What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-06 compared with 2022-01-05 · 194 added, 115 removed, 136 unchanged (69% of the section changed)

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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 achievements to differ materially from those expressed or implied by these forward-looking statements.

We disclaim any undertaking to publicly update or revise any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

These statements include, but are not limited to, the effect of the COVID-19 pandemic on our business, financial condition and results of operations, our expectations regarding our supply chain, including but not limited to, raw materials and logistics costs, the effect of price increases, and the unforeseen business disruptions or other effects due to current global geopolitical tensions, including relating to Ukraine.

These statements reflect our current views with respect to future events and are based on assumptions subject to risks and uncertainties.

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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.

Effects of COVID-19

For the thirteen weeks ended November 27, 2021, our business improved from the end of fiscal year 2021, driven in part by the increasing normalization of consumer mobility and shopper traffic patterns in brick and mortar retailers versus prior periods that were pressured by COVID-19 movement restrictions.

The improvement in consumer mobility and shopper traffic patterns however remains fragile and there continues to be uncertainty related to the sustainability and longevity of these trends.

In addition, these positive trends could be negatively affected by an increase in the number and rate of reported positive cases of COVID-19, especially resulting from new variants of the virus, along with any government actions to reimpose mobility restrictions.

During fiscal year 2022, we expect our business performance will continue to be affected by the level of consumer mobility, which includes the rate at which consumers return to working outside the home.

We have actively engaged with the various elements of our value chain, including 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 value chain.

Although consumer consumption habits have become steadier, inventory levels remain variable.

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 fulfil 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 logistics capabilities and intend to adapt our plans as needed to continue to drive our business and meet our obligations during the continuing and evolving COVID-19 situation.

We remain uncertain of the ultimate effect COVID-19 could have on our business notwithstanding the distribution of several U.S.

government approved vaccines, the availability of booster inoculations and the easing of movement restrictions relative to the onset of COVID-19.

This uncertainty stems from the potential for, among other things, (i) the rise of COVID-19 mutations that have resulted in increased rates of reported cases for which currently approved vaccines are or may not be as effective, (ii) unexpected supply chain disruptions, including disruptions resulting from labor shortages or other human capital challenges, (iii) changes to customer operations, (iv) a reversal in recently improving consumer purchasing and consumption behavior, and (v) the closure of or reduced access to customer establishments.

Business Trends

For the thirteen and twenty-six weeks ended February 26, 2022, our business has continued to improve from the end of fiscal year 2021, driven in part by the increasing normalization of consumer mobility and shopper traffic patterns in brick-and-mortar retailers versus prior periods that were pressured by COVID-19 mitigation strategies, including movement restrictions and closures of or reduced access to customer establishments.

We expect our business performance during fiscal year 2022 will continue to be affected by the dynamic macroeconomic environment, elevated levels of supply chain cost inflation, and the level of consumer mobility, which includes the rate at which consumers return to working outside the home.

The overall economy continues to recover from the effects of the COVID-19 pandemic, which has resulted in well documented industry-wide supply chain disruptions across the United States and globally.

As a result, during the thirteen and twenty-six weeks ended February 26, 2022, we experienced corresponding unfavorable effects of higher raw material costs, higher freight and logistics costs, and supply chain challenges, including supply chain disruptions resulting from labor shortages as well as disruptions in ingredients.

We expect to continue to see these cost pressures and supply chain challenges in fiscal year 2022 and into fiscal year 2023.

We have also begun to see contract manufacturer and logistics challenges, largely related to availability of labor, which we believe along with the above ingredients shortages have contributed to lower retail and e-commerce sales of our products due to out-of-stock situations, delayed recognition of sales and higher than historical inventory levels.

We could experience additional lost sale opportunities at our retail and e-commerce customers if our products are not available for purchase because of disruptions in our supply chain relating to 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.

We have actively engaged 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.

We have also instituted a price increase effective in September 2021, the first month of our fiscal year 2022, and in April 2022 management announced our plans to institute an additional price increase effective late in our fiscal fourth quarter of 2022.

Management believes these price increases and additional cost savings initiatives will enable us to continue to invest in projects that drive growth.

The moderate improvement in consumer mobility and shopper traffic patterns experienced this fiscal year remains fragile, and there continues to be uncertainty related to the sustainability and longevity of these trends.

The ultimate effect COVID-19, supply chain challenges, and cost pressures discussed above could have on our business continues to be not fully known.

Additionally, management is monitoring the conflict in Ukraine and any broader economic effects from the crisis, especially on the availability and cost of raw materials that are produced in this region.

Factors contributing to this uncertainty, among other things, include (i) continued supply chain disruptions, including disruptions resulting from labor shortages and other cost pressures, (ii) changes to customer operations, (iii) a reversal in recently improving consumer purchasing and consumption behavior, and (iv) unforeseen business disruptions or other effects due to current global geopolitical tensions, including relating to Ukraine.

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.

Restructuring and Related Charges

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These restructuring plans primarily include workforce reductions, changes in management structure, and the relocation of business activities from one location to another.

