 546,346 shares of common stock for $16.4 million, averaging a purchase price per share of $30.11.
During the fifty-two weeks ended August 27, 2022, we repurchased 1,720,520 shares of common stock for $59.9 million, averaging a
purchase price per share of $34.79. We did not repurchase any shares of common stock during the fifty-two weeks ended August 28, 2021.
As of August 26, 2023, approximately $71.5 million remained available for repurchases under our $150.0 million stock
repurchase program. Refer to Note 11, Stockholders’ Equity of the Consolidated Financial Statements included in Item 8 of this Report for
additional information related to our stock repurchase program.
Cash Flows
The following table sets forth the major sources and uses of cash for the fifty-two weeks ended August 26, 2023 and August 27,
2022. A discussion regarding the major sources and uses of cash for the fifty-two weeks ended August 28, 2021 can be found under Item 7
of our Annual Report on Form 10-K for the fiscal year ended August 27, 2022, filed with the SEC on October 21, 2022.
(In thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
52-Weeks Ended
52-Weeks Ended
August 26, 2023
August 27, 2022
$
$
$
171,117 $
(12,188) $
(138,532) $
110,639
(8,156)
(110,032)
42
Operating activities. Our net cash provided by operating activities increased $60.5 million to $171.1 million for the fifty-two
weeks ended August 26, 2023 compared to $110.6 million for the fifty-two weeks ended August 27, 2022. Changes in operating activity
cash was primarily attributable to an improvement in working capital, comprised of changes in accounts receivable, net, inventories,
prepaid expenses, accounts payable, and accrued expenses and other current liabilities, which are driven by the timing of payments and
receipts and seasonal building of inventory. Changes in working capital consumed cash of $21.2 million, an improvement of $42.6 million,
in the fifty-two weeks ended August 26, 2023 compared to $63.8 million of cash consumed in the fifty-two weeks ended August 27, 2022.
Additionally, cash paid for interest was $25.5 million in the fifty-two weeks ended August 26, 2023, which was a increase of $6.3 million
as compared to the $19.2 million paid for interest in the fifty-two weeks ended August 27, 2022. This cash consumption offset income
from operations, which increased by $2.1 million to $204.9 million for the fifty-two weeks ended August 26, 2023 as compared to
$202.8 million for the fifty-two weeks ended August 27, 2022, primarily attributable to net sales growth in North America. In addition,
cash paid for taxes decreased $21.8 million to $27.4 million for the fifty-two weeks ended August 26, 2023 as compared to $49.2 million
for the fifty-two weeks ended August 27, 2022.
Investing activities. Our net cash used in investing activities was $12.2 million for the fifty-two weeks ended August 26, 2023
compared to $8.2 million for the fifty-two weeks ended August 27, 2022. Our net cash used in investing activities for the fifty-two weeks
ended August 26, 2023 primarily comprised $11.6 million of purchases of property and equipment. The $8.2 million of net cash used in
investing activities for the fifty-two weeks ended August 27, 2022 primarily comprised the $5.2 million purchases of property and
equipment and the issuance of a $2.4 million note receivable.
Financing activities. Our net cash used in financing activities was $138.5 million for the fifty-two weeks ended August 26, 2023
compared to $110.0 million for the fifty-two weeks ended August 27, 2022. Net cash used in financing activities for the fifty-two weeks
ended August 26, 2023 primarily consisted of $121.5 million in principal payments on the Term Facility and $16.4 million in repurchases
in common stock. Net cash used in financing activities for the fifty-two weeks ended August 27, 2022 primarily consisted of $50.0 million
in principal payments on the Term Facility and $59.9 million in repurchases of common stock.
Critical Accounting Policies, Judgments and Estimates
General
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S.
While the majority of our revenue, expenses, assets and liabilities are not based on estimates, there are certain accounting principles that
require management to make estimates regarding matters that are uncertain and susceptible to change. Critical accounting policies are
defined as those policies that are reflective of significant judgments, estimates and uncertainties, which could potentially result in
materially different results under different assumptions and conditions. Management regularly reviews the estimates and assumptions used
in the preparation of the financial statements for reasonableness and adequacy. Our significant accounting policies are discussed in Note 2,
Summary of Significant Accounting Policies, of our Consolidated Financial Statements in this filing; however, the following discussion
pertains to accounting policies we believe are most critical to the portrayal of its financial condition and results of operations and that
require significant, difficult, subjective or complex judgments. Other companies in similar businesses may use different estimation policies
and methodologies, which may affect the comparability of our financial condition, results of operations and cash flows to those of other
companies.
Revenue Recognition
We recognize revenue when performance obligations under the terms of a contract with our customer are satisfied. We have
determined that fulfilling and delivering products is a single performance obligation. Revenue is recognized at the point in time when we
have satisfied our performance obligation and the customer has obtained control of the products. This generally occurs when the product is
delivered to or picked up by our customer based on applicable shipping terms, which is typically within 30 days.
Revenue is measured as the amount of consideration expected to be received in exchange for fulfilled product orders, including
estimates of variable consideration. The most common forms of variable consideration include trade promotions, such as consumer
incentives, coupon redemptions and other marketing activities, allowances for unsaleable product, and any additional amounts where a
distinct good or service cannot be identified or the value cannot be reasonably estimated. Estimates of variable consideration are made
using various information including historical data on performance of similar trade promotional activities, market data from IRI, and our
best estimate of current activity. Revisions can include changes for consideration paid to customers that lack sufficient evidence to support
a distinct good or service assertion, or for which a reasonably estimable fair value cannot be determined, primarily related to our
assessments of cooperative advertising programs. We review these estimates regularly and makes revisions as necessary. Uncertainties
related to the estimate of variable consideration are resolved in a short time frame and do not require any additional constraint on variable
consideration. Adjustments to variable consideration have historically been insignificant.
43
Although some payment terms may be longer, the majority of our payment terms are less than 60 days. As a result, we do not
have any material significant payments terms as payment is received shortly after the time of sale.
While our revenue recognition does not involve significant judgment, it represents a key accounting policy.
Trade Promotions
We offer trade promotions through various programs to customers and consumers. Trade promotions include discounts, rebates,
slotting and other marketing activities. Trade promotions are recorded as a reduction to net sales with a corresponding reduction to
accounts receivable at the time of revenue recognition for the underlying sale. The recognition of trade promotions requires management to
make estimates regarding the volume of incentive that will be redeemed and their total cost. These estimates are made using various
information including historical data on performance of similar trade promotional activities, market data from IRI, and the Company’s best
estimates of current activity. Our consolidated financial statements could be materially affected if the actual promotion rates are different
from the estimated rates.
As of August 26, 2023 and August 27, 2022, the allowance for trade promotions was $28.8 million and $23.9 million,
respectively. Differences between estimated expense and actual redemptions are recognized as a change in management estimate in a
subsequent period. These differences have historically been insignificant.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived intangible assets, comprising our brands and trademarks, are not amortized, but instead are tested
for impairment at least annually, or more frequently if indicators of impairment exist. We conduct our annual impairment tests at the
beginning of the fourth fiscal quarter. We perform our goodwill impairment assessment for each reporting unit that has goodwill. The
process of evaluating goodwill and indefinite-lived intangibles for impairment is subjective and requires significant judgment at many
points during the analysis.
For each of the fifty-two weeks ended August 26, 2023 and August 27, 2022, we determined our operations are organized into
one, consolidated operating segment and reportable segment based on the following:
•
•
•
Our Atkins® and Quest® brands are closely aligned in the nature of our production processes, the brands’ product offerings, and
the methods used to distribute our products to customers;
Our organizational structure is designed to support entity-wide business functions across brands, products, customers, and
geographic regions; and,
Our chief operating decision maker reviews operating results and forecasts at the consolidated level.
Previously, during the fifty-two weeks ended August 28, 2021, we had two operating segments, Atkins and Quest, which were
aggregated into one reporting segment due to similar financial, economic and operating characteristics.
We assess goodwill and indefinite-lived intangible assets using either a qualitative or quantitative approach to determine whether
it is more likely than not that the fair values of the reporting units or indefinite-lived intangible assets are less than their carrying amounts.
The qualitative assessment evaluates factors including macro-economic conditions, industry-specific and company-specific considerations,
legal and regulatory environments, and historical performance. If we determine that it is more likely than not that the fair value of a
reporting unit or an indefinite-lived intangible asset is less than its carrying value, a quantitative assessment is performed. Otherwise, no
further assessment is required. The quantitative approach compares the estimated fair value of the reporting unit, including goodwill, or the
indefinite-lived intangible asset to its carrying amount. The material inputs and assumptions underlying the quantitative assessments of
goodwill and intangible impairment are based on operational forecasts derived from expectations of future operating performance, which
require considerable management judgment regarding matters that are uncertain and susceptible to change. Impairment is indicated if the
estimated fair value of the reporting unit or indefinite-lived intangible asset is less than the carrying amount, and an impairment charge is
recognized for the differential.
For fiscal year 2023, 2022 and 2021, we performed qualitative assessments of goodwill and indefinite-lived intangible assets. The
qualitative assessments did not identify indicators of impairment, and it was determined that it was more likely than not each reporting unit
and indefinite-lived intangible had fair values in excess of their carrying values. Accordingly, no further impairment assessment was
necessary, and no impairment charges related to goodwill or indefinite-lived intangibles were recognized in the fifty-two weeks ended
August 26, 2023, August 27, 2022, or August 28, 2021. Additionally, we determined there was not a material risk of impairments as of the
date of the most recent assessment.
We also have intangible assets that have determinable useful lives, consisting primarily of customer relationships, proprietary
recipes and formulas, licensing agreements, and software and website development costs. Costs of these finite-lived intangible assets are
44
amortized on a straight-line basis over their estimated useful lives. Finite-lived intangible assets are tested for impairment when events or
circumstances indicated that the carrying amount may not be recoverable. For the fifty-two weeks ended August 26, 2023, August 27, 2022
and August 28, 2021, we did not identify indicators of impairment related to our finite-lived intangible assets, and as such there were no
impairments recorded related to finite-lived intangible assets. We also determined that there was no material risk of intangible impairments
related to our finite-lived intangible assets as of the date of the most recent assessments.
Income Taxes
We are subject to income taxes in the United States and numerous other jurisdictions. Significant judgment is required in
determining our provision for income tax, including evaluating uncertainties in the application of accounting principles and complex tax
laws.
Income taxes include federal, state and foreign taxes currently payable and deferred taxes arising from temporary differences
between income for financial reporting and income tax purposes. Deferred tax assets and liabilities are determined based on the differences
between the financial statement balances and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
year that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to amounts
expected to be realized. Significant management judgment is required in determining the effective tax rate, evaluating tax positions and
determining the net realizable value of deferred tax assets.
Warrant Liability
During the fifty-two weeks ended August 27, 2022 and August 28, 2021, we had outstanding Private Warrants that allowed
holders to purchase 6,700,000 shares of our common stock. Such Private Warrants were held by Conyers Park Sponsor, LLC (“Conyers
Park”), a related party. Each whole warrant entitled the holder to purchase one share of our common stock at a price of $11.50 per share.
On January 7, 2022, Conyers Park elected to exercise the Private Warrants in full on a cashless basis, resulting in a net issuance of
4,830,761 shares of our common stock. As a result of the cashless exercise on January 7, 2022, there were no outstanding Private Warrants
as of August 26, 2023 or August 27, 2022.
During the reporting periods the Private Warrants were outstanding, we accounted for our Private Warrants as a derivative
warrant liability in accordance with ASC Topic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity. Accordingly, we
recognized the Private Warrants as a liability at fair value and adjusted the Private Warrants to fair value at each reporting period through
other income. We utilized the Black-Scholes option-pricing valuation model (“Black-Scholes model”) to estimate the fair value of the
Private Warrants at each reporting date.
The application of the Black-Scholes model utilizes significant assumptions, including expected volatility, the determination of
which requires significant judgment. In order to determine the most accurate measure of this volatility, we measured expected volatility
based on several inputs, including considering a peer group of publicly traded companies, Simply Good Foods’ implied volatility based on
traded options, the implied volatility of comparable warrants, and the implied volatility of any outstanding public warrants during the
periods they were outstanding. As a result of the unobservable inputs that were used to determine the expected volatility of the Private
Warrants, the fair value measurement of these warrants reflected a Level 3 measurement within the fair value measurement hierarchy. The
expected volatility was historically a key assumption or input to the valuation of the Private Warrants, however changes in the expected
volatility assumption had less of an effect on the Black-Scholes model valuation as the Private Warrants approached their expiration.