Total restructuring and restructuring-related costs incurred in the thirteen weeks ended November 27, 2021 were immaterial.

We incurred a total of $2.5 million in restructuring and restructuring-related costs in the thirteen weeks ended November 28, 2020.

The effect of these restructuring activities has been included within General and administrative on the Condensed Consolidated Statements of Operations and Comprehensive Income.

Total restructuring and restructuring-related costs incurred in the thirteen and twenty-six weeks ended February 26, 2022 were $0.1 million.

We incurred a total of $1.3 million and $3.8 million in restructuring and restructuring-related costs in the thirteen and twenty-six weeks ended February 27, 2021, respectively.

The effect of these restructuring activities has been included within General and administrative on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Since the restructuring activities were announced in May 2020, we have incurred aggregate restructuring and restructuring-related costs of $9.9 million.

Overall, we expect to incur a total of approximately $10.1 million in restructuring and restructuring-related costs, including the $9.9 million previously incurred, and the balance of which will be paid through the second quarter of fiscal year 2022.

As of November 27, 2021, the outstanding restructuring liability was $0.1 million.

As of February 26, 2022, there was no outstanding restructuring liability.

Refer to Note 13, Restructuring and Related Charges, of our Notes to Unaudited Condensed Consolidated Financial Statements in this Report for additional information regarding restructuring activities.

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The transaction has enabled our management to focus its full time and resources on our core Atkins® and Quest® branded businesses and other strategic initiatives.

We expect higher raw material and logistics costs in fiscal year 2022.

As a result, we instituted a price increase effective in September 2021, the first month of our fiscal year 2022.

Management believes the price increase and cost savings initiatives will enable us to continue to invest in projects that drive growth.

We have begun to see logistics challenges, which we believe have contributed to lower retail and e-commerce sales of our products due to out-of-stock situations, delayed recognition of sales and higher than historical inventory levels.

In addition, we could experience additional lost sale opportunities at our retail and e-commerce customers if our products are not available for purchase as a result of disruptions in our supply chain relating to 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.

Key Financial Definitions

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Operating expenses.

Operating expenses consist primarily of selling and marketing, general and administrative, depreciation and amortization, and business transaction costs.

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:

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Results of Operations

Sales and earnings growth improved for both the Atkins® and Quest® brands during the thirteen weeks ended November 27, 2021, driven by improving consumer mobility and shopper trips compared to the thirteen weeks ended November 28, 2020, as well as increasing household penetration and innovation that continues to resonate with consumers.

As a result of the price increase effective in September 2021 as well as favorable product form and retail channel mix, we were able to more than offset the unfavorable effects of higher raw material costs, logistics costs, and supply chain challenges in the thirteen weeks ended November 27, 2021 and achieve gross margin expansion and earnings growth.

As previously discussed above in “Supply Chain,” we continue to expect to have higher raw material and logistics costs in fiscal year 2022 as compared to fiscal year 2021.

During the thirteen weeks ended February 26, 2022, our net sales increased $66.1 million, or 28.7%, and our gross profit increased $18.3 million, or 20.2%, compared to the thirteen weeks ended February 27, 2021.

Both the Atkins® and Quest® brands experienced sales and earnings growth driven by increased retail and e-commerce sales volume, due to continued moderate improvements in consumer mobility and shopper trips and the timing of shipments to support retail customer programs.

Net sales were also positively affected by the price increase effective in September 2021, the first month of our fiscal year 2022.

Additionally, in April 2022 management announced our plans to institute a price increase effective late in our fiscal fourth quarter of 2022.

However, unfavorable effects of higher raw material costs, higher freight and logistics costs, and supply chain challenges in the thirteen weeks ended February 26, 2022 resulted in decreased gross profit margin as compared to the thirteen weeks ended February 27, 2021.

As previously discussed above in “Business Trends,” we expect to continue to see such cost pressures and supply chain challenges in fiscal year 2022 as compared to fiscal year 2021.

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.

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See “Reconciliation of EBITDA and Adjusted EBITDA” below for a reconciliation of EBITDA and Adjusted EBITDA to net income for each applicable period.

Comparison of Unaudited Results for the Thirteen Weeks Ended November 27, 2021 and the Thirteen Weeks Ended November 28, 2020

The following unaudited table presents, for the periods indicated, selected information from our Condensed Consolidated Statements of Operations and Comprehensive Income, including information presented as a percentage of net sales:

Comparison of Unaudited Results for the Thirteen Weeks Ended February 26, 2022 and the Thirteen Weeks Ended February 27, 2021

The following unaudited table presents, for the periods indicated, selected information from our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), including information presented as a percentage of net sales:

Thirteen Weeks Ended Thirteen Weeks Ended

(In thousands) November 27, 2021 % of Sales November 28, 2020 % of Sales

(In thousands) February 26, 2022 % of Net Sales February 27, 2021 % of Net Sales

Net sales $ 296,718 100.0 % $ 230,607 100.0 %

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Other income (expense):

Interest expense (5,276) (1.8) % (7,995) (3.5) %

Loss in fair value change of warrant liability (12,745) (4.3) % (45,334) (19.7) %

Gain on foreign currency transactions 780 0.3 % 975 0.4 %

Other income — — % 112 — %

Total other expense (17,241) (5.8) % (52,242) (22.7) %

Income (loss) before income taxes 28,710 9.7 % (18,901) (8.2) %

Income tax expense 10,249 3.5 % 7,313 3.2 %

Net income (loss) $ 18,461 6.2 % $ (26,214) (11.4) %

Other financial data:

Adjusted EBITDA (1)

$ 54,180 18.3 % $ 42,644 18.5 %

(1) Adjusted EBITDA is a non-GAAP financial metric.

See “Reconciliation of EBITDA and Adjusted EBITDA” below for a reconciliation of net income to EBITDA and Adjusted EBITDA for each applicable period.

Net sales of $296.7 million represented an increase of $66.1 million, or 28.7%, for the thirteen weeks ended February 26, 2022 compared to the thirteen weeks ended February 27, 2021.

The increase was primarily attributable to retail and e-commerce sales volume growth for both the Atkins® and Quest® brands, which increased our North America net sales by 31.5% in the thirteen weeks ended February 26, 2022 compared to the thirteen weeks ended February 27, 2021.

Additionally, we instituted a price increase effective in September 2021, the first month of our fiscal year 2022.

The increase in net sales was partially offset by a 25.1% decline in our international business due to the European exit.

The European exit represented a 1.5% headwind to total net sales growth.

Cost of goods sold .

Cost of goods sold increased $47.9 million, or 34.1%, for the thirteen weeks ended February 26, 2022 compared to the thirteen weeks ended February 27, 2021.

The cost of goods sold increase was driven by the sales volume growth for both the Atkins® and Quest® brands, as discussed above.

Additionally, our cost of goods sold for the thirteen weeks ended February 26, 2022 was unfavorably affected by higher raw material, freight and logistics costs, and supply chain challenges.

As previously discussed above in “Business Trends,” we continue to expect to have cost pressures and supply chain challenges in fiscal year 2022 and into fiscal year 2023.

Gross profit.

Gross profit increased $18.3 million, or 20.2%, for the thirteen weeks ended February 26, 2022 compared to the thirteen weeks ended February 27, 2021, which was primarily driven by the sales volume growth for both the Quest® and Atkins® brands as discussed above.

Gross profit of $108.5 million, or 36.6% of net sales, for the thirteen weeks ended February 26, 2022 decreased 250 basis points from 39.1% of net sales for the thirteen weeks ended February 27, 2021.

The decrease in gross profit margin was primarily the result of the unfavorable effects of higher raw material, freight and logistics costs, and supply chain challenges in the thirteen weeks ended February 26, 2022 as previously discussed.

The decrease in gross profit margin was partially offset by the favorable effects of the price increase which became effective in September 2021.

Operating expenses .

Operating expenses increased $5.6 million, or 9.9%, for the thirteen weeks ended February 26, 2022 compared to the thirteen weeks ended February 27, 2021 due to the following:

• Selling and marketing.

Selling and marketing expenses increased $5.8 million, or 22.2%, for the thirteen weeks ended February 26, 2022 compared to the thirteen weeks ended February 27, 2021, primarily related to additional brand building initiatives for both Atkins® and Quest®.

• General and administrative.

General and administrative expenses decreased $0.3 million, or 1.0%, for the thirteen weeks ended February 26, 2022 compared to the thirteen weeks ended February 27, 2021.

The decrease was primarily attributable to reductions in costs related to business integration activities of $0.7 million and restructuring charges of $1.2 million in the thirteen weeks ended February 26, 2022 compared to the thirteen weeks ended February 27, 2021.

These decreases were partially offset by an increase in stock-based compensation of $0.6 million, increased professional fees, and the timing of research and development spending in the thirteen weeks ended February 26, 2022 compared to the thirteen weeks ended February 27, 2021.

• Depreciation and amortization.

Depreciation and amortization expenses remained approximately flat at $4.3 million for the thirteen weeks ended February 26, 2022 and $4.2 million for the February 27, 2021.

Interest expense .

Interest expense decreased $2.7 million for the thirteen weeks ended February 26, 2022 compared to the thirteen weeks ended February 27, 2021, primarily due to principal payments reducing the outstanding balance of the Term Facility (as defined below) to $431.5 million as of February 26, 2022 from $556.5 million as of February 27, 2021.

Additionally, interest expense related to the amortization of deferred financing costs and debt discount decreased $0.5 million for the thirteen weeks ended February 26, 2022 compared to the thirteen weeks ended February 27, 2021.

Loss in fair value change of warrant liability.

During thirteen weeks ended February 26, 2022 and February 27, 2021, we recorded a non-cash loss of $12.7 million and $45.3 million, respectively, related to changes in valuation of our liability-classified warrants issued through a private placement (“Private Warrants”), which is 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 common stock.

As a result, there were no outstanding liability-classified Private Warrants as of February 26, 2022.

Gain on foreign currency transactions.

Gains on foreign currency transactions of $0.8 million and $1.0 million were recorded for the thirteen weeks ended February 26, 2022 and February 27, 2021, respectively.