New Accounting Pronouncements
Refer to Note 2, Summary of Significant Accounting Policies, of the Consolidated Financial Statements included in Item 8 of this
Report for information regarding recently issued accounting standards.
45
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevalent market interest rates.
Market risk refers to the risk of loss from adverse changes in market prices and interest rates.
Supply chain costs and inflation. We are exposed to risks associated with changes in the costs of our raw materials as well as
changes to our supply and distribution costs. During the fifty-two weeks ended August 26, 2023, our gross margins and profitability were
negatively affected by higher raw material, packaging, freight and logistics costs, and supply chain challenges, including supply chain
disruptions resulting from labor shortages as well as disruptions in ingredients, caused, in part, by the uncertain economic environment,
and macroeconomic and geopolitical events and trends. We expect these cost pressures and supply chain challenges to continue, but
improve, during fiscal year 2024. In addition, current or future governmental policies may increase the risk of inflation, which could
further increase the costs of ingredients, packaging and finished goods for our business. As a result, we instituted price increases effective
in the first and fourth quarters of fiscal year 2022. Management believes these price increases and additional cost savings initiatives will
enable us to continue to invest in projects that drive growth. However, there can be no assurance that the price increases will fully offset
the effects of higher raw material, packaging, supply and distribution costs on our results of operations and financial condition. Refer to
Item 1A, Risk Factors, for additional discussion of our risks associated with the costs of our raw materials, our supply chain, and inflation.
Interest rate risk. We are subject to interest rate risk in connection with borrowing based on a variable interest rate. Derivative
financial instruments, such as interest rate swap agreements and interest rate cap agreements, may be used for the purpose of managing
fluctuating interest rate exposures that exist from our variable rate debt obligations that are expected to remain outstanding. Interest rate
changes do not affect the market value of such debt, but could affect the amount of our interest payments, and accordingly, our future
earnings and cash flows, assuming other factors are held constant. As of August 26, 2023, the outstanding balance of the Term Facility was
$285 million. Based on the amount outstanding of the Term Facility at the end of fiscal year 2023, a 1% increase in interest rates would
increase our annual interest expense by approximately $2.9 million.
Foreign currency risk. We are exposed to changes in currency rates as a result of investments in foreign operations and revenue
generated in currencies other than the U.S. Dollar. Revenue and profit generated by international operations will increase or decrease
compared to prior periods as a result of changes in foreign currency exchange rates. Historically, our foreign currency risk has primarily
related to our operations in Canada, which were largely related to a brand we sold in September 2020. With this sale transaction, as well as
the restructuring-related business activities in Europe, we have mitigated some of our risk of exposure to changes in foreign currency rates.
46
Item 8. Financial Statements and Supplementary Data.
TABLE OF CONTENTS
Index to the Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ Equity
Notes to Consolidated Financial Statements
Note 1.
Note 2.
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
Note 10.
Note 11.
Note 12.
Note 13.
Note 14.
Note 15.
Nature of Operations and Principles of Consolidation
Summary of Significant Accounting Policies
Property and Equipment, Net
Goodwill and Intangibles
Accrued Expenses and Other Current Liabilities
Long-Term Debt and Line of Credit
Fair Value of Financial Instruments
Income Taxes
Leases
Commitments and Contingencies
Stockholder’s Equity
Earnings Per Share
Omnibus Incentive Plan
Segment and Customer Information
Restructuring and Related Charges
Page
48
50
51
52
54
55
55
60
61
62
62
64
65
67
68
69
69
70
73
74
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of The Simply Good Foods Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Simply Good Foods Company and subsidiaries (the "Company") as
of August 26, 2023 and August 27, 2022, the related consolidated statements of income and comprehensive income, stockholders' equity,
and cash flows, for the fifty-two weeks ended August 26, 2023, August 27, 2022, and August 28, 2021 and the related notes (collectively
referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of August 26, 2023 and August 27, 2022, and the results of its operations and its cash flows for each of the
three years in the period ended August 26, 2023, in conformity with accounting principles generally accepted in the United States of
America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company's internal control over financial reporting as of August 26, 2023, based on criteria established in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 24,
2023, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition — Trade Promotions — Refer to Note 2 to the financial statements
Critical Audit Matter Description
The Company offers trade promotions through various programs to customers and consumers. Trade promotions include discounts,
rebates, slotting, and other marketing activities. Trade promotions are recorded as a reduction to net sales with a corresponding reduction to
accounts receivable at the time of revenue recognition for the underlying sale. The recognition of trade promotions requires the Company
to make estimates regarding the volume of incentives that will be redeemed and their total cost. These estimates are made using various
information including historical data on performance of similar trade promotional activities, market data, and the Company's best estimates
of current activity. As of August 26, 2023, the allowance for trade promotions balance, which is recorded as a reduction to accounts
receivable, was approximately $28.8 million.
Given the subjectivity of estimating the expected promotional claims, performing audit procedures to evaluate whether the allowance for
trade promotions balance is appropriately recorded as of August 26, 2023, required a high degree of auditor judgment and an increased
extent of effort.
48
How the Critical Audit Matter Was Addressed in the Audit
Our auditing procedures related to the allowance for trade promotions balance included the following, among others:
• We tested the effectiveness of internal controls over the allowance for trade promotions.
•
For a selection of allowance for trade promotions balance recorded as of August 26, 2023, we:
◦
◦
◦
Confirmed contract terms directly with the customer.
Agreed contract terms from the accounting records to the promotion agreement with the customer and verified the
promotion period was prior to August 27, 2023.
Evaluated the appropriateness of the year-end trade accrual estimate using historical data on performance of similar trade
promotional activities, market data, and subsequent customer activity.
• We evaluated management’s ability to estimate promotional claims incurred, but not yet received for potential management bias
•
•
by comparing historical promotional claims received to management’s estimates of the claims to be received.
For a selection of customer promotional claims resolved as of August 26, 2023, we compared that amount to the August 26, 2023
allowance for promotions balance and traced the resolved deduction to an approved trade promotion.
For a selection of customer promotional claims resolved after August 26, 2023, we compared that amount to the August 26, 2023
allowance for promotions balance and traced the resolved deduction to an approved trade promotion.
/s/ Deloitte & Touche LLP
Denver, Colorado
October 24, 2023
We have served as the Company’s auditor since 2019.
49
The Simply Good Foods Company and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
Assets
Current assets:
Cash
Accounts receivable, net
Inventories
Prepaid expenses
Other current assets
Total current assets
Long-term assets:
Property and equipment, net
Intangible assets, net
Goodwill
Other long-term assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued interest
Accrued expenses and other current liabilities
Current maturities of long-term debt
Total current liabilities
Long-term liabilities:
Long-term debt, less current maturities
Deferred income taxes
Other long-term liabilities
Total liabilities
See commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued
Common stock, $0.01 par value, 600,000,000 shares authorized, 101,929,868 and 101,322,834 issued at
August 26, 2023 and August 27, 2022, respectively
Treasury stock, 2,365,100 shares and 1,818,754 shares at cost at August 26, 2023 and August 27, 2022,
respectively
Additional paid-in-capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
August 26, 2023
August 27, 2022
$
87,715 $
145,078
116,591
6,294
15,974
371,652
24,861
1,108,119
543,134
49,318
67,494
132,667
125,479
5,027
20,934
351,601
18,157
1,123,258
543,134
58,099
$
2,097,084 $
2,094,249
$
52,712 $
1,940
35,062
143
89,857
281,649
116,133
38,346
525,985
—
1,019
(78,451)
1,303,168
347,956
(2,593)
1,571,099
62,149
160
39,675
264
102,248
403,022
105,676
44,639
655,585
—
1,013
(62,003)
1,287,224
214,381
(1,951)
1,438,664
2,094,249
See accompanying Notes to the Consolidated Financial Statements
$
2,097,084 $
50
The Simply Good Foods Company and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
(In thousands, except share and per share data)
Net sales
Cost of goods sold
Gross profit
Operating expenses:
Selling and marketing
General and administrative
Depreciation and amortization
Total operating expenses
Income from operations
Other income (expense):
Interest income
Interest expense
(Loss) in fair value change of warrant liability
Gain on legal settlement
(Loss) gain on foreign currency transactions
Other income (expense)
Total other income (expense)
Income before income taxes
Income tax expense
Net income
Other comprehensive income:
Foreign currency translation, net of reclassification adjustments
Comprehensive income
Earnings per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
52-Weeks Ended
52-Weeks Ended
52-Weeks Ended
August 26, 2023
August 27, 2022
August 28, 2021
$
1,242,672 $
1,168,678 $
1,005,613
789,252
453,420
119,489
111,566
17,416
248,471
723,117
445,561
121,685
103,832
17,285
242,802
595,847
409,766
112,928
106,181
16,982
236,091
204,949
202,759
173,675
1,144
(30,068)
—
—
(344)
11
15
(21,881)
(30,062)
—
191
(453)
(29,257)
(52,190)
175,692
42,117
150,569
41,995
133,575 $
108,574 $
84
(31,557)
(66,197)
5,000
(5)
(140)
(92,815)
80,860
39,980
40,880
(642)
(1,133)
132,933 $
107,441 $
61
40,941
1.34 $
1.32 $
1.10 $
1.08 $
0.43
0.42
99,442,046
100,880,079
98,754,913
100,589,156
95,743,413
97,365,598
$
$
$
$
See accompanying Notes to the Consolidated Financial Statements
51
The Simply Good Foods Company and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
52-Weeks Ended
August 26, 2023
52-Weeks Ended
August 27, 2022
52-Weeks Ended
August 28, 2021
$
133,575 $
108,574 $
40,880
Depreciation and amortization
Amortization of deferred financing costs and debt discount
Stock compensation expense
Loss in fair value change of warrant liability
Estimated credit losses
Unrealized loss (gain) on foreign currency transactions
Deferred income taxes
Amortization of operating lease right-of-use asset
Loss on operating lease right-of-use asset impairment
Gain on lease termination
Other
Changes in operating assets and liabilities:
Accounts receivable, net
Inventories
Prepaid expenses
Other current assets
Accounts payable
Accrued interest
Accrued expenses and other current liabilities
Other assets and liabilities
Net cash provided by operating activities
Investing activities
Purchases of property and equipment
Issuance of note receivable
Proceeds from sale of business
Investments in intangible assets and other assets
Net cash used in investing activities
Financing activities
Proceeds from option exercises
Tax payments related to issuance of restricted stock units
Repurchase of common stock
Payments on finance lease obligations
Principal payments of long-term debt
Deferred financing costs
Net cash (used in) financing activities
Net increase (decrease) in cash
Effect of exchange rate on cash
Cash at beginning of period
Cash at end of period
20,253
2,763
14,480
—
315
344
10,590
6,729
—
—
567
(13,374)
8,169
(1,306)
6,837
(9,510)
1,780
(5,223)
(5,872)
171,117
(11,585)
—
—
(603)
(12,188)
19,299
2,559
11,697
30,062
601
(191)
11,789
6,620
—
(30)
681
(21,796)
(29,508)
(138)
(11,739)
2,878
100
(15,283)
(5,536)
110,639
(5,232)
(2,400)
—
(524)
(8,156)
5,247
(2,859)
(16,448)
(278)
(121,500)
(2,694)
(138,532)
20,397
(176)
67,494
87,715 $
4,343
(3,660)
(59,858)
(313)
(50,000)
(544)
(110,032)
(7,549)
(302)
75,345
67,494 $
$
18,174
4,636
8,265
66,197
1,114
5
9,403
5,051
686
(156)
(16)
(22,284)
(39,349)
(1,202)
2,322
25,923
(900)
15,423
(2,083)
132,089
(5,911)
(1,600)
5,800
(795)
(2,506)
700
(435)
—
(314)
(150,000)
—
(150,049)
(20,466)
(36)
95,847
75,345
52
Supplemental disclosures of cash flow information
Cash paid for interest
Cash paid for taxes
Non-cash investing and financing transactions
Non-cash proceeds from sale of business
Non-cash additions to property and equipment
Non-cash additions to intangible assets and other assets
Issuance of common stock in extinguishment of warrant liabilities
Operating lease right-of-use assets recognized after ASU No 2016-02 transition
Non-cash credits for repayment of note receivable
52-Weeks Ended
52-Weeks Ended
52-Weeks Ended
August 26, 2023
August 27, 2022
August 28, 2021
$
$
$
$
$
$
$
$
25,511 $
27,411 $
19,222 $
49,181 $
— $
178 $
26 $
— $
289 $
395 $
— $
743 $
86 $
189,897 $
6,872 $
— $
27,821
32,190
3,000
1,203
218
—
26,222
—
See accompanying Notes to the Consolidated Financial Statements
53
The Simply Good Foods Company and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(In thousands, except share data)
Common Stock
Treasury Stock
Shares
Amount
Shares
Amount
Additional
Paid in Capital
Retained Earnings
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Loss
Total
Balance, August 29, 2020
95,751,845 $
958
98,234 $ (2,145) $
1,076,472 $
64,927 $
(879) $ 1,139,333
Net income
Stock-based compensation
Foreign currency translation
adjustments
Shares issued upon vesting of
restricted stock units
Exercise of options to
purchase common stock
—
—
—
72,755
58,308
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
8,265
—
(436)
700
40,880
—
—
—
—
—
—
61
—
—
40,880
8,265
61
(435)
700
Balance, August 28, 2021
95,882,908 $
959
98,234 $ (2,145) $
1,085,001 $
105,807 $
(818) $ 1,188,804
Net income
Stock-based compensation
Foreign currency translation
adjustments
Reclassification adjustment
for currency translation gains
related to the liquidation of
foreign entities
Repurchase of common stock
—
—
—
—
—
Warrant conversion
4,830,761
Shares issued upon vesting of
restricted stock units
Exercise of options to
purchase common stock
256,374
352,791
—
—
—
—
—
48
3
3
—
—
—
—
—
—
—
—
1,720,520
(59,858)
—
—
—
—
—
—
—
11,697
—
—
—
189,849
(3,663)
4,340
108,574
—
—
—
—
—
—
—
—
—
14
(1,147)
—
—
—
—
108,574
11,697
14
(1,147)
(59,858)
189,897
(3,660)
4,343
Balance, August 27, 2022
101,322,834 $ 1,013
1,818,754 $ (62,003) $
1,287,224 $
214,381 $
(1,951) $ 1,438,664
Net income
Stock-based compensation
Foreign currency translation
adjustments
Repurchase of common stock
Shares issued upon vesting of
restricted stock units
Exercise of options to
purchase common stock
—
—
—
—
210,718
396,316
—
—
—
—
2
4
—
—
—
—
—
—
546,346
(16,448)
—
—
—
—
—
13,562
—
—
(2,861)
5,243
133,575
—
—
—
—
—
—
—
(642)
—
—
—
133,575
13,562
(642)
(16,448)
(2,859)
5,247
Balance, August 26, 2023
101,929,868 $ 1,019
2,365,100 $ (78,451) $
1,303,168 $
347,956 $
(2,593) $ 1,571,099
See accompanying Notes to the Consolidated Financial Statements
54
Notes to Consolidated Financial Statements
(In thousands, except for share and per share data)
1. Nature of Operations and Principles of Consolidation
Description of Business
The Simply Good Foods Company (“Simply Good Foods” or the “Company”) is a consumer packaged food and beverage
company that aims to lead the nutritious snacking movement with trusted brands that offer a variety of convenient, innovative, great-
tasting, better-for-you snacks and meal replacements, and other product offerings. The product portfolio the Company develops, markets
and sells consists primarily of protein bars, ready-to-drink (“RTD”) shakes, sweet and salty snacks and confectionery products marketed
under the Atkins® and Quest® brand names. Simply Good Foods is poised to expand its wellness platform through innovation and organic
growth along with acquisition opportunities in the nutritional snacking space.