During the thirteen weeks ended February 26, 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 $2.9 million for the thirteen weeks ended February 26, 2022 compared to the thirteen weeks ended February 27, 2021.

The increase in our income tax expense is primarily driven by higher income from operations, partially offset by changes in permanent differences.

Net income (loss) .

Net income was $18.5 million for the thirteen weeks ended February 26, 2022, an increase of $44.7 million compared to a net loss of $26.2 million for the thirteen weeks ended February 27, 2021.

The increase in net income was primarily driven by the non-cash fair value loss of $12.7 million in the thirteen weeks ended February 26, 2022 compared to the non-cash fair value loss of $45.3 million in the thirteen weeks ended February 27, 2021 related to the measurement of our liability-classified Private Warrants, which was partially offset by increased income from operations driven by the Atkins® and Quest® brand sales volume growth as discussed above.

Adjusted EBITDA.

Adjusted EBITDA increased $11.5 million, or 27.1% for the thirteen weeks ended February 26, 2022 compared to the thirteen weeks ended February 27, 2021, driven primarily by sales volume growth for the Atkins® and Quest® brands as discussed above.

For a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, see “Reconciliation of EBITDA and Adjusted EBITDA” below.

Comparison of Unaudited Results for the Twenty-Six Weeks Ended February 26, 2022 and the Twenty-Six Weeks Ended February 27, 2021

Twenty-Six Weeks Ended Twenty-Six Weeks Ended

(In thousands) February 26, 2022 % of Net Sales February 27, 2021 % of Net Sales

Net sales $ 577,983 100.0 % $ 461,759 100.0 %

Cost of goods sold 352,905 61.1 % 277,453 60.1 %

Gross profit 225,078 38.9 % 184,306 39.9 %

Operating expenses:

Selling and marketing 62,482 10.8 % 51,345 11.1 %

General and administrative 49,990 8.6 % 51,977 11.3 %

Depreciation and amortization 8,649 1.5 % 8,456 1.8 %

Total operating expenses 121,121 21.0 % 111,778 24.2 %

Income from operations 103,957 18.0 % 72,528 15.7 %

Other income (expense):

Interest income 1 — % 3 — %

Interest expense (11,647) (2.0) % (16,367) (3.5) %

(Loss) gain in fair value change of warrant liability (17,317) (6.2) % 20,453 8.8 %

(Loss) gain on foreign currency transactions (353) (0.1) % 9 — %

Loss in fair value change of warrant liability (30,062) (5.2) % (24,881) (5.4) %

Gain on legal settlement — — % — — %

Gain on foreign currency transactions 427 0.1 % 984 0.2 %

Other income 9 — % 159 — %

Total other (expense) income (24,031) (8.5) % 12,140 5.3 %

Total other expense (41,272) (7.1) % (40,102) (8.7) %

Income before income taxes 62,685 10.8 % 32,426 7.0 %

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See “Reconciliation of EBITDA and Adjusted EBITDA” below for a reconciliation of net income to EBITDA and Adjusted EBITDA for each applicable period.

Net sales of $281.3 million represented an increase of $50.1 million, or 21.7%, for the thirteen weeks ended November 27, 2021 compared to the thirteen weeks ended November 28, 2020.

The increase was primarily attributable to retail sales volume growth and e-commerce growth for both the Atkins® and Quest® brands, which increased our North America net sales by 24.5% in the thirteen weeks ended November 27, 2021 compared to the thirteen weeks ended November 28, 2020.

Net sales of $578.0 million represented an increase of $116.2 million, or 25.2%, for the twenty-six weeks ended February 26, 2022 compared to the twenty-six weeks ended February 27, 2021.

The increase was primarily attributable to retail and e-commerce sales volume growth for both the Atkins® and Quest® brands, which increased our North America net sales by 28.0% in the twenty-six weeks ended February 26, 2022 compared to the twenty-six weeks ended February 27, 2021.

Additionally, we instituted a price increase effective in September 2021, the first month of our fiscal year 2022.

The increase in net sales was partially offset by a 26.2% decline in our international business due to the European exit.

The European exit represented a 1.6% headwind to total Company net sales growth.

The European exit represented a 1.5% headwind to total net sales growth.

Cost of goods sold .

Cost of goods sold increased $27.6 million, or 20.1%, for the thirteen weeks ended November 27, 2021 compared to the thirteen weeks ended November 28, 2020.

The cost of goods sold increase was driven by the sales volume growth for both the Atkins® and Quest® brands, as discussed above.

Additionally, our cost of goods sold for the thirteen weeks ended November 27, 2021 was unfavorably affected by higher raw material costs, logistics costs, and supply chain challenges.

As previously discussed above in “Supply Chain,” we continue to expect to have higher raw material and logistics costs in fiscal year 2022 as compared to fiscal year 2021.

Cost of goods sold increased $75.5 million, or 27.2%, for the twenty-six weeks ended February 26, 2022 compared to the twenty-six weeks ended February 27, 2021.