The Company’s nutritious snacking platform consists of brands that specialize in providing products for consumers that follow
certain nutritional philosophies and health-and-wellness trends: Atkins® for those following a low-carb lifestyle and Quest® for
consumers seeking a variety of protein-rich foods and beverages that also limit sugars and simple carbs. The Company distributes its
products in major retail channels, primarily in North America, including grocery, club, and mass merchandise, as well as through e-
commerce, convenience, specialty, and other channels. The Company’s portfolio of nutritious snacking brands gives it a strong platform
with which to introduce new products, expand distribution, and attract new consumers to its products.
The common stock of Simply Good Foods is listed on the Nasdaq Capital Market under the symbol “SMPL.”
While the Company’s business has improved from the end of fiscal year 2022, the Company’s business performance in fiscal year
2023 was affected by unfavorable raw material costs, higher co-manufacturing costs, and supply chain challenges, including supply chain
disruptions resulting from labor shortages and disruptions in sourcing ingredients. The supply chain environment showed signs of
improvement during the year, which we expect to continue during fiscal year 2024. Additionally, management is continuing to monitor the
dynamic macroeconomic inflationary environment in the United States and elsewhere, elevated levels of supply chain costs, and consumer
behavior. Current or future governmental policies may increase the risk of inflation and possible economic recession, which could further
increase the costs of ingredients, packaging and finished goods for our business as well as negatively effect consumer behavior and
demand for our products.
Basis of Presentation
The consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles
(“GAAP”). The Company maintains its accounting records on a 52/53-week fiscal year, ending on the last Saturday in August.
The financial information presented within the Company’s consolidated financial statements has been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying financial statements include
Consolidated Balance Sheets for the periods ended August 26, 2023 and August 27, 2022. The remaining financial statements include the
fifty-two weeks ended August 26, 2023, the fifty-two weeks ended August 27, 2022, and the fifty-two weeks ended August 28, 2021.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated. Unless the context otherwise requires, “we,” “us,” “our” and the “Company” refer to
Simply Good Foods and its subsidiaries on a consolidated basis.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Fair Value Measurements
Fair value represents the price that would be received to sell an asset or paid to transfer a liability in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and
liabilities are valued based upon observable and non-observable inputs. Valuations using Level 1 inputs are based on unadjusted quoted
55
prices that are available in active markets for the identical assets or liabilities at the measurement date. Level 2 inputs utilize significant
other observable inputs available at the measurement date, other than quoted prices included in Level 1. Valuations using Level 3 inputs
are based on significant unobservable inputs that cannot be corroborated by observable market data and require significant judgment. There
were no significant transfers between levels during any period presented.
Cash
Cash consists of cash on hand, deposits available on demand and other short-term, highly liquid investments with original
maturities of three months or less.
Accounts Receivable, Net and Expected Credit Losses
Accounts receivable, net consists primarily of trade receivables, net of allowances for doubtful accounts, returns, and trade
promotions. The Company sells its products for cash or on credit terms, which are established in accordance with local and industry
practices and typically require payment within 30 days of delivery and may allow discounts for early payment. The Company estimates its
allowance for doubtful accounts and the related expected credit loss based upon the Company’s historical credit loss experience, adjusted
for asset-specific risk characteristics, current economic conditions, and reasonable forecasts. Accounts receivable are written off when
determined to be uncollectible.
Charges related to credit loss on accounts receivables from transactions with external customers were approximately $0.7 million,
$0.1 million, and $0.6 million for the fifty-two weeks ended August 26, 2023, August 27, 2022, and August 28, 2021, respectively. As of
August 26, 2023 and August 27, 2022, the allowance for doubtful accounts was $1.9 million and $1.2 million, respectively. Additionally,
as of August 26, 2023, the Company had an expected credit loss reserve of $1.0 million on its $3.0 million note receivable related to the
SimplyProtein Sale, as defined in Note 4, Goodwill and Intangibles, of which $0.5 million was recorded during each of the fifty-two weeks
ended August 27, 2022 and August 28, 2021, respectively.
Inventories
Inventories are valued at the lower of cost or net realizable value on a first-in, first-out basis, adjusted for the value of inventory
that is determined to be excess, obsolete, expired or unsaleable. Obsolete inventory is reserved at 50% for inventory four to six months
from expiration, and 100% for items within three months of expiration. Reserves are also taken for certain products or packaging materials
when it is determined their cost may not be recoverable.
Inventories, as presented with the Consolidated Balance Sheets, is summarized as follows:
(In thousands)
Finished goods
Raw materials
Reserve for obsolete inventory
Total inventories
August 26, 2023
August 27, 2022
$
$
111,761 $
116,047
6,512
(1,682)
10,870
(1,438)
116,591 $
125,479
Property and Equipment, Net
Property and equipment, net is stated at the allocated fair value for acquired assets. Additions to property and equipment are
recorded at cost and depreciated on a straight-line basis over their estimated useful lives. The general ranges of estimated useful lives are:
Furniture and fixtures
Computer equipment, software and website development costs
Machinery and equipment
Office equipment
7 years
3 - 5 years
5 - 7 years
3 - 5 years
Leasehold improvements are amortized over the shorter of the remaining term of the lease or the useful life of the improvement
utilizing the straight-line method.
The Company performs impairment tests for Property and equipment, net when circumstances indicate that the carrying value of
the asset may not be recoverable. There were no indicators of impairment in the fifty-two weeks ended August 26, 2023, August 27, 2022,
or August 28, 2021.
56
Goodwill and Intangible Assets, Net
Goodwill and Intangible assets, net result primarily from the consummation of the business combination between Conyers Park
Acquisition Corp. and NCP-ATK Holdings, Inc. on July 7, 2017, which created the Company, and the acquisition of Quest. Intangible
assets primarily includes brands and trademarks with indefinite lives and customer-related relationships with finite lives. Upon acquisition,
the purchase price is first allocated to identifiable assets and liabilities, including customer-related intangible assets and trademarks, with
any remaining purchase price recorded as Goodwill.
Goodwill and indefinite-lived intangible assets are not amortized but instead are tested for impairment at least annually, or more
frequently if indicators of impairment exist. The Company conducts its annual impairment tests at the beginning of the fourth fiscal
quarter. Goodwill and indefinite-lived intangible assets are assessed using either a qualitative or quantitative approach to determine
whether it is more likely than not that the fair value of a reporting unit or an indefinite-lived intangible asset is less than its carrying
amount. The qualitative assessment evaluates factors including macro-economic conditions, industry-specific and company-specific
considerations, legal and regulatory environments, and historical performance. If the Company determines that it is more likely than not
that the fair value of a reporting unit or an indefinite-lived intangible asset is less than its carrying value, a quantitative assessment is
performed. Otherwise, no further assessment is required. The quantitative approach compares the estimated fair value of the reporting unit,
including goodwill, or the indefinite-lived intangible asset to its carrying amount. Impairment is indicated if the estimated fair value of the
reporting unit or indefinite-lived intangible asset is less than the carrying amount, and an impairment charge is recognized for the
differential.
For fiscal year 2023, the Company performed a qualitative goodwill impairment assessment for its consolidated reporting unit and
its indefinite-lived intangible assets. The qualitative assessments did not identify indicators of impairment, and it was determined that it
was more likely than not the reporting unit and indefinite-lived intangibles had fair values in excess of their carrying values. Accordingly,
no further impairment assessment was necessary, and the Company determined neither its reporting unit nor any indefinite-lived
intangibles were impaired. There were no impairment charges related to goodwill in the fifty-two weeks ended August 26, 2023 or since
the inception of the Company. There were no impairment charges related to indefinite-lived intangibles recognized in the fifty-two weeks
ended August 26, 2023 or August 27, 2022. Refer to Note 4, Goodwill and Intangibles for additional information regarding the Company’s
reporting units and impairment assessments.
Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. The Company reviews for
impairment indicators of finite-lived intangibles and other long-lived assets as described in the “Property and Equipment, Net” significant
accounting policy.
Deferred Financing Costs and Debt Discounts
Costs incurred in obtaining long-term financing paid to parties other than creditors are considered a deferred financing cost and
are amortized over the terms of the long-term financing agreements using the effective-interest method. Amounts paid to creditors are
recorded as a reduction in the proceeds received by the creditor and are considered a discount on the issuance of debt.
Income Taxes
Income taxes include federal, state and foreign taxes currently payable, and deferred taxes arising from temporary differences
between income for financial reporting and income tax purposes. Deferred tax assets and liabilities are determined based on the differences
between the financial statement balances and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
fiscal year that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to amounts
expected to be realized.
Leases
Contracts are evaluated to determine whether they contain a lease at inception. Leases are classified as either finance leases or
operating leases based on criteria in ASC Topic 842, Leases. The Company’s operating leases are generally comprised of real estate and
certain equipment used in warehousing products. The Company’s finance leases are generally comprised of warehouse equipment.
Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease
payments over the lease term. The majority of the Company’s leases do not provide an implicit rate; therefore, the Company uses its
secured incremental borrowing rate based on the information available at the lease commencement date in determining the present value of
future payments for those leases. The Company’s incremental borrowing rate for a lease is the rate of interest it would pay to borrow on a
collateralized basis over a similar term to the lease in a similar economic environment. The Company applied incremental borrowing rates
using a portfolio approach. Right-of-use assets also include any lease payments made and exclude lease incentives. Lease terms may
57
include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company has
elected not to recognize right-of-use assets and lease liabilities for short-term operating leases that have a term of one year or less.