The cost of goods sold increase was driven by sales volume growth for both the Atkins® and Quest® brands, as discussed above.

Additionally, our cost of goods sold for the twenty-six weeks ended February 26, 2022 was unfavorably affected by higher raw material, freight and logistics costs, and supply chain challenges.

As previously discussed above in “Business Trends,” we continue to expect to have cost pressures and supply chain challenges in fiscal year 2022 and into fiscal year 2023.

Gross profit.

Gross profit increased $22.5 million, or 23.9%, for the thirteen weeks ended November 27, 2021 compared to the thirteen weeks ended November 28, 2020, which was primarily driven by the sales volume growth for both the Quest® and Atkins®

brands as discussed above.

Gross profit of $116.6 million, or 41.4% of net sales, for the thirteen weeks ended November 27, 2021 increased 70 basis points from 40.7% of net sales for the thirteen weeks ended November 28, 2020.

The increase in gross profit margin was primarily the result of the price increase which became effective in September 2021 as well as favorable product form and retail channel mix given higher shopper traffic volume within brick and mortar retailers.

The increase in gross profit margin was partially offset by the unfavorable effects of higher raw material costs, logistics costs, and supply chain challenges in the thirteen weeks ended November 27, 2021 as previously discussed.

Gross profit increased $40.8 million, or 22.1%, for the twenty-six weeks ended February 26, 2022 compared to the twenty-six weeks ended February 27, 2021, which was primarily driven by the sales volume growth for both the Quest® and Atkins® brands as discussed above.

Gross profit of $225.1 million, or 38.9% of net sales, for the twenty-six weeks ended February 26, 2022 decreased 100 basis points from 39.9% of net sales for the twenty-six weeks ended February 27, 2021.

The decrease in gross profit margin was primarily the result of the unfavorable effects of higher raw material, freight and logistics costs, and supply chain challenges in the twenty-six weeks ended February 26, 2022 as previously discussed.

The decrease in gross profit margin was partially offset by the favorable effects of the price increase which became effective in September 2021.

Operating expenses .

Operating expenses increased $3.7 million, or 6.7%, for the thirteen weeks ended November 27, 2021 compared to the thirteen weeks ended November 28, 2020 due to the following:

Operating expenses increased $9.3 million, or 8.4%, for the twenty-six weeks ended February 26, 2022 compared to the twenty-six weeks ended February 27, 2021 due to the following:

• Selling and marketing.

Selling and marketing expenses increased $5.3 million, or 21.2%, for the thirteen weeks ended November 27, 2021 compared to the thirteen weeks ended November 28, 2020.

The increase was primarily related to additional brand building initiatives for both Atkins® and Quest® in the thirteen weeks ended November 27, 2021 compared to the thirteen weeks ended November 28, 2020.

Selling and marketing expenses increased $11.1 million, or 21.7%, for the twenty-six weeks ended February 26, 2022 compared to the twenty-six weeks ended February 27, 2021, primarily related to additional brand building initiatives for both Atkins® and Quest®.

• General and administrative.

General and administrative expenses decreased $1.7 million, or 6.7%, for the thirteen weeks ended November 27, 2021 compared to the thirteen weeks ended November 28, 2020.

The decrease was primarily attributable to reductions in costs related to business integration activities of $1.2 million and restructuring charges of $2.5 million in the thirteen weeks ended November 27, 2021 compared to the thirteen weeks ended November 28, 2020.

These decreases were partially offset by an increase in incentive compensation, including an increase of stock-based compensation of $1.5 million, in the thirteen weeks ended November 27, 2021 compared to the thirteen weeks ended November 28, 2020.

General and administrative expenses decreased $2.0 million, or 3.8%, for the twenty-six weeks ended February 26, 2022 compared to the twenty-six weeks ended February 27, 2021.

The decrease was primarily attributable to reductions in costs related to business integration activities of $1.9 million and restructuring charges of $3.7 million in the twenty-six weeks ended February 26, 2022 compared to the twenty-six weeks ended February 27, 2021.

These decreases were partially offset by an increase in stock-based compensation of $2.1 million, increased professional fees, and timing of research and development spending in the twenty-six weeks ended February 26, 2022 compared to the twenty-six weeks ended February 27, 2021.

• Depreciation and amortization.

Depreciation and amortization expenses remained approximately flat at $4.3 million for the thirteen weeks ended November 27, 2021 and $4.2 million for the November 28, 2020.

Depreciation and amortization expenses increased $0.2 million, or 2.3%, for the twenty-six weeks ended February 26, 2022 compared to the twenty-six weeks ended February 27, 2021, primarily due to increased depreciation expense related to the $4.3 million of purchases of property and equipment during the twenty-six weeks ended February 26, 2022.

Interest income .

Interest income was nominal for each of the thirteen weeks ended November 27, 2021 and November 28, 2020.

Interest income was nominal for each of the twenty-six weeks ended February 26, 2022 and February 27, 2021.

Interest expense .

Interest expense decreased $2.0 million for the thirteen weeks ended November 27, 2021 compared to the thirteen weeks ended November 28, 2020, primarily due to principal payments reducing the outstanding balance of the Term Facility (as defined below) to $431.5 million as of November 27, 2021 from $581.5 million as of November 28, 2020.