The Company monitors for triggering events or conditions that require a reassessment of its leases. When the reassessment
requires a re-measurement of the lease liability, a corresponding adjustment is made to the carrying amount of the right-of-use asset.
Additionally, the Company reviewed for impairment indicators of its right-of-use assets and other long-lived assets as described in the
“Property and Equipment, Net” significant accounting policy.
Warrant Accounting
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The
Company evaluates all of its financial instruments, including issued private placement stock purchase warrants, to determine if such
instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC Topic 480, Distinguishing Liabilities
from Equity, and ASC Topic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity (“ASC 815-40”). The classification of
derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is assessed as part of this
evaluation.
During the fifty-two weeks ended August 27, 2022 and August 28, 2021, the Company had outstanding liability-classified private
warrants that allowed holders to purchase 6,700,000 shares of the Company’s common stock (the “Private Warrants”). Such Private
Warrants were held by Conyers Park Sponsor, LLC (“Conyers Park”), a related party. Each whole warrant entitled the holder to purchase
one share of the Company’s common stock at a price of $11.50 per share. On January 7, 2022, Conyers Park elected to exercise the Private
Warrants in full on a cashless basis, resulting in a net issuance of 4,830,761 shares of the Company’s common stock. As a result of the
cashless exercise on January 7, 2022, there were no outstanding liability-classified Private Warrants as of August 26, 2023 or August 27,
2022.
During the reporting periods the Private Warrants were outstanding, they were precluded from equity classification, being
liability-classified. The Company accounted for these Private Warrants as a derivative warrant liability in accordance with ASC 815-40.
Accordingly, the Company recognized the Private Warrants as a liability at fair value and adjusted the Private Warrants to fair value at
each reporting period through other income. The fair value adjustments were determined using a Black-Scholes option-pricing
methodology (“Black-Scholes model”). The valuation was primarily based on observable market data while the related theoretical private
warrant volatility assumption within the Black-Scholes model represented a Level 3 measurement within the fair value measurement
hierarchy. The periodic remeasurement of the Private Warrants was reflected in (Loss) in fair value change of warrant liability within the
Consolidated Statements of Income and Comprehensive Income.
Revenue Recognition
The Company recognizes revenue when performance obligations under the terms of a contract with its customer are satisfied. The
Company has determined that fulfilling and delivering products is a single performance obligation. Revenue is recognized at the point in
time when the Company has satisfied its performance obligation and the customer has obtained control of the products. This generally
occurs when the product is delivered to or picked up by the customer based on applicable shipping terms, which is typically within 30
days.
Revenue is measured as the amount of consideration expected to be received in exchange for fulfilled product orders, including
estimates of variable consideration. The most common forms of variable consideration include trade promotions, such as consumer
incentives, coupon redemptions and other marketing activities, allowances for unsaleable product, and any additional amounts where a
distinct good or service cannot be identified or the value cannot be reasonably estimated. Trade promotions are recorded as a reduction to
net sales with a corresponding reduction to accounts receivable at the time of revenue recognition for the underlying sale. The recognition
of trade promotions requires management to make estimates regarding the volume of incentive that will be redeemed and their total cost.
As of August 26, 2023 and August 27, 2022, the allowance for trade promotions was $28.8 million and $23.9 million, respectively.
Estimates of variable consideration are made using various information including historical data on performance of similar trade
promotional activities, market data from IRI, and the Company’s best estimate of current activity. The Company reviews these estimates
regularly and makes revisions as necessary. Revisions can include changes for consideration paid to customers that lack sufficient evidence
to support a distinct good or service assertion, or for which a reasonably estimable fair value cannot be determined, primarily related to the
Company’s assessments of cooperative advertising programs. Uncertainties related to the estimate of variable consideration are resolved in
a short time frame and do not require any additional constraint on variable consideration. Adjustments to variable consideration are
recognized in the period the adjustments are identified and have historically been insignificant. Revenue is recognized net of any taxes
collected from customers and subsequently remitted to governmental authorities.
The Company provides standard assurance type warranties that its products will comply with all agreed-upon specifications. No
58
services beyond an assurance type warranty are provided to customers. While customers generally have a right to return defective or non-
conforming products, past experience has demonstrated that product returns have been immaterial. Customer remedies for defective or
non-conforming products may include a refund or exchange. As a result, the right of return is estimated and recorded as a reduction in
revenue at the time of sale, if necessary.
The Company’s customer contracts identify product quantity, price and payment terms. Payment terms are granted consistent with
industry standards. Although some payment terms may be more extended, the majority of the Company’s payment terms are less than 60
days. As a result, revenue is not adjusted for the effects of a significant financing component. Amounts billed and due from customers are
classified as Accounts receivable, net on the Consolidated Balance Sheets.
The Company utilizes third-party contract manufacturers for the manufacture of its products. The Company has evaluated whether
it is the principal or agent in these relationships. The Company has determined that it is the principal in all cases, as it retains the
responsibility for fulfillment and risk of loss, as well as establishes the price.
In accordance with ASC Topic 606, Revenue from Contracts with Customers, the Company has elected the practical expedient to
expense the incremental costs to obtain a contract, because the amortization period would be less than one year, and the practical expedient
for shipping and handling costs. Shipping and handling costs incurred to deliver products to customers are accounted for as fulfillment
activities, rather than a promised service, and as such are included in Cost of goods sold in the Consolidated Statements of Income and
Comprehensive Income.
Revenues from transactions with external customers for each of the Company’s products would be impracticable to disclose and
management does not view its business by product line. For revenue disaggregated by geographic area and brand refer to Note 14,
Segment and Customer Information.
Cost of Goods Sold
Costs of goods sold represent costs directly related to the manufacture and distribution of the Company’s products. Such costs
include raw materials, co-manufacturing costs, packaging, shipping and handling, third-party distribution, and depreciation of distribution
center equipment and leasehold improvements.
Shipping and Handling Costs
Shipping and handling costs include costs paid to third-party warehouse operators associated with delivering product to customers
and depreciation and amortization of company-owned assets at the third-party warehouse. Shipping and handling costs are recognized in
Cost of goods sold. Costs relating to products shipped to customers were $89.2 million, $91.7 million, and $66.5 million for the fifty-two
weeks ended August 26, 2023, August 27, 2022, and August 28, 2021, respectively.
Advertising Costs
Production costs related to television commercials are expensed when first aired. All other advertising costs are expensed when
incurred or when the advertising service is received through Selling and marketing. Total advertising costs were $79.2 million,
$84.3 million, and $74.9 million for the fifty-two weeks ended August 26, 2023, August 27, 2022, and August 28, 2021, respectively.
Production costs related to television commercials not yet aired and prepaid advertising services not yet received are included in
Prepaid expenses in the accompanying Consolidated Balance Sheets. As of August 26, 2023 and August 27, 2022, total prepaid
advertising expenses were $1.8 million and $2.0 million, respectively.
Research and Development Activities
The Company’s research and development activities primarily consist of generating and testing new product concepts, new
flavors and packaging. The Company expenses research and development costs as incurred related to compensation, facility costs,
consulting, and supplies. Research and development activities are primarily internal and associated costs are included in General and
administrative. The Company’s total research and development expenses were $4.3 million, $4.1 million, and $3.5 million for the fifty-two
weeks ended August 26, 2023, August 27, 2022, and August 28, 2021, respectively.
Share-Based Compensation
The Company uses share-based compensation, including stock options, restricted stock units, performance stock units, and stock
appreciation rights, to provide long-term performance incentives for its employees, directors, and consultants. Share-based compensation is
recognized on a straight-line basis over the requisite service period of the award based on their grant-date fair value. Forfeitures are
59
recognized as they occur. Share-based compensation expense is included in General and administrative.
Defined Contribution Plan
The Company sponsors defined contribution plans to provide retirement benefits to its employees. The Company’s 401(k) plan
and similar plans for non-domestic employees are based on a portion of eligible pay up to a defined maximum. All matching contributions
are made in cash. Expense associated with defined contribution plans was $1.4 million, $1.1 million, and $1.4 million for the fifty-two
weeks ended August 26, 2023, August 27, 2022, and August 28, 2021, respectively.
Foreign Currency Translation
For all foreign operations, the functional currency is the local currency. Assets and liabilities of these operations are translated
into U.S. dollars using the exchange rate in effect at the end of each reporting period. Income statement accounts are translated at the
average exchange rate prevailing during each reporting period. Translation adjustments are recorded as a component of Other
comprehensive income. Gains or losses resulting from transactions in foreign currencies are included in Other income (expense).
Recently Issued and Adopted Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet Adopted
In March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-04,
Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which
provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial
reporting. Additionally, in December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848), Deferral of the Sunset
Date of Topic 848, which extended the period of time for which ASU 2020-04 could be applied. As a result, the amendments in
ASU 2020-04 can be applied to contract modifications due to rate reform and eligible existing and new hedging relationships entered into
between March 12, 2020 and December 31, 2024. The amendments of these ASUs are effective for all entities and should be applied on a
prospective basis.
On January 21, 2022, the Company entered into a repricing amendment (the “2022 Repricing Amendment”) to its credit
agreement with Barclays Bank PLC and other parties (as amended to date, the “Credit Agreement”), as described in Note 6, Long-Term
Debt and Line of Credit. In addition to replacing the London Interbank Offered Rate (“LIBOR”) as the Credit Agreement’s reference rate
with the Secured Overnight Financing Rate (“SOFR”), the 2022 Repricing Amendment contemporaneously modified other terms that
changed, or had the potential to change, the amount or timing of contractual cash flows as contemplated by the guidance in ASU 2020-04.
As such, the contract modifications related to the 2022 Repricing Amendment were outside of the scope of the optional guidance in
ASU 2020-04. The Company will continue to monitor the effects of rate reform, if any, on any new or amended contracts through
December 31, 2024. The Company does not anticipate the amendments in this ASU will be material to its consolidated financial
statements.
No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material effect on
the Company’s consolidated financial statements.
3. Property and Equipment, Net
Property and equipment, net, as presented with the Consolidated Balance Sheets, is summarized as follows:
(In thousands)
Furniture and fixtures
Computer equipment and software
Machinery and equipment
Leasehold improvements
Finance lease right-of-use-assets
Construction in progress
Property and equipment, gross
Less: accumulated depreciation
Property and equipment, net
August 26, 2023
August 27, 2022
$
7,291 $
1,570
16,944
9,747
968
221
36,741
(11,880)
$
24,861 $
7,232
1,432
6,292
9,883
1,185
137
26,161
(8,004)
18,157
Total depreciation expense was $4.4 million for the fifty-two weeks ended August 26, 2023, $3.2 million for the fifty-two weeks
60
ended August 27, 2022, and $2.3 million for the fifty-two weeks ended August 28, 2021.
4. Goodwill and Intangibles
As of August 26, 2023 and August 27, 2022, Goodwill in the Consolidated Balance Sheets was $543.1 million. For fiscal year
2023, the Company performed a qualitative goodwill impairment assessment for its consolidated reporting unit. The qualitative assessment
did not identify indicators of impairment, and it was determined that it was more likely than not the reporting unit had a fair value in excess
of its carrying value. Accordingly, no further impairment assessment was necessary, and the Company determined its reporting unit was
not impaired. There were no impairment charges related to goodwill during the fifty-two weeks ended August 26, 2023 or since the
inception of the Company.
During the fifty-two weeks ended August 27, 2022, the Company substantially completed its efforts to fully integrate its
operations and organization structure after the Quest Acquisition. The Company aligned the nature of its production processes and the
methods used to distribute products to customers for the Atkins® and Quest® brands. The Company also designed its organizational
structure to support entity-wide business functions across brands, products, customers, and geographic regions. Additionally, the
Company’s chief operating decision maker reviews operating results and forecasts at the consolidated level. As a result, during fifty-two
weeks ended August 26, 2023 and August 27, 2022, the Company determined its operations are organized into one, consolidated operating
segment and reporting unit. Previously, during the fifty-two weeks ended August 28, 2021, the Company had two reporting units which
were its operating segments, Atkins and Quest.
Intangible assets, net in the Consolidated Balance Sheets consist of the following:
(In thousands)
Intangible assets with indefinite life:
Useful life
Gross carrying
amount
Accumulated
amortization
Net carrying amount
August 26, 2023
Brands and trademarks
Indefinite life
$
974,000 $
— $
974,000
Intangible assets with finite lives:
Customer relationships
Licensing agreements
Proprietary recipes and formulas
Software and website development costs
Intangible assets in progress
(In thousands)
Intangible assets with indefinite life:
Brands and trademarks
Intangible assets with finite lives:
Customer relationships
Licensing agreements
Proprietary recipes and formulas
15 years
13 years
7 years
3 -
3 -
5 years
5 years
$
174,000 $
53,303 $
22,000
7,000
6,328
79
10,498
6,131
5,356
—
120,697
11,502
869
972
79
$
1,183,407 $
75,288 $
1,108,119
Useful life
Gross carrying
amount
Accumulated
amortization
Net carrying amount
August 27, 2022
$
$
Indefinite life
15 years
13 years
7 years
974,000 $
— $
974,000
174,000 $
41,703 $
22,000
7,000
5,863
8,581
5,131
4,190
132,297
13,419
1,869
1,673
Software and website development costs
3
-
5 years
$
1,182,863 $
59,605 $
1,123,258
Changes in Intangible assets, net during the fifty-two weeks ended August 26, 2023 and August 27, 2022 were primarily related
to recurring amortization expense. Changes in Intangible assets, net during the fifty-two weeks ended August 28, 2021 were primarily
related to the sale of the assets and liabilities of the Company’s SimplyProtein brand and recurring amortization expense. In conjunction
with the SimplyProtein Sale, the Company sold its SimplyProtein brand intangible asset, which had a carrying value of approximately $5.0
million as of the date of the sale.
61
During the fifty-two weeks ended August 26, 2023, the Company performed qualitative impairment assessments for its indefinite-
lived intangible assets. The qualitative assessments did not identify indicators of impairment, and it was determined that it was more likely
than not each indefinite-lived intangible asset had fair values in excess of their carrying values. Accordingly, no further impairment
assessment was necessary. There were no impairment charges related to indefinite-lived intangibles recognized in the fifty-two weeks
ended August 26, 2023, August 27, 2022, or August 28, 2021, respectively.
During the fifty-two weeks ended August 26, 2023, the Company did not identify indicators of impairment related to its finite-
lived intangible assets, which are tested for impairment when events or circumstances indicated that the carrying amount may not be
recoverable. There were no impairment charges related to the Company’s finite-lived intangible assets in the fifty-two weeks ended August
26, 2023, August 27, 2022, or August 28, 2021, respectively.
Amortization expense related to intangible assets was $15.7 million for the fifty-two weeks ended August 26, 2023, $15.8 million
for the fifty-two weeks ended August 27, 2022, and $15.6 million for the fifty-two weeks ended August 28, 2021.
Estimated future amortization for each of the next five fiscal years and thereafter is as follows:
(In thousands)
Amortization
2024
2025
2026
2027
2028
Thereafter
Total
$
15,091
13,980
13,740
13,556
13,517
64,156
$
134,040
5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities in the Consolidated Balance Sheets were comprised of the following:
(In thousands)
Accrued professional fees
Accrued advertising allowances and claims
Accrued bonus expenses
Accrued freight expenses
Accrued payroll-related expenses
Accrued commissions
Income taxes payable
VAT payable
Accrued capital expenditures
Other accrued expenses
Current operating lease liabilities
August 26, 2023
August 27, 2022
$
1,290 $
1,960
8,387
1,171
3,792
1,466
65
4,707
2
4,656
7,566
1,039
3,856
12,761
2,065
1,995
1,422
223
5,171
350
4,544
6,249
Accrued expenses and other current liabilities
$
35,062 $
39,675
6. Long-Term Debt and Line of Credit
On July 7, 2017, the Company entered into a credit agreement with Barclays Bank PLC and other parties (as amended to date, the
“Credit Agreement”). The Credit Agreement at that time provided for (i) a term facility of $200.0 million (“Term Facility”) with a seven-
year maturity and (ii) a revolving credit facility of up to $75.0 million (the “Revolving Credit Facility”) with a five-year maturity.
Substantially concurrent with the consummation of the business combination which formed the Company between Conyers Park
Acquisition Corp. and NCP-ATK Holdings, Inc. on July 7, 2017, the full $200.0 million of the Term Facility (the “Term Loan”) was
drawn.
On November 7, 2019, the Company entered into a second amendment (the “Incremental Facility Amendment”) to the Credit
Agreement to increase the principal borrowed on the Term Facility by $460.0 million. The Term Facility together with the incremental
62
borrowing make up the Initial Term Loans (as defined in the Incremental Facility Amendment). The Incremental Facility Amendment was
executed to partially finance the acquisition of Quest Nutrition, LLC on November 7, 2019. No amounts under the Term Facility were
repaid as a result of the execution of the Incremental Facility Amendment.
Effective as of December 16, 2021, the Company entered into a third amendment (the “Extension Amendment”) to the Credit
Agreement. The Extension Amendment provided for an extension of the stated maturity date of the Revolving Commitments and
Revolving Loans (each as defined in the Credit Agreement) from July 7, 2022 to the earlier of (i) 91 days prior to the then-effective
maturity date of the Initial Term Loans and (ii) December 16, 2026.
On January 21, 2022, the Company entered into the “2022 Repricing Amendment” to the Credit Agreement. The 2022 Repricing
Amendment, among other things, (i) reduced the interest rate per annum applicable to the Initial Term Loans outstanding under the Credit
Agreement immediately prior to the effective date of the 2022 Repricing Amendment, (ii) reset the prepayment premium for the existing
Initial Term Loans to apply to Repricing Transactions (as defined in the Credit Agreement) that occur within six months after the effective
date of the 2022 Repricing Amendment, and (iii) implemented SOFR and related replacement provisions for LIBOR.
On April 25, 2023, the Company entered into the “2023 Repricing Amendment” to the Credit Agreement. The 2023 Repricing
Amendment, (i) reduced the interest rate per annum applicable to the Initial Term Loans outstanding under the Credit Agreement
immediately prior to April 25, 2023, and (ii) provided for an extension of the maturity date of the Initial Term Loans from July 7, 2024, to
March 17, 2027.
The 2023 Repricing Amendment did not change the interest rate on the Revolving Credit Facility, which continues to bear interest
based upon the Company’s consolidated net leverage ratio as of the end of the fiscal quarter for which consolidated financial statements are
delivered to the Administrative Agent under the Credit Agreement. No additional debt was incurred, or any proceeds received by the
Company in connection with the 2023 Repricing Amendment. No amounts under the Term Facility were repaid as a result of the execution
of the 2023 Repricing Amendment.
Effective as of the 2023 Repricing Amendment, the interest rate per annum for the Initial Term Loans is based on either:
i. A base rate equaling the higher of (a) the “prime rate,” (b) the federal funds effective rate plus 0.50%, or (c) the Adjusted Term
SOFR Rate (as defined in the Credit Agreement) applicable for an interest period of one month plus 1.00% plus (x) 1.50% margin
for the Term Loan or (y) 2.00% margin for the Revolving Credit Facility; or
ii. SOFR plus a credit spread adjustment equal to 0.10% for one-month SOFR, 0.15% for up to three-month SOFR and 0.25% for up
to six-month SOFR, subject to a floor of 0.50%, plus (x) 2.50% margin for the Term Loan or (y) 3.00% margin for the Revolving
Credit Facility.
In connection with the closing of the 2023 Repricing Amendment, the Company expensed $2.4 million primarily for third-party
fees and capitalized an additional $2.7 million primarily for the payment of upfront lender fees (original issue discount).
The Simply Good Foods Company is not a borrower under the Credit Agreement and has not provided a guarantee of the Credit
Agreement. Simply Good Foods USA, Inc., is the administrative borrower and certain other subsidiary holding companies are co-
borrowers under the Credit Agreement. Each of the Company’s domestic subsidiaries that is not a named borrower under the Credit
Agreement has provided a guarantee on a secured basis. As security for the payment or performance of the debt under the Credit
Agreement, the borrowers and the guarantors have pledged certain equity interests in their respective subsidiaries and granted the lenders a
security interest in substantially all of their domestic assets. All guarantors other than Quest Nutrition, LLC are holding companies with no
assets other than their investments in their respective subsidiaries.
The Credit Agreement contains certain financial and other covenants that limit the Company’s ability to, among other things,
incur and/or undertake asset sales and other dispositions, liens, indebtedness, certain acquisitions and investments, consolidations, mergers,
reorganizations and other fundamental changes, payment of dividends and other distributions to equity and warrant holders, and
prepayments of material subordinated debt, in each case, subject to customary exceptions materially consistent with credit facilities of such
type and size. The Revolving Credit Facility has a maximum total net leverage ratio equal to or less than 6.00:1.00 contingent on credit
extensions in excess of 30% of the total amount of commitments available under the Revolving Credit Facility. Any failure to comply with
the restrictions of the credit facilities may result in an event of default. The Company was in compliance with all financial covenants as of
August 26, 2023 and August 27, 2022, respectively.
63
Long-term debt consists of the following:
(In thousands)
August 26, 2023
August 27, 2022
Term Facility (effective rate of 7.9% at August 26, 2023)
$
285,000 $
406,500
Finance lease liabilities (effective rate of 5.6% at August 26, 2023)
Less: Deferred financing fees
Total debt
Less: Current finance lease liabilities
143
3,351
281,792
143
Long-term debt, net of deferred financing fees
$
281,649 $
406
3,620
403,286
264
403,022
As of August 26, 2023, the Company had letters of credit in the amount of $3.5 million outstanding. These letters of credit offset
against the $75.0 million availability of the Revolving Credit Facility and exist to support three of the Company’s leased buildings and
insurance programs relating to workers’ compensation. No amounts were drawn against these letters of credit at August 26, 2023.
The Company is not required to make principal payments on the Term Facility over the twelve months following the period ended
August 26, 2023. The outstanding balance of the Term Facility is due upon its maturity in March 2027.
As of August 26, 2023, aggregate principal maturities of debt for each of the next five fiscal years and thereafter are as follows:
(In thousands)
Principal maturities
2024
2025
2026
2027
2028
Thereafter
Total debt
$
143
—
—
285,000
—
—
$
285,143
The Company utilizes market approaches to estimate the fair value of certain outstanding borrowings by discounting anticipated
future cash flows derived from the contractual terms of the obligations and observable market interest and foreign exchange rates. The
Company carries debt at historical cost and discloses fair value. As of August 26, 2023 and August 27, 2022, the book value of the
Company’s debt approximated fair value. The estimated fair value of the Term Loan is valued based on observable inputs and classified as
Level 2 in the fair value hierarchy.
7. Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. To increase the comparability of fair value measurements, a three-tier fair value
hierarchy, which prioritizes the inputs used in the valuation methodologies, is used:
Level 1 – Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 – Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar
assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or
other inputs that are observable or can be corroborated by observable market data.
Level 3 – Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably
available assumptions made by other market participants. These valuations require significant judgment.
Level 3 Measurements
During the fifty-two weeks ended August 27, 2022 and August 28, 2021, the Company had outstanding liability-classified Private
Warrants that allowed holders to purchase 6,700,000 shares of the Company’s common stock. Such Private Warrants were held by
Conyers Park Sponsor, LLC (“Conyers Park”), a related party. On January 7, 2022, Conyers Park elected to exercise the Private Warrants
in full on a cashless basis, resulting in a net issuance of 4,830,761 shares of the Company’s common stock. As a result of Conyers Park’s
election to exercise the Private Warrants, there were no outstanding liability-classified Private Warrants as of August 26, 2023 or
64
August 27, 2022. Refer to Note 11, Stockholders’ Equity, for additional details regarding the cashless exercise of the Private Warrants.
The Company utilized the Black-Scholes model to estimate the fair value of the Private Warrants at each reporting date. The
application of the Black-Scholes model utilizes significant assumptions, including volatility. Significant judgment is required in
determining the expected volatility, historically the key assumption, of the Private Warrants. In order to determine the most accurate
measure of this volatility, the Company measured expected volatility based on several inputs, including considering a peer group of
publicly traded companies, the Company’s implied volatility based on traded options, the implied volatility of comparable warrants, and
the implied volatility of any outstanding public warrants during the periods they were outstanding. As a result of the unobservable inputs
that were used to determine the expected volatility of the Private Warrants, the fair value measurement of these warrants reflected a Level
3 measurement within the fair value measurement hierarchy.