Additionally, interest expense related to the amortization of deferred financing costs and debt discount decreased $0.3 million for the thirteen weeks ended November 27, 2021 compared to the thirteen weeks ended November 28, 2020.

(Loss) gain in fair value change of warrant liability.

During thirteen weeks ended November 27, 2021 and November 28, 2020, we recorded a non-cash loss of $17.3 million and a non-cash gain of $20.5 million, respectively, related to changes in valuation of our liability-classified warrants issued through a private placement (“Private Warrants”), which is primarily driven by movements in our stock price.

(Loss) gain on foreign currency transactions.

A loss of $0.4 million in foreign currency transactions was recorded for the thirteen weeks ended November 27, 2021 compared to an immaterial foreign currency gain for the thirteen weeks ended November 28, 2020.

The variance primarily relates to changes in foreign currency rates related to our international operations.

Interest expense decreased $4.7 million for the twenty-six weeks ended February 26, 2022 compared to the twenty-six weeks ended February 27, 2021, primarily due to principal payments reducing the outstanding balance of the Term Facility (as defined below) to $431.5 million as of February 26, 2022 from $556.5 million as of February 27, 2021.

Additionally, interest expense related to the amortization of deferred financing costs and debt discount decreased $0.8 million for the twenty-six weeks ended February 26, 2022 compared to the twenty-six weeks ended February 27, 2021.

Loss in fair value change of warrant liability .

During the twenty-six weeks ended February 26, 2022 and February 27, 2021, we recorded a non-cash loss of $30.1 million and $24.9 million, respectively, related to changes in valuation of our 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 common stock.

As a result, there were no outstanding liability-classified Private Warrants as of February 26, 2022.

Gain on foreign currency transactions.

Gains on foreign currency transactions of $0.4 million and $1.0 million were recorded for the twenty-six weeks ended February 26, 2022 and February 27, 2021, respectively.

During the twenty-six weeks ended February 26, 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 $4.4 million for the thirteen weeks ended November 27, 2021 compared to the thirteen weeks ended November 28, 2020.

The increase in our income tax expense is primarily driven by higher income from operations, partially offset by changes in permanent differences.

Net income was $21.2 million for the thirteen weeks ended November 27, 2021, a decrease of $21.8 million compared to net income of $43.0 million for the thirteen weeks ended November 28, 2020.

The decrease in net income was primarily driven by the non-cash fair value loss of $17.3 million in the thirteen weeks ended November 27, 2021 compared to a non-cash fair value gain of $20.5 million in the thirteen weeks ended November 28, 2020 related to the measurement of our liability-classified Private Warrants, which was partially offset by increased income from operations driven by the Atkins® and Quest® brand sales volume growth as discussed above.

Income tax expense increased $7.4 million for the twenty-six weeks ended February 26, 2022 compared to the twenty-six weeks ended February 27, 2021.

The increase in our income tax expense is primarily driven by higher income from operations, partially offset by permanent differences.

Net income was $39.6 million for the twenty-six weeks ended February 26, 2022 an increase of $22.9 million compared to net income of $16.7 million for the twenty-six weeks ended February 27, 2021.

The increase was primarily related to increased income from operations driven by the Atkins® and Quest® brand sales volume growth as discussed above and the $4.7 million decrease in interest expense for the twenty-six weeks ended February 26, 2022 compared to the twenty-six weeks ended February 27, 2021.

These increases in net income were partially offset by the $7.4 million increase in income tax expense and the $5.2 million increase in the non-cash loss in fair value change of our warrant liability in the twenty-six weeks ended February 26, 2022 compared to the twenty-six weeks ended February 27, 2021.

Adjusted EBITDA.

Adjusted EBITDA increased $16.9 million, or 34.7% for the thirteen weeks ended November 27, 2021 compared to the thirteen weeks ended November 28, 2020, driven primarily by sales volume growth for the Atkins® and Quest® brands as discussed above.

Adjusted EBITDA increased $28.5 million, or 31.2% for the twenty-six weeks ended February 26, 2022 compared to the twenty-six weeks ended February 27, 2021, driven primarily by sales volume growth for the Atkins® and Quest® brands as discussed above.

For a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, see “Reconciliation of EBITDA and Adjusted EBITDA” below.

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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 thirteen weeks ended November 27, 2021 and November 28, 2020:

(In thousands) Thirteen Weeks Ended

November 27, 2021 November 28, 2020

Net income $ 21,152 $ 42,953

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 thirteen and twenty-six weeks ended February 26, 2022 and February 27, 2021:

(In thousands) Thirteen Weeks Ended Twenty-Six Weeks Ended

February 26, 2022 February 27, 2021 February 26, 2022 February 27, 2021

Net income (loss) $ 18,461 $ (26,214) $ 39,613 $ 16,739

Interest income — — (1) (3)

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Restructuring 56 1,267 98 3,786

Loss (gain) in fair value change of warrant liability 17,317 (20,453)

Loss in fair value change of warrant liability 12,745 45,334 30,062 24,881

(768) (1,011) (258) (945)

Adjusted EBITDA $ 54,180 $ 42,644 $ 119,795 $ 91,341

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Our principal uses of cash have been working capital, debt service, and acquisition opportunities.