The periodic remeasurement of the warrant liability has been reflected in (Loss) in fair value change of warrant liability within
the Consolidated Statements of Income and Comprehensive Income. The adjustments for the fifty-two weeks ended August 27, 2022 and
August 28, 2021 resulted in a loss of $30.1 million and $66.2 million, respectively. As a result of the warrant exercise on January 7, 2022,
there was no associated adjustment during the fifty-two weeks ended August 26, 2023.
There were no transfers of financial instruments between the three levels of the fair value hierarchy during the fiscal years ended
August 26, 2023, August 27, 2022, and August 28, 2021, respectively.
Additionally, all other components of the balance sheet such as accounts receivable, cash and cash equivalents and others
approximated fair value as of August 26, 2023.
8. Income Taxes
The sources of income before income taxes are as follows:
(In thousands)
Domestic
Foreign
Total income before income taxes
52-Weeks Ended
52-Weeks Ended
52-Weeks Ended
August 26, 2023
August 27, 2022
August 28, 2021
$
$
173,733 $
148,080 $
1,959
2,489
175,692 $
150,569 $
79,526
1,334
80,860
Income tax expense was comprised of the following:
(In thousands)
Current:
Federal
State and local
Foreign
Total current expense
Deferred:
Federal
State and local
Foreign
Total deferred income tax expense
Total tax expense
52-Weeks Ended
52-Weeks Ended
52-Weeks Ended
August 26, 2023
August 27, 2022
August 28, 2021
24,740 $
22,733 $
6,128
659
6,226
1,247
31,527 $
30,206 $
8,804 $
11,218 $
1,740
46
10,590
1,614
(1,043)
11,789
23,225
5,800
1,552
30,577
5,982
3,096
325
9,403
42,117 $
41,995 $
39,980
$
$
$
$
65
A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:
(In thousands)
Statutory income tax expense:
Change in fair value of warrant liabilities
State income tax expense, net of federal
Valuation allowance
Taxes on foreign income above the U.S. tax
Change in tax rate
Other permanent items
Income tax expense
52-Weeks Ended
52-Weeks Ended
52-Weeks Ended
August 26, 2023
August 27, 2022
August 28, 2021
21.0 %
21.0 %
—
4.0
—
0.2
—
(1.2)
24.0 %
5.0
4.2
(1.5)
1.3
(0.2)
(1.9)
27.9 %
49.4 %
21.0 %
20.5
4.3
(1.2)
1.6
1.8
1.4
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities at August 26,
2023 and August 27, 2022 were as follows:
(In thousands)
Deferred tax assets
August 26, 2023
August 27, 2022
Accounts receivable allowances
$
1,381 $
Accrued expenses
Share based compensation
Lease liabilities
Tax capitalization of inventory costs
Transaction costs
Federal benefit of state taxes
Other
Deferred tax assets
Deferred tax liabilities:
Excess tax over book depreciation
Intangible assets
Lease right-of-use assets
Other
Deferred tax liabilities
Net deferred tax liabilities
3,732
4,398
11,200
2,177
1,961
1,418
1,664
27,931
(4,870)
(127,791)
(9,997)
(1,406)
(144,064)
$
(116,133) $
1,519
4,330
3,430
12,733
2,257
2,137
1,444
659
28,509
(3,776)
(116,682)
(11,660)
(1,935)
(134,053)
(105,544)
The Company had state net operating loss carryforwards of $0.3 million and $2.1 million at August 26, 2023 and August 27,
2022, respectively. The state net operating loss carryforwards will begin to expire in 2030.
As of August 26, 2023, the Company has no valuation allowances on its deferred tax assets.
As of August 26, 2023, the Company does not intend to indefinitely reinvest its foreign earnings within its subsidiary in Canada
and has not recognized any tax liabilities related to this jurisdiction. It is the Company’s intention to reinvest the earnings of its other non-
U.S. subsidiaries in its Australia and New Zealand operations. As of August 26, 2023, the Company has not made a provision for U.S. or
additional foreign withholding taxes for any outside basis differences inherent in its investments in foreign subsidiaries that are indefinitely
reinvested. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.
As of August 26, 2023 and August 27, 2022, the Company has no unrecognized tax benefits.
The Company records interest and penalties associated with unrecognized tax benefits as a component of tax expense. As of
August 26, 2023 and August 27, 2022, the Company has not accrued any interest or penalties on unrecognized tax benefits, as there is no
position recorded as of these fiscal year-ends. No changes to the uncertain tax position balance are anticipated within the next 12 months,
66
and are not expected to materially affect the financial statements.
As of August 26, 2023, tax years 2016 to 2022 remain subject to examination in the United States and the tax years 2016 to 2022
remain subject to examination in other major foreign jurisdictions where the Company conducts business. State income tax returns are
generally subject to examination for a period of three to six years after the filing of the respective return.
9. Leases
The components of lease expense were as follows.
Statement of Operations Caption
August 26, 2023
August 27, 2022
August 28, 2021
52-Weeks Ended
52-Weeks Ended
52-Weeks Ended
Cost of goods sold and General and
administrative
Cost of goods sold and General and
administrative
(In thousands)
Operating lease cost:
Lease cost
Variable lease cost (1)
Total operating lease cost
Finance lease cost:
Amortization of right-of use assets
Cost of goods sold
Interest on lease liabilities
Interest expense
Total finance lease cost
Total lease cost
$
$
$
$
$
8,998 $
9,077 $
3,556
3,068
12,554 $
12,145 $
241 $
14
255 $
273 $
30
303 $
6,752
1,681
8,433
273
45
318
12,809 $
12,448 $
8,751
(1)Variable lease cost primarily consists of common area maintenance, such as cleaning and repairs.
In conjunction with the Company’s restructuring activities as discussed in Note 15, Restructuring and Related Charges, the
Company recorded an immaterial gain on lease termination related to its lease in the Netherlands in the fifty-two weeks ended August 27,
2022 and a $0.5 million impairment charge, net of a gain on lease termination, related to its leases in Toronto, Ontario and the Netherlands
in the fifty-two weeks ended August 28, 2021. The effect of these restructuring activities has been included within General and
administrative on the Consolidated Statements of Income and Comprehensive Income. Refer to Note 15, Restructuring and Related
Charges, for additional information regarding restructuring activities.
The right-of-use assets and corresponding liabilities related to both operating and finance leases are as follows:
(In thousands)
Assets
Balance Sheets Caption
August 26, 2023
August 27, 2022
Operating lease right-of-use assets
Other long-term assets
Finance lease right-of-use assets
Property and equipment, net
Total lease assets
Liabilities
Current:
$
$
40,022 $
125
40,147 $
Operating lease liabilities
Accrued expenses and other current liabilities
$
Finance lease liabilities
Current maturities of long-term debt
Long-term:
Operating lease liabilities
Other long-term liabilities
Finance lease liabilities
Long-term debt, less current maturities
7,566 $
143
37,272
—
Total lease liabilities
$
44,981 $
46,460
367
46,827
6,249
264
44,482
142
51,137
67
Future maturities of lease liabilities as of August 26, 2023 were as follows:
(In thousands)
Fiscal year ending:
Operating Leases
Finance Leases
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less: Interest
$
9,476 $
8,750
6,952
7,110
6,447
13,496
52,231
(7,393)
Present value of lease liabilities
$
44,838 $
145
—
—
—
—
—
145
(2)
143
The weighted-average remaining lease terms and weighted-average discount rates for operating and finance leases were as
follows:
Weighted-average remaining lease term (in years)
August 26, 2023
August 27, 2022
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
6.24
0.61
4.4 %
5.6 %
7.27
1.51
4.7 %
5.6 %
Supplemental and other information related to leases was as follows:
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
52-Weeks Ended
August 26, 2023
52-Weeks Ended
August 27, 2022
52-Weeks Ended
August 28, 2021
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
$
$
$
11,002 $
544 $
278 $
9,656 $
631 $
313 $
7,622
37
314
10. Commitments and Contingencies
Litigation
The Company is a party to certain litigation and claims that are considered normal to the operations of the business. From time to
time, the Company has been and may again become involved in legal proceedings arising in the ordinary course of business. The Company
is not presently a party to any litigation that it believes to be material, and the Company is not aware of any pending or threatened litigation
against it that its management believes could have a material adverse effect on its business, operating results, financial condition or cash
flows.
During the fifty-two weeks ended August 28, 2021, the Company received a $5.0 million gain on a legal settlement, which has
been presented as an item within Other income (expense) in the Consolidated Statements of Income and Comprehensive Income.
Other
The Company enters into endorsement contracts with certain celebrity figures and social media influencers to promote and
endorse the Atkins® and Quest® brands and product lines. These contracts contain endorsement fees, which are expensed ratably over the
life of the contract, and performance fees, that are recognized at the time of achievement. Based on the terms of contracts in place and
achievement of performance conditions as of August 26, 2023, the Company will be required to make payments of $3.5 million over the
next year.
68
11. Stockholders’ Equity
Public Equity Offering
On October 9, 2019, the Company completed an underwritten public offering of 13,379,205 shares of common stock at a price to
the public of $26.35 per share. The Company paid underwriting discounts and commissions of $0.19 per share resulting in net proceeds to
the Company of $26.16 per share, or approximately $350.0 million (the “Offering”). The Company paid $0.8 million for legal, accounting
and registrations fees related to the Offering. The net proceeds were used to pay a portion of the purchase price and related fees and
expenses for the Quest Acquisition.
Warrants to Purchase Common Stock
During the fifty-two weeks ended August 27, 2022, the Company had outstanding liability-classified Private Warrants that
allowed holders to purchase 6,700,000 shares of the Company’s common stock. Such Private Warrants were held by Conyers Park, a
related party. Each whole warrant entitled the holder to purchase one share of the Company’s common stock at a price of $11.50 per share.
On January 7, 2022, Conyers Park elected to exercise the Private Warrants in full on a cashless basis, resulting in a net issuance of
4,830,761 shares of the Company’s common stock. As a result of the cashless exercise on January 7, 2022, there were no outstanding
liability-classified Private Warrants as of August 26, 2023 or August 27, 2022.
As discussed in Note 7, Fair Value of Financial Instruments, the liability-classified warrants were remeasured on a recurring basis,
primarily based on observable market data while the related theoretical private warrant volatility assumption within the Black-Scholes
model represents a Level 3 measurement within the fair value measurement hierarchy. The periodic fair value remeasurements of the
warrant liability, including the cashless exercise and the settlement of the warrant liability, have been reflected in (Loss) in fair value
change of warrant liability within the Consolidated Statements of Income and Comprehensive Income.
Stock Repurchase Program
The Company adopted a $50.0 million stock repurchase program on November 13, 2018. On April 13, 2022, and October 21,
2022, the Company announced that its Board of Directors had approved the addition of $50.0 million and $50.0 million, respectively, to its
stock repurchase program, resulting in authorized stock repurchases of up to an aggregate of $150.0 million. Under the stock repurchase
program, the Company may repurchase shares from time to time in the open market or in privately negotiated transactions. The stock
repurchase program does not obligate the Company to acquire any specific number of shares or acquire shares over any specific period of
time. The stock repurchase program may be suspended or discontinued at any time by the Company and does not have an expiration date.
During the fifty-two weeks ended August 26, 2023, the Company repurchased 546,346 shares of common stock at an average
share price of $30.11 per share. During the fifty-two weeks ended August 27, 2022, the Company repurchased 1,720,520 shares of
common stock at an average share price of $34.79 per share. The Company did not repurchase any shares of common stock during the
fifty-two weeks ended August 28, 2021. As of August 26, 2023, approximately $71.5 million remained available under the stock
repurchase program.
Accumulated Other Comprehensive Loss
During the fifty-two weeks ended August 27, 2022, the Company recognized a foreign currency translation gain of $1.1 million
related to the liquidation of a foreign subsidiary. The gain is reflected as a component of Other income (expense) in (Loss) gain on foreign
currency transactions within the Consolidated Statements of Income and Comprehensive Income.
12. Earnings Per Share
Basic earnings or loss per share is based on the weighted average number of common shares issued and outstanding. In computing
diluted earnings per share, basic earnings per share is adjusted for the assumed issuance of all potentially dilutive securities, including the
Company’s employee stock options, non-vested stock units, and Private Warrants for the periods during which they were outstanding.
During periods when the effect of the outstanding Private Warrants was dilutive, the Company assumed share settlement of the instruments
as of the beginning of the reporting period and adjusted the numerator to remove the change in fair value of the warrant liability and
adjusted the denominator to include the dilutive shares, calculated using the treasury stock method. During periods when the effect of the
outstanding Private Warrants was anti-dilutive, the share settlement was excluded.
In periods in which the Company has a net loss, diluted loss per share is based on the weighted average number of common shares
issued and outstanding as the effect of including common stock equivalents outstanding would be anti-dilutive.
69
The following table reconciles the numerators and denominators used in the computations of both basic and diluted earnings per
share:
(In thousands, except share and per share data)
August 26, 2023
August 27, 2022
August 28, 2021
52-Weeks Ended
52-Weeks Ended
52-Weeks Ended
Basic earnings per share computation:
Numerator:
Net income available to common stock stockholders
$
133,575 $
108,574 $
40,880
Denominator:
Weighted average common shares outstanding – basic
99,442,046
98,754,913
95,743,413
Basic earnings per share from net income
Diluted earnings per share computation:
Numerator:
Numerator for diluted earnings per share
Denominator:
$
$
1.34 $
1.10 $
0.43
133,575 $
108,574 $
40,880
Weighted average common shares outstanding – basic
99,442,046
98,754,913
Employee stock options
Non-vested stock units
1,241,762
196,271
1,578,329
255,914
Weighted average common shares – diluted
100,880,079
100,589,156
95,743,413
1,311,889
310,296
97,365,598
Diluted earnings per share from net income
$
1.32 $
1.08 $
0.42
Diluted earnings per share calculations for the fifty-two weeks ended August 26, 2023 and August 27, 2022 excluded zero and 0.7
million shares, issuable upon exercise of Private Warrants, respectively, that would have been anti-dilutive.
Diluted earnings per share calculations for the fifty-two weeks ended August 26, 2023, August 27, 2022, and August 28, 2021
excluded 0.6 million shares, 0.3 million shares, and an immaterial number of shares of common stock issuable upon exercise of stock
options, respectively, that would have been anti-dilutive.
Diluted earnings per share calculations for the fifty-two weeks ended August 26, 2023, August 27, 2022, and August 28, 2021
excluded an immaterial number of non-vested stock units that would have been anti-dilutive.
13. Omnibus Incentive Plan
Stock-based compensation includes stock options, restricted stock units, performance stock unit awards, and stock appreciation
rights, which are awarded to employees, directors, and consultants of the Company. Stock-based compensation expense is recognized on a
straight-line basis over the requisite service period of the award based on its grant date fair value. Stock-based compensation expense is
included within General and administrative expense, which is the same financial statement caption where the recipient’s other
compensation is reported.
For the fifty-two weeks ended August 26, 2023, August 27, 2022, and August 28, 2021, the Company recorded stock-based
compensation expense of $14.5 million, $11.7 million, and $8.3 million, respectively.
In July 2017, the Company’s stockholders approved the 2017 Omnibus Incentive Plan (the “Incentive Plan”). The Incentive Plan
provides for the issuance of a maximum of 9,067,917 shares of stock-denominated awards to directors, employees, officers and agents of
the Company. As of August 26, 2023, there were 3.5 million shares available for grant under the Incentive Plan.
Stock Options
Stock options granted under the Incentive Plan are granted at a price equal to or more than the fair value of common stock on the
date the option is granted. Stock options under the Incentive Plan generally become exercisable ratably over three years from the date of
grant and must be exercised within ten years from the date of grant.
The following table summarizes stock option activity for the fifty-two weeks ended August 26, 2023:
70
(In thousands, except share and per share data)
Outstanding as of August 27, 2022
Granted
Exercised
Forfeited
Outstanding as of August 26, 2023
Vested and expected to vest as of August 26, 2023
Exercisable as of August 26, 2023
Shares underlying
options
Weighted average
exercise price
2,776,551 $
285,001
(357,466)
(35,624)
2,668,462 $
2,668,462 $
2,030,917 $
18.04
37.73
14.68
32.04
20.41
20.41
15.62
Weighted average
remaining life
(years)
Aggregate intrinsic
value
6.10
$
39,702
5.56
5.56
4.66
$
$
$
39,610
39,610
38,539
The following table summarizes information about stock options outstanding at August 26, 2023:
Range of Exercise Prices
Number outstanding
Weighted average
exercise price
Weighted average
remaining life (years)
Number exercisable
Weighted average
exercise price
$
$
$
$
$
12.00 - 17.77
17.78 - 23.55
23.56 - 29.33
29.34 - 35.11
35.12 - 40.88
1,408,964
$
478,275
178,392
—
602,831
2,668,462
$
12.44
20.27
24.35
—
37.97
20.41
3.99
6.17
6.18
0.00
8.59
5.56
1,408,964 $
403,727
176,191
—
42,035
2,030,917 $
12.44
20.27
24.30
—
40.88
15.62
The weighted average fair value of options granted during the fifty-two weeks ended August 26, 2023, August 27, 2022, and
August 28, 2021 were $16.58, $15.32 and $9.99, respectively.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes Option Pricing Model based on the
following assumptions:
Expected volatility
Expected dividend yield
Expected option term
Risk-free rate of return
52-Weeks Ended
52-Weeks Ended
52-Weeks Ended
August 26, 2023
August 27, 2022
August 28, 2021
39.00%
—%
6
4.27%
37.07%
36.80 % - 38.75%
—%
6
1.26%
—%
6
0.80 % - 0.935%
Because the Company’s Incentive Plan has not been in place for a sufficient amount of time as compared to the expected stock
option terms nor does the Company have sufficient history with changes in option vesting schedules and changes in the pool of employees
receiving option grants, the Company estimates the expected term using its historical experience of the time awards have been outstanding
as well as an expected time outstanding, which takes into account the award vesting and contractual term. Additionally, due to a lack of
sufficient trading history for the Company’s common stock, expected stock price volatility is based on a combination of a sampling of
comparable publicly traded companies and the Company’s historical common stock price activity. The Company believes the sample of
comparable publicly traded companies used as inputs to its expected stock price volatility most closely models the nature of the business
and stock price volatility. The risk-free rates are based on the implied yield available on U.S. Treasury zero-coupon issues with an
equivalent remaining term. Future annual dividends over the expected term are estimated to be nil.
As of August 26, 2023, the Company had $5.5 million of total unrecognized compensation cost related to stock option plans that
will be recognized over a weighted average period of 1.6 years. During the fifty-two weeks ended August 26, 2023, August 27, 2022, and
August 28, 2021, the Company received $5.2 million, $4.3 million, and $0.7 million in cash from stock option exercises, respectively.
Restricted Stock Units
Restricted stock units granted under the Incentive Plan are granted at a price equal to closing market price of the Company’s
common stock on the date of grant. Restricted stock units under the Incentive Plan generally vest over three years.
71
The following table summarizes restricted stock unit activity for the fifty-two weeks ended August 26, 2023:
Non-vested as of August 27, 2022
Granted
Vested
Forfeited
Non-vested as of August 26, 2023
Units
Weighted average
grant-date fair value
453,003 $
328,924
(213,568)
(53,861)
514,498 $
30.68
37.06
27.86
33.92
35.59
As of August 26, 2023, the Company had $10.9 million of total unrecognized compensation cost related to restricted stock units
that will be recognized over a weighted average period of 1.4 years.
Performance Stock Units
During the fifty-two weeks ended August 26, 2023, the Board of Directors granted performance stock units under the Company’s
equity compensation plan. Performance stock units vest in a range between 0% and 200% based upon certain performance criteria in a
three-year period. Performance stock units were valued using a Monte-Carlo simulation.
The following table summarizes performance stock unit activity for the fifty-two weeks ended August 26, 2023:
Non-vested as of August 27, 2022
Granted
Vested
Forfeited
Non-vested as of August 26, 2023
Units
Weighted average
grant-date fair value
255,023 $
50,629
(72,452)
(41,421)
191,779 $
32.82
62.55
27.39
34.23
42.41
As of August 26, 2023, the Company had $3.4 million of total unrecognized compensation cost related to performance stock units
that will be recognized over a weighted average period of 0.9 years.
Stock Appreciation Rights
Stock appreciation rights (“SARs”) permit the holder to participate in the appreciation of the Company’s common stock price and
are awarded to non-employee consultants of the Company. The Company’s SARs settle in shares of its common stock if and when the
applicable vesting criteria has been met. SARs cliff vest three years from the date of grant and must be exercised within ten years.
The following table summarizes SARs activity for the fifty-two weeks ended August 26, 2023:
Shares Underlying
SARs
Weighted average
exercise price
Weighted average
remaining
contractual life (in
years)
Outstanding as of August 27, 2022
Granted
Exercised
Forfeited
Outstanding as of August 26, 2023
Vested and expected to vest as of August 26, 2023
Exercisable as of August 26, 2023
150,000 $
150,000
(150,000)
—
150,000 $
150,000 $
— $
24.20
37.67
24.20
—
37.67
—
—
0.00
0.00
0.00
The SARs exercised in the fifty-two weeks ended August 26, 2023 resulted in a net issuance of 38,850 shares of the Company’s
common stock. The SARs granted in the fifty-two weeks ended August 26, 2023 are liability-classified; therefore the related stock-based
compensation expense is based on the vesting provisions and the fair value of the awards.
72
14. Segment and Customer Information
During the fifty-two weeks ended August 27, 2022, the Company substantially completed its efforts to fully integrate its
operations and organization structure after the Quest Acquisition. The Company aligned the nature of its production processes and the
methods used to distribute products to customers for the Atkins® and Quest® brands. The Company also designed its organizational
structure to support entity-wide business functions across brands, products, customers, and geographic regions. Additionally, the
Company’s chief operating decision maker reviews operating results and forecasts at the consolidated level. As a result, during the fifty-
two weeks ended August 26, 2023 and August 27, 2022, the Company determined its operations are organized into one, consolidated
operating segment and reportable segment. Previously, during the fifty-two weeks ended August 28, 2021, the Company had two operating
segments, Atkins and Quest, which were aggregated into one reporting segment due to similar financial, economic and operating
characteristics.
Reconciliation of the totals of reported segment revenue, profit or loss measurement, assets and other significant items reported by
segment to the corresponding GAAP totals is not applicable to the Company as it only has one reportable segment. Additionally, revenue
from transactions with external customers for each of Simply Good Foods’ products would be impracticable to disclose and management
does not view its business by product line. The following is a summary of revenue disaggregated by geographic area and brand:
(In thousands)
North America (1)
Atkins
Quest
Total North America
International
Total
52-Weeks Ended
52-Weeks Ended
52-Weeks Ended
August 26, 2023
August 27, 2022
August 28, 2021
$
526,769 $
540,328 $
682,789
1,209,558
33,114
593,943
1,134,271
34,407
506,860
453,619
960,479
45,134
$
1,242,672 $
1,168,678 $
1,005,613
(1) The North America geographic area consists of net sales substantially related to the United States and there is no
individual foreign country to which more than 10% of the Company’s net sales are attributed or that is otherwise deemed
individually material.
The following is a summary of long lived assets by geographic area:
(In thousands)
Long lived assets
North America (1)
Total
August 26, 2023
August 27, 2022
$
$
24,861 $
24,861 $
18,157
18,157
(1) The North America geographic area consists of long-lived assets substantially related to the
United States and there is no individual foreign country in which more than 10% of the Company’s
long-lived assets are located or that is otherwise deemed individually material.
Significant Customers
Credit risk for the Company was concentrated in three customers who each comprised more than 10% of the Company’s total
sales for the fifty-two weeks ended August 26, 2023, August 27, 2022, and August 28, 2021.
52-Weeks Ended
52-Weeks Ended
52-Weeks Ended
August 26, 2023
August 27, 2022
August 28, 2021
Customer 1
Customer 2
31 %
16 %
31 %
13 %
Customer 3
n/a - Not applicable as the customer was not significant during these fiscal years.
10 %
n/a
31 %
12 %
n/a
73
At August 26, 2023 and August 27, 2022, the following amounts of the Company’s accounts receivable, net were related to these
significant customers for the periods in which the customers were significant:
(In thousands)
Customer 1
Customer 2
Customer 3
August 26, 2023
August 27, 2022
$
$
43,098
37,384
30 % $
44,638
26 % $
21,829
n/a
n/a $
18,521
34 %
16 %
14 %
n/a - Not applicable as the customer was not significant during this fiscal year.
15. Restructuring and Related Charges
In May 2020, the Company announced certain restructuring activities in conjunction with the implementation of the Company’s
future-state organization design, which created a fully integrated organization with its completed Quest Acquisition. The new organization
design became effective on August 31, 2020. These restructuring plans primarily included workforce reductions, changes in management
structure, and the relocation of business activities from one location to another.
The Company substantially completed its restructuring activities during the fifty-two weeks ended August 27, 2022. Since the
announcement of the restructuring activities in May 2020, the Company incurred aggregate restructuring and restructuring-related costs of
$9.9 million.