We had $35.4 million in cash as of November 27, 2021.

We had $51.5 million in cash as of February 26, 2022.

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.

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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 between Conyers Park Acquisition Corp.

Substantially concurrent with the consummation of the business combination 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.

The interest rate per annum 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 Euro-currency rate applicable for an interest period of one month plus 1.00% plus (x) 3.00% margin for the Term Loan or (y) 2.00% margin for the Revolving Credit Facility, or (ii) London Interbank Offered Rate (“LIBOR”) adjusted for statutory reserve requirements plus (x) 4.00% margin for the Term Loan subject to a floor of 1.00% or (y) 3.00% margin for the Revolving Credit Facility.

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 maturity date of the Initial Term Loans on July 7, 2024 and (ii) December 16, 2026.

On January 21, 2022, we entered into a repricing amendment (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 the Secured Overnight Financing Rate (“SOFR”) and related replacement provisions for the London Interbank Offered Rate (“LIBOR”).

Effective as of the 2022 Repricing Amendment dated January 21, 2022, the interest rate per annum is based on either:

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) 2.25% margin for the Term Loan or (y) 2.00% margin for the Revolving Credit Facility;

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) 3.25% margin for the Term Loan or (y) 3.00% margin for the Revolving Credit Facility.

The Simply Good Foods Company is not a borrower under the Credit Agreement and has not provided a guarantee of the Credit Agreement.

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All guarantors other than Quest Nutrition, LLC are holding companies with no assets other than their investments in their respective subsidiaries.

On March 16, 2018 (the “Amendment Date”), we entered into an amendment (the “Repricing Amendment”) to the Credit Agreement.

As a result of the Repricing Amendment, the interest rate on the Term Loan was reduced and, as of the Amendment Date, such loans had an interest rate equal to, at our option, either LIBOR plus an applicable margin of 3.50% or a base rate plus an applicable margin of 2.50%.

The Repricing Amendment did not change the interest rate on the Revolving Credit Facility.

The Revolving Credit Facility continued to bear interest based upon our consolidated net leverage ratio as of the last financial statements delivered to the administrative agent.

No additional debt was incurred or any proceeds received by us in connection with the Repricing Amendment.

The incremental fees paid to the administrative agent are reflected as additional debt discount and are amortized over the terms of the long-term financing agreements using the effective-interest method.

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) and as of the Amendment No.

2 Effective Date (as defined in the Incremental Facility Amendment), the Initial Term Loans bear interest at a rate equal to, at our option, either LIBOR plus an applicable margin of 3.75% or a base rate plus an applicable margin of 2.75%.

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 provides 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 maturity date of the Initial Term Loans on July 7, 2024 and (ii) December 16, 2026.

The Applicable Rate per annum applicable to the loans under the Credit Agreement Amendment is, with respect to any Initial Term Loan that is an ABR Loan (as defined in the Credit Agreement), 2.75% per annum, and with respect to any Initial Term Loan that is a Eurodollar Loan, 3.75% per annum.

The incremental term loans will mature on the maturity date applicable to the Initial Term Loans, which is July 7, 2024.

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.

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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 November 27, 2021 and August 28, 2021, respectively.

At November 27, 2021, the outstanding balance of the Term Facility was $431.5 million.

We are not required to make principal payments on the Term Facility over the twelve months following the period ended November 27, 2021.

We were in compliance with all financial covenants as of February 26, 2022 and August 28, 2021, respectively.

At February 26, 2022, the outstanding balance of the Term Facility was $431.5 million.

We are not required to make principal payments on the Term Facility over the twelve months following the period ended February 26, 2022.

The outstanding balance of the Term Facility is due upon its maturity in July 2024.

As of November 27, 2021, there were no amounts drawn against the Revolving Credit Facility.

Private Warrants to Purchase Common Stock

As of November 27, 2021, we have outstanding liability-classified Private Warrants that allow holders to purchase 6,700,000 shares of the Company’s common stock.

Such Private Warrants are held by Conyers Park Sponsor, LLC, a related party.

Each whole warrant entitles the holder to purchase one share of the Company’s common stock at a price of $11.50 per share.

If all Private Warrants are exercised at the $11.50 exercise price per warrant, our cash would increase by $77.1 million.

The warrants expire on July 7, 2022 or earlier upon redemption or liquidation, as applicable.

As of February 26, 2022, there were no amounts drawn against the Revolving Credit Facility.

Warrants to Purchase Common Stock

As of August 28, 2021, we 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.

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 on a cashless basis, resulting in a net issuance of 4,830,761 shares of the Company’s common stock.

As a result, there were no outstanding liability-classified Private Warrants as of February 26, 2022.

Stock Repurchase Program

During the thirteen and twenty-six weeks ended February 26, 2022, we repurchased 571,521 shares of common stock for $20.4 million, averaging a purchase price per share of $35.68.