The one-time termination benefits and employee severance costs incurred in relation to these restructuring activities were
accounted for in accordance with ASC Topic 420, Exit or Disposal Cost Obligations, and ASC Topic 712, Compensation - Nonretirement
Post-employment Benefits, respectively. The Company recognized a liability and the related expense for these restructuring costs when the
liability was incurred and could be measured. Restructuring accruals were based upon management estimates at the time and could change
depending upon changes in facts and circumstances subsequent to the date the original liability was recorded. The effect of these
restructuring activities was included within General and administrative on the Consolidated Statements of Income and Comprehensive
Income.
Changes to the restructuring liability during the fifty-two weeks ended August 26, 2023 and August 27, 2022 were as follows:
(In thousands)
Balance as of August 28, 2021
Charges
Cash payments
Balance as of August 27, 2022
Balance as of August 26, 2023
Termination
benefits and
severance
Other
Restructuring
liability
$
$
$
851 $
52
(903)
— $
— $
— $
76
(76)
— $
— $
851
128
(979)
—
—
The Company substantially completed its restructuring activities during the third quarter of fiscal 2022; therefore no restructuring
and restructuring-related costs were incurred in the fifty-two weeks ended August 26, 2023. During the fifty-two weeks ended August 27,
2022, the Company incurred $0.1 million of restructuring charges which included an immaterial gain on lease termination related to its
lease in the Netherlands. In the fifty-two weeks ended August 28, 2021, the Company incurred a total of $4.3 million in restructuring and
restructuring-related costs, which included a $0.5 million impairment charge, net of a gain on lease termination, related to its leases in
Toronto, Ontario and the Netherlands.
74
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that information required to
be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial
disclosures.
Management, including the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation
(pursuant to Rule 13a-15(b) under the Exchange Act) of the effectiveness of our disclosure controls and procedures as of the end of the
period covered by this Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of
August 26, 2023, the Company’s disclosure controls and procedures were effective.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for designing, implementing and maintaining adequate internal control over financial reporting, as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, to provide reasonable assurance regarding the reliability of
our financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting
principles. Management assessed the effectiveness of our internal control over financial reporting as of August 26, 2023. Management
based its assessment on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on the assessment using this criteria, management has concluded that our internal
control over financial reporting was effective as of August 26, 2023.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal
control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement preparation and presentation. Additionally, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
The effectiveness of our internal control over financial reporting as of August 26, 2023 was audited by Deloitte & Touche LLP,
our independent registered public accounting firm, as stated in their report appearing below, which expressed an unqualified opinion on the
effectiveness of our internal control over financial reporting as of August 26, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended August 26, 2023 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
75
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of The Simply Good Foods Company
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of The Simply Good Foods Company and subsidiaries (the “Company”) as of
August 26, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of August 26, 2023, based on criteria established in Internal Control — Integrated Framework (2013)
issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the consolidated financial statements as of and for the fifty-two weeks ended August 26, 2023, of the Company and our report dated
October 24, 2023, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying "Management's Report on Internal Control over
Financial Reporting." Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our
audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Denver, Colorado
October 24, 2023
76
Item 9B. Other Information.
(a) None
(b) None
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
77
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Incorporated herein by reference to our definitive proxy statement for our 2024 Annual Meeting of Stockholders to be filed no
later than 120 days after the end of the fiscal year ended August 26, 2023.
Item 11. Executive Compensation.
Incorporated herein by reference to our definitive proxy statement for our 2024 Annual Meeting of Stockholders to be filed no
later than 120 days after the end of the fiscal year ended August 26, 2023.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Incorporated herein by reference to our definitive proxy statement for our 2024 Annual Meeting of Stockholders to be filed no
later than 120 days after the end of the fiscal year ended August 26, 2023.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Incorporated herein by reference to our definitive proxy statement for our 2024 Annual Meeting of Stockholders to be filed no
later than 120 days after the end of the fiscal year ended August 26, 2023.
Item 14. Principal Accountant Fees and Services.
Information about aggregate fees billed to us by our principal accountant, Deloitte & Touche LLP (PCAOB ID No. 34) will be
presented under the caption “Audit Committee Matters - Principal Accounting Firm Fees” in our definitive proxy statement for our 2024
Annual Meeting of Stockholders to be filed no later than 120 days after the end of the fiscal year ended August 26, 2023 and is
incorporated herein by reference.
78
Item 15. Exhibit and Financial Statement Schedules.
PART IV
The audited consolidated financial statements of The Simply Good Foods Company and its subsidiaries, as required to be filed,
are included under Item 8 of this Annual Report on Form 10-K. Other schedules have been omitted as they are not applicable or the
required information is set forth in the consolidated financial statements or notes thereto.
Exhibit No. Document
3.1
3.2
4.1
4.2
10.1
10.2†
10.3†
10.4†
10.5†
10.6†
10.7
10.8
10.9
10.10
10.11
10.12
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
21.1
23.1
Third Amended and Restated Certificate of Incorporation of The Simply Good Foods Company (incorporated by reference to Exhibit 3.1
to our Current Report on Form 8-K filed on January 25, 2023).
Third Amended and Restated Bylaws of The Simply Good Foods Company (incorporated by reference to Exhibit 3.1 to our Current
Report on Form 8-K filed on July 19, 2023).
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to our Registration Statement on Form
S-4 filed on June 12, 2017).
Description of Securities (incorporated by reference to Exhibit 4.4 to our Annual Report on Form 10-K filed on October 28, 2020).
Investor Rights Agreement, dated July 7, 2017, between The Simply Good Foods Company and Conyers Park Sponsor LLC
(incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on July 13, 2017).
2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.3 to Amendment No. 3 to Registration Statement on Form S-4
filed on June 12, 2017).
2017 Omnibus Incentive Plan, as amended from time to time Policy Regarding Treatment of Awards in the Event of an Awardee’s
Retirement (incorporated by reference to Exhibit 10.18 to our Annual Report on Form 10-K Filed on October 28, 2020).
Form of Indemnity Agreement (incorporated by reference to Exhibit 10.8 to Amendment No. 3 to our Registration Statement on Form
S-4 filed on June 12, 2017).
The Simply Good Foods Company Amended and Restated Executive Severance Compensation Plan (Effective January 20, 2022)
(incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on January 25, 2022).
Form of Executive Severance Compensation Plan, Tier I Participation Agreement, dated July 23, 2018 (incorporated by reference to
Exhibit 10.2 to our Current Report on Form 8-K filed on July 27, 2018).
Credit Agreement, dated July 7, 2017, among Atkins Intermediate Holdings, LLC, Conyers Park Parent Merger Sub, Inc., Conyers Park
Acquisition Corp., Conyers Park Merger Sub 1, Inc., Conyers Park Merger Sub 2, Inc., Conyers Park Merger Sub 3, Inc., Conyers Park
Merger Sub 4, Inc., NCP-ATK Holdings, Inc., Atkins Nutritionals Holdings, Inc., Atkins Nutritionals Holdings II, Inc., Atkins
Nutritionals, Inc., the lenders party thereto and Barclays Bank PLC, as the administrative agent (incorporated by reference to Exhibit 10.1
to our Current Report on Form 8-K filed on July 13, 2017).
Amendment No. 2 (Incremental Facility Amendment), dated November 7, 2019, among Atkins Intermediate Holdings, LLC, , Conyers
Park Acquisition Corp., Atkins Nutritionals, Inc., Atkins Nutritionals Holdings, Inc., Atkins Nutritionals Holdings II, Inc., NCP-ATK
Holdings, Inc., the financial institutions set forth on Schedule A thereto as Additional Term Lenders, and acknowledged by Barclays
Bank PLC, as administrative agent (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on November 7,
2019).
Extension Amendment, dated December 16, 2021, among Atkins Intermediate Holdings, LLC, Conyers Park Acquisition Corp., Simply
Good Foods USA, Inc., Atkins Nutritionals Holdings, Inc., Atkins Nutritionals Holdings II, Inc., NCP-ATK Holdings, Inc., the financial
institutions party thereto, and Barclays Bank PLC, as administrative agent (incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K filed on December 22, 2021).
Repricing Amendment, dated January 21, 2022, among Atkins Intermediate Holdings, LLC, Conyers Park Acquisition Corp., Simply
Good Foods USA, Inc., Atkins Nutritionals Holdings, Inc., Atkins Nutritionals Holdings II, Inc., NCP-ATK Holdings, Inc., the other
guarantors party thereto, the financial institutions party thereto and Barclays Bank PLC, as administrative agent (incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January 25, 2022).
Repricing Amendment, dated March 16, 2018, among Atkins Intermediate Holdings, LLC, Conyers Park Acquisition Corp., Atkins
Nutritionals, Inc., Atkins Nutritionals Holdings, Inc., Atkins Nutritionals Holdings II, Inc. NCP-ATK Holdings, Inc. and Barclays Bank
PLC (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 20, 2018).
Repricing Amendment, dated April 25, 2023, among Atkins Intermediate Holdings, LLC, Conyers Park Acquisition Corp., Simply Good
Foods USA, Inc., Atkins Nutritional Holdings, Inc., Atkins Nutritional Holdings II, Inc., NCP-ATK Holdings, Inc., and Barclays Bank
PLC, as Administrative Agent and Replacement Lender (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K
filed on April 27, 2023)
Amended and Restated Employment Agreement, dated July 7, 2017, between The Simply Good Foods Company and Joseph E. Scalzo
(incorporated by reference to Exhibit 10.8 to our Current Report on Form 8-K filed on July 13, 2017).
First Amendment to Amended and Restated Employment Agreement, dated October 16, 2019, between The Simply Good Foods
Company and Joseph E. Scalzo. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on October 18,
2019)
Second Amendment to the Amended and Restated Employment Agreement, dated August 13, 2021 between The Simply Good Foods
Company and Joseph Scalzo. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 13, 2021.)
Transition Agreement, dated January 27, 2023, between The Simply Good Foods Company and Joseph E. Scalzo (incorporated by
reference to Exhibit 10.2 to our Current Report on Form 8-K filed on January 30, 2023).
Offer Letter, dated October 16, 2022, between The Simply Good Foods Company and Shaun Mara (incorporated by reference to Exhibit
10.1 to our Current Report on Form 8-K filed on October 27, 2022).
Offer Letter, dated January 27, 2023, between The Simply Good Foods Company and Geoff Tanner (incorporated by reference to Exhibit
10.1 to our Current Report on Form 8-K filed on January 30, 2023).
Subsidiaries of The Simply Good Foods Company.
Consent of Deloitte & Touche LLP.
79
Exhibit No. Document
31.1
31.2
32.1
101.INS
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act.
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded
within the Inline XBRL document.
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
____________________
†
Indicates a management contract or compensatory plan.
(a) Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted
schedule and/or exhibit will be furnished to the Securities and Exchange Commission upon request.
Item 16. Form 10-K Summary.
None.
80
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto, duly authorized.
SIGNATURES
THE SIMPLY GOOD FOODS COMPANY
Date: October 24, 2023
By:
/s/ Geoff E. Tanner
Name: Geoff E. Tanner
Title: President, Chief Executive Officer and Director
81
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Geoff E. Tanner
Geoff E. Tanner
/s/ Shaun P. Mara
Shaun P. Mara
President, Chief Executive Officer and Director
October 24, 2023
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
October 24, 2023
/s/ Timothy A. Matthews
Vice President, Controller and Chief Accounting Officer
October 24, 2023
Timothy A. Matthews
(Principal Accounting Officer)
/s/ James M. Kilts
James M. Kilts
Chairman of the Board of Directors
October 24, 2023
/s/ Clayton C. Daley, Jr.
Director
Clayton C. Daley, Jr.
/s/ Nomi P. Ghez
Nomi P. Ghez
Director
/s/ Michelle P. Goolsby
Director
Michelle P. Goolsby
/s/ Robert G. Montgomery
Director
Robert G. Montgomery
/s/ Brian K. Ratzan
Brian K. Ratzan
Director
/s/ David W. Ritterbush
Director
David W. Ritterbush
/s/ Joseph E. Scalzo
Joseph E. Scalzo
/s/ Joseph J. Schena
Joseph J. Schena
/s/ David J. West
David J. West
/s/ James D. White
James D. White
Director
Director
Director
Director
82
October 24, 2023
October 24, 2023
October 24, 2023
October 24, 2023
October 24, 2023
October 24, 2023
October 24, 2023
October 24, 2023
October 24, 2023
October 24, 2023