We did not repurchase any shares of common stock during the twenty-six weeks ended February 27, 2021.

As of February 26, 2022, approximately $27.5 million remained available under our $50.0 million stock repurchase program.

Refer to Note 10, Stockholders’ Equity, of the Notes to Unaudited Condensed Consolidated Financial Statements in this Report for additional information related to our stock repurchase program.

The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):

Thirteen Weeks Ended

November 27, 2021 November 28, 2020

Net cash (used in) provided by operating activities

Twenty-Six Weeks Ended

February 26, 2022 February 27, 2021

Net cash provided by operating activities

$ 30,323 $ 39,764

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Operating activities.

Our net cash (used in) provided by operating activities decreased $22.5 million to $7.3 million cash used in operating activities for the thirteen weeks ended November 27, 2021 compared to cash provided by operating activities of $15.2 million for the thirteen weeks ended November 28, 2020.

The decrease in cash provided by operating activities was primarily attributable to changes in working capital, including $14.0 million of accounts receivable, net, $14.2 million of accounts payable and $17.9 million of accrued expenses and other current liabilities due to timing of payments and receipts during the thirteen weeks ended November 27, 2021.

Additionally, seasonal building of inventory levels contributed to $15.3 million of negative working capital changes in inventory for the thirteen weeks ended November 27, 2021.

These decreases in cash provided by operating activities were partially offset by the $18.8 million increase in income from operations primarily attributable to retail sales volume growth and e-commerce growth for both the Atkins® and Quest® brands as discussed in “Results of Operations” above.

Our net cash provided by operating activities decreased $9.4 million to $30.3 million for the twenty-six weeks ended February 26, 2022 compared to $39.8 million for the twenty-six weeks ended February 27, 2021.

The decrease in cash provided by operating activities was primarily attributable to changes 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 $38.8 million in the twenty-six weeks ended February 26, 2022 compared to $24.3 million of cash consumed in twenty-six weeks ended February 27, 2021.

Additionally, cash paid for taxes increased $23.1 million to $33.2 million for the twenty-six weeks ended February 26, 2022 as compared to $10.0 million for the twenty-six weeks ended February 27, 2021.

These decreases in cash provided by operating activities were partially offset by the $31.4 million increase in income from operations to $104.0 million for the twenty-six weeks ended February 26, 2022 as compared to $72.5 million for the twenty-six weeks ended February 27, 2021, primarily attributable to retail and e-commerce sales volume growth for both the Atkins® and Quest® brands as discussed in “Results of Operations” above.

Additionally, cash paid for interest was $10.2 million in the twenty-six weeks ended February 26, 2022, which was a decrease of $4.6 million as compared to the $14.8 million paid for interest in the twenty-six weeks ended February 27, 2021.

Investing activities .

Our net cash used in investing activities was $4.4 million for the thirteen weeks ended November 27, 2021 compared to net cash provided by investing activities of $5.6 million for the thirteen weeks ended November 28, 2020.

Our net cash used in investing activities for the thirteen weeks ended November 27, 2021 primarily comprised $2.7 million of purchases of property and equipment and the issuance of a $1.5 million note receivable.

The $5.6 million of net cash provided by investing activities for the thirteen weeks ended November 28, 2020 primarily comprised the $5.8 million of cash proceeds received from the SimplyProtein Sale.

Our net cash used in investing activities was $6.0 million for the twenty-six weeks ended February 26, 2022 compared to net cash provided by investing activities of $5.2 million for the twenty-six weeks ended February 27, 2021.

Our net cash used in investing activities for the twenty-six weeks ended February 26, 2022 primarily comprised $4.3 million of purchases of property and equipment and the issuance of a $1.5 million note receivable.

The $5.2 million of net cash provided by investing activities for the twenty-six weeks ended February 27, 2021 primarily comprised the $5.8 million of cash proceeds received from the SimplyProtein Sale partially offset by $0.4 million of purchases of property and equipment.

Financing activities .

Our net cash used in financing activities was $28.0 million for the thirteen weeks ended November 27, 2021 compared to $25.1 million for the thirteen weeks ended November 28, 2020.

Net cash used in financing activities for the thirteen weeks ended November 27, 2021 primarily consisted of $25.0 million in principal payments on the Term Facility and $3.2 million of tax payments related to issuance of restricted stock units and performance stock units.

Net cash used in financing activities for the thirteen weeks ended November 28, 2020 primarily consisted of $25.0 million in principal payments on the Term Facility.

Our net cash used in financing activities was $47.9 million for the twenty-six weeks ended February 26, 2022 compared to $49.9 million for the twenty-six weeks ended February 27, 2021.

Net cash used in financing activities for the twenty-six weeks ended February 26, 2022 primarily consisted of $25.0 million in principal payments on the Term Facility, $20.4 million in repurchases in common stock, and $3.3 million of tax payments related to issuance of restricted stock units and performance stock units.

Net cash used in financing activities for the twenty-six weeks ended February 27, 2021 primarily consisted of $50.0 million in principal payments on the Term Facility.

New Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis