What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-06-29 compared with 2023-04-05 · 103 added, 103 removed, 192 unchanged (52% of the section changed)

26 unchanged sentences

Management is also monitoring for signs of any expansion of economic or supply chain disruptions or broader supply chain inflationary costs resulting either directly or indirectly from the crisis in Eastern Europe.

During the thirteen and twenty-six weeks ended February 25, 2023, our business performance was affected by the corresponding unfavorable effects of higher raw material costs, higher co-manufacturing costs, and supply chain challenges, including supply chain disruptions resulting from labor shortages and disruptions in ingredients, and we expect on balance that these inflationary cost pressures and supply chain challenges to continue for the remainder of fiscal year 2023.

During the thirteen and thirty-nine weeks ended May 27, 2023, our business performance was affected by the corresponding unfavorable effects of higher raw material costs, higher co-manufacturing costs, and supply chain challenges, including supply chain disruptions resulting from labor shortages and disruptions in ingredients, and we expect on balance that these inflationary cost pressures and supply chain challenges to continue for the remainder of fiscal year 2023.

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.

1 unchanged sentence

Management believes these price increases and additional cost savings initiatives will partially offset the unfavorable effects of the supply chain cost pressures discussed above.

The ultimate effect the supply chain challenges, cost pressures, current high inflation environment, and the possible economic recession discussed above could have on consumer purchasing patterns and on our business continue to be not fully known.

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;

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Results of Operations

During the thirteen weeks ended February 25, 2023, our net sales were relatively flat at $296.6 million compared to $296.7 million for the thirteen weeks ended February 26, 2022.

The positive effects of the price increase effective in the fourth quarter of fiscal year 2022, which drove a 0.3% increase in our North America net sales, were offset by a 10.8% decline in our international net sales and a 1.3% 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.

Unfavorable effects of higher raw material, packaging, and co-manufacturing costs and supply chain challenges in the thirteen weeks ended February 25, 2023 resulted in decreased gross profit and gross profit margin as compared to the thirteen weeks ended February 26, 2022.

During the thirteen weeks ended May 27, 2023, our net sales increased slightly to $324.8 million compared to $316.5 million for the thirteen weeks ended May 28, 2022.

The positive effects of the price increase effective in the fourth quarter of fiscal year 2022 drove a 2.6% increase in our North America net sales.

Unfavorable effects of higher raw material, packaging, and co-manufacturing costs and supply chain challenges in the thirteen weeks ended May 27, 2023 resulted in decreased gross profit and gross profit margin as compared to the thirteen weeks ended May 28, 2022.

As previously discussed above in “Business Trends,” we expect these inflationary cost pressures and supply chain challenges to continue for the remainder of fiscal year 2023.

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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 February 25, 2023 and the Thirteen Weeks Ended February 26, 2022

Comparison of Unaudited Results for the Thirteen Weeks Ended May 27, 2023 and the Thirteen Weeks Ended May 28, 2022

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

Thirteen Weeks Ended Thirteen Weeks Ended

(In thousands) February 25, 2023 % of Net Sales February 26, 2022 % of Net Sales

(In thousands) May 27, 2023 % of Net Sales May 28, 2022 % of Net Sales

Net sales $ 324,792 100.0 % $ 316,531 100.0 %

10 unchanged sentences

Interest expense (7,649) (2.4) % (4,881) (1.5) %

Loss in fair value change of warrant liability — — % (12,745) (4.3) %

(Loss) gain on foreign currency transactions (214) (0.1) % 780 0.3 %

Gain on foreign currency transactions 180 0.1 % 76 — %

Other income 4 — % 17 — %

Total other expense (7,058) (2.2) % (4,788) (1.5) %

7 unchanged sentences

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 were relatively flat at $296.6 million for the thirteen weeks ended February 25, 2023 compared to $296.7 million for the thirteen weeks ended February 26, 2022, representing a slight decrease of $0.1 million.

The slight decrease was primarily attributable to the 10.8% decline in our international business and the 1.3% 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.

These decreases were largely offset by the effects of the price increase effective in the fourth quarter of fiscal year 2022, which drove the 0.3% increase in our North America net sales in the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022.

Net sales were $324.8 million for the thirteen weeks ended May 27, 2023 compared to $316.5 million for the thirteen weeks ended May 28, 2022, representing an increase of $8.3 million.

Price increases effective in the fourth quarter of fiscal year 2022 contributed to the 2.6% increase in our North America net sales in the thirteen weeks ended May 27, 2023 compared to the thirteen weeks ended May 28, 2022.

Cost of goods sold .

Cost of goods sold increased $5.7 million, or 3.0%, for the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022.

The cost of goods sold increase was primarily driven by higher raw material, packaging, and co-manufacturing costs and supply chain challenges in the thirteen weeks ended February 25, 2023.

As previously discussed above in “Business Trends,” we expect these inflationary cost pressures and supply chain challenges to continue for the remainder of fiscal year 2023.

Cost of goods sold increased $7.7 million, or 3.9%, for the thirteen weeks ended May 27, 2023 compared to the thirteen weeks ended May 28, 2022.

The cost of goods sold increase was primarily driven by higher raw material, packaging, and co-manufacturing costs and supply chain challenges in the thirteen weeks ended May 27, 2023.

Gross profit.

Gross profit decreased $5.8 million, or 5.3%, for the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022.

Additionally, gross profit of $102.7 million, or 34.6% of net sales, for the thirteen weeks ended February 25, 2023 decreased 200 basis points from 36.6% of net sales for the thirteen weeks ended February 26, 2022.

The decreases in gross profit and gross profit margin were primarily driven by the unfavorable effects of higher raw material, packaging, and co-manufacturing costs and supply chain challenges in the thirteen weeks ended February 25, 2023 as previously discussed.

These decreases were partially offset by the favorable effects of the price increase which became effective in the fourth quarter of fiscal year 2022.

Gross profit increased by $0.6 million, or 0.5%, for the thirteen weeks ended May 27, 2023 compared to the thirteen weeks ended May 28, 2022.

Additionally, gross profit of $119.2 million, or 36.7% of net sales, for the thirteen weeks ended May 27, 2023 decreased 80 basis points from 37.5% of net sales for the thirteen weeks ended May 28, 2022.

The decrease in gross profit margin was primarily driven by the unfavorable effects of higher raw material, packaging, and co-manufacturing costs and supply chain challenges in the thirteen weeks ended May 27, 2023 as previously discussed.

This decrease was partially offset by the favorable effects of the price increase which became effective in the fourth quarter of fiscal year 2022.

Operating expenses .

Operating expenses decreased $2.3 million, or 3.7%, for the thirteen weeks ended February 25, 2023 and February 26, 2022 due to the following:

Operating expenses increased $1.7 million, or 2.6%, for the thirteen weeks ended May 27, 2023 compared to the thirteen weeks ended May 28, 2022 due to the following:

• Selling and marketing.

Selling and marketing expenses decreased $2.0 million, or 6.3%, for the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022, primarily related to the timing of marketing spend.

Selling and marketing expenses decreased $2.2 million, or 6.7%, for the thirteen weeks ended May 27, 2023 compared to the thirteen weeks ended May 28, 2022, primarily related to the timing of marketing spend.

• General and administrative.

General and administrative expenses decreased $0.4 million, or 1.3%, for the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022.

The decrease in general and administrative expenses was primarily attributable to a reduction in employee-related expenses and the discontinuation of costs related to business integration activities and restructuring charges in the thirteen weeks ended February 25, 2023 compared to costs totaling $0.3 million in the thirteen weeks ended February 26, 2022.

These decreases were partially offset by the $0.4 million of executive officer transition costs incurred in the thirteen weeks ended February 25, 2023.

General and administrative expenses increased $3.8 million, or 14.2%, for the thirteen weeks ended May 27, 2023 compared to the thirteen weeks ended May 28, 2022.

The increase in general and administrative expenses was primarily attributable to $2.4 million of fees related to the extension of the Term Loan, $0.9 million of stock based compensation, $0.7 million of executive officer transition costs, and increased plant trial spend, partially offset by a reduction in employee-related expenses and the discontinuation of costs related to business integration activities.

• Depreciation and amortization.

Depreciation and amortization expenses were $4.3 million for the thirteen weeks ended February 25, 2023 and February 26, 2022.

Depreciation and amortization expenses were $4.4 million for the thirteen weeks ended May 27, 2023 and May 28, 2022.

Interest expense .

Interest expense increased $3.2 million for the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022, primarily due to the increase in interest rates on our Term Facility (as defined below) to 8.0% as of February 25, 2023 from 3.8% as of February 26, 2022.

The increase was partially offset by the effect of principal payments reducing the outstanding balance of the Term Facility to $365.0 million as of February 25, 2023 from $431.5 million as of February 26, 2022.

Additionally, interest expense related to the amortization of deferred financing costs and debt discount increased $0.2 million for the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022.

Loss in fair value change of warrant liability.

There were no outstanding liability-classified Private Warrants during the thirteen weeks ended February 25, 2023.

During thirteen weeks ended February 26, 2022, we recorded a non-cash loss of $12.7 million related to changes in valuation of our liability-classified warrants issued through a private placement (“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.

(Loss) gain on foreign currency transactions.

Foreign currency transactions resulted in a loss of $0.2 million and a gain of $0.8 million for the thirteen weeks ended February 25, 2023 and February 26, 2022, 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.

Interest expense increased $2.8 million for the thirteen weeks ended May 27, 2023 compared to the thirteen weeks ended May 28, 2022, primarily due to the increase in interest rates on our Term Facility (as defined below) to 7.7% as of May 27, 2023 from 4.7% as of May 28, 2022.

The increase was partially offset by the effect of principal payments reducing the outstanding balance of the Term Facility to $325.0 million as of May 27, 2023 from $406.5 million as of May 28, 2022.

Additionally, interest expense related to the amortization of deferred financing costs and debt discount increased $0.1 million for the thirteen weeks ended May 27, 2023 compared to the thirteen weeks ended May 28, 2022.

Gain on foreign currency transactions.

Foreign currency transactions resulted in a gain of $0.2 million and a gain of $0.1 million for the thirteen weeks ended May 27, 2023 and May 28, 2022, respectively.

The variance is attributable to changes in foreign currency rates related to our international operations.

Income tax expense.

Income tax expense decreased $1.9 million for the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022.

Income tax expense increased $0.1 million for the thirteen weeks ended May 27, 2023 compared to the thirteen weeks ended May 28, 2022.

The decrease in our income tax expense was primarily driven by lower income from operations and changes in permanent differences.

Net income was $25.6 million for the thirteen weeks ended February 25, 2023, an increase of $7.2 million compared to net income of $18.5 million for the thirteen weeks ended February 26, 2022.

The increase was primarily driven by the $12.7 million non-cash fair value loss incurred in the thirteen weeks ended February 26, 2022 related to the measurement of our liability-classified Private Warrants.

The increase in net income was partially offset by a $3.4 million decrease in income from operations, driven by the unfavorable effects of higher raw material and co-manufacturing costs and supply chain challenges, and the $3.2 million increase in interest expense in the thirteen weeks ended February 25, 2023 as discussed above.

Net income was $35.4 million for the thirteen weeks ended May 27, 2023, a decrease of $3.4 million compared to net income of $38.8 million for the thirteen weeks ended May 28, 2022.

The decrease in net income was partially driven by a $1.1 million decrease in income from operations, unfavorable effects of higher raw material and co-manufacturing costs and supply chain challenges, and the $2.8 million increase in interest expense in the thirteen weeks ended May 27, 2023 as discussed above.

Adjusted EBITDA.

Adjusted EBITDA decreased $3.3 million, or 6.1% for the thirteen weeks ended February 25, 2023 compared to the thirteen weeks ended February 26, 2022, driven primarily by the $3.4 million decrease in income from operations as a result of the unfavorable effects of higher raw material and co-manufacturing costs and supply chain challenges in the thirteen weeks ended February 25, 2023 as discussed above.

Adjusted EBITDA increased $3.3 million, or 5.3% for the thirteen weeks ended May 27, 2023 compared to the thirteen weeks ended May 28, 2022, driven primarily by higher gross profit and lower selling and marketing spend.

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 25, 2023 and the Twenty-Six Weeks Ended February 26, 2022

Comparison of Unaudited Results for the Thirty-Nine Weeks Ended May 27, 2023 and the Thirty-Nine Weeks Ended May 28, 2022

Twenty-Six Weeks Ended Twenty-Six Weeks Ended

(In thousands) February 25, 2023 % of Net Sales February 26, 2022 % of Net Sales

Thirty-Nine Weeks Ended Thirty-Nine Weeks Ended

(In thousands) May 27, 2023 % of Net Sales May 28, 2022 % of Net Sales

Net sales $ 922,254 100.0 % $ 894,514 100.0 %

11 unchanged sentences

Loss in fair value change of warrant liability — — % (30,062) (3.4) %

(Loss) gain on foreign currency transactions (106) — % 427 0.1 %

Gain on foreign currency transactions 74 — % 503 0.1 %

Other income 10 — % 26 — %

8 unchanged sentences

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 $597.5 million represented an increase of $19.5 million, or 3.4%, for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022.

The increase was primarily attributable to the price increase effective in the fourth quarter of fiscal year 2022, which drove the 3.9% increase in our North America net sales in the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022.

Net sales of $922.3 million represented an increase of $27.7 million, or 3.1%, for the thirty-nine weeks ended May 27, 2023 compared to the thirty-nine weeks ended May 28, 2022.

The increase was primarily attributable to the price increase effective in the fourth quarter of fiscal year 2022, which drove the 3.5% increase in our North America net sales in the thirty-nine weeks ended May 27, 2023 compared to the thirty-nine weeks ended May 28, 2022.

The increase in North America net sales was partially offset by a 8.9% decline in our international business and a 0.8% 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 $30.8 million, or 8.7%, for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022.

The cost of goods sold increase was primarily driven by higher raw material, packaging, and co-manufacturing costs and supply chain challenges in the twenty-six weeks ended February 25, 2023.

As previously discussed above in “Business Trends,” we continue to expect these inflationary cost pressures and supply chain challenges to continue for the remainder of fiscal year 2023.

Cost of goods sold increased $38.5 million, or 7.0%, for the thirty-nine weeks ended May 27, 2023 compared to the thirty-nine weeks ended May 28, 2022.

The cost of goods sold increase was primarily driven by higher raw material, packaging, and co-manufacturing costs and supply chain challenges in the thirty-nine weeks ended May 27, 2023.

Gross profit.

Gross profit decreased $11.4 million, or 5.0%, for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022.

Additionally, gross profit of $213.7 million, or 35.8% of net sales, for the twenty-six weeks ended February 25, 2023 decreased 310 basis points from 38.9% of net sales for the twenty-six weeks ended February 26, 2022.

The decreases in gross profit and gross profit margin were primarily driven by the unfavorable effects of higher raw material, packaging, and co-manufacturing costs and supply chain challenges in the twenty-six weeks ended February 25, 2023 as previously discussed.

Gross profit decreased $10.8 million, or 3.1%, for the thirty-nine weeks ended May 27, 2023 compared to the thirty-nine weeks ended May 28, 2022.

Additionally, gross profit of $333.0 million, or 36.1% of net sales, for the thirty-nine weeks ended May 27, 2023 decreased 230 basis points from 38.4% of net sales for the thirty-nine weeks ended May 28, 2022.

The decreases in gross profit and gross profit margin were primarily driven by the unfavorable effects of higher raw material, packaging, and co-manufacturing costs and supply chain challenges in the thirty-nine weeks ended May 27, 2023 as previously discussed.

These decreases were partially offset by the favorable effects of the price increase which became effective in the fourth quarter of fiscal year 2022.

Operating expenses .

Operating expenses decreased $2.4 million, or 2.0%, for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022 due to the following:

Operating expenses decreased $0.7 million, or 0.4%, for the thirty-nine weeks ended May 27, 2023 compared to the thirty-nine weeks ended May 28, 2022 due to the following:

• Selling and marketing.

Selling and marketing expenses decreased $4.0 million, or 6.4%, for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022, primarily related to the timing of marketing spend.

Selling and marketing expenses decreased $6.2 million, or 6.5%, for the thirty-nine weeks ended May 27, 2023 compared to the thirty-nine weeks ended May 28, 2022, primarily related to the timing of marketing spend.

• General and administrative.

General and administrative expenses increased $1.6 million, or 3.2%, for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022.

The increase in general and administrative expense was primarily attributable to a $0.6 million increase in stock-based compensation, increased corporate expenses, and $0.4 million of executive officer transition costs incurred in the twenty-six weeks ended February 25, 2023.

These increases were partially offset by a reduction in employee-related expenses and the discontinuation of costs related to business integration activities and restructuring charges in the twenty-six weeks ended February 25, 2023 compared to costs totaling $0.4 million in the twenty-six weeks ended February 26, 2022.

General and administrative expenses increased $5.4 million, or 7.0%, for the thirty-nine weeks ended May 27, 2023 compared to the thirty-nine weeks ended May 28, 2022.

The increase in general and administrative expense was primarily attributable to a $1.8 million increase in stock-based compensation, $1.2 million of executive officer transition costs, increased general corporate costs and increased plant trial spend in the thirty-nine weeks ended May 27, 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 thirty-nine weeks ended May 28, 2022.

• Depreciation and amortization.

Depreciation and amortization expenses were $8.7 million and $8.6 million for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022, respectively.

Depreciation and amortization expenses were $13.0 million and $13.0 million for the thirty-nine weeks ended May 27, 2023 compared to the thirty-nine weeks ended May 28, 2022, respectively.

Interest expense .

Interest expense increased $3.9 million for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022, primarily due to the increase in interest rates on our Term Facility (as defined below) to 8.0% as of February 25, 2023 from 3.8% as of February 26, 2022.

Interest expense related to the amortization of deferred financing costs and debt discount decreased $0.1 million for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022.

Interest expense increased $6.7 million for the thirty-nine weeks ended May 27, 2023 compared to the thirty-nine weeks ended May 28, 2022, primarily due to the increase in interest rates on our Term Facility (as defined below) to 7.7% as of May 27, 2023 from 4.7% as of May 28, 2022.

Interest expense related to the amortization of deferred financing costs and debt discount decreased $0.1 million for the thirty-nine weeks ended May 27, 2023 compared to the thirty-nine weeks ended May 28, 2022.

Loss in fair value change of warrant liability .

There were no outstanding liability-classified Private Warrants during the twenty-six weeks ended February 25, 2023.

During the twenty-six weeks ended February 26, 2022, we recorded a non-cash loss of $30.1 million related to changes in valuation of our Private Warrants, which was primarily driven by movements in our stock price.

There were no outstanding liability-classified Private Warrants during the thirty-nine weeks ended May 27, 2023.

During the thirty-nine weeks ended May 28, 2022, we recorded a non-cash loss of $30.1 million 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.

(Loss) gain on foreign currency transactions.

Foreign currency transactions resulted in a loss of $0.1 million and a gain of $0.4 million for the twenty-six weeks ended February 25, 2023 and February 26, 2022, 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.

Gain on foreign currency transactions.

Foreign currency transactions resulted in a gain of $0.1 million and a gain of $0.5 million for the thirty-nine weeks ended May 27, 2023 and May 28, 2022, respectively.

During the thirty-nine weeks ended, 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 decreased $5.0 million for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022.

Income tax expense decreased $4.9 million for the thirty-nine weeks ended May 27, 2023 compared to the thirty-nine weeks ended May 28, 2022.

The decrease in our income tax expense is primarily driven by lower income from operations and changes in permanent differences.

Net income was $61.5 million for the twenty-six weeks ended February 25, 2023, an increase of $21.9 million compared to net income of $39.6 million for the twenty-six weeks ended February 26, 2022.

The increase was primarily driven by the $30.1 million non-cash fair value loss incurred in the twenty-six weeks ended February 26, 2022 related to the measurement of our liability-classified Private Warrants.

The increase in net income was partially offset by a $9.0 million decrease in income from operations, driven by the unfavorable effects of higher raw material and co-manufacturing costs and supply chain challenges in the twenty-six weeks ended February 25, 2023 as discussed above.

Net income was $96.9 million for the thirty-nine weeks ended May 27, 2023, an increase of $18.5 million compared to net income of $78.4 million for the thirty-nine weeks ended May 28, 2022.

The increase was primarily driven by the $30.1 million non-cash fair value loss incurred in the thirty-nine weeks ended May 28, 2022 related to the measurement of our liability-classified Private Warrants.

The increase was partially offset by a $10.0 million decrease in income from operations driven by the unfavorable effects of higher raw material and co-manufacturing costs and supply chain challenges, and higher interest costs associated with long-term debt in the thirty-nine weeks ended May 27, 2023 as discussed above.

Adjusted EBITDA.

Adjusted EBITDA decreased $8.1 million, or 6.8% for the twenty-six weeks ended February 25, 2023 compared to the twenty-six weeks ended February 26, 2022, driven primarily by the $9.0 million decrease in income from operations as a result of the unfavorable effects of higher raw material and co-manufacturing costs and supply chain challenges in the twenty-six weeks ended February 25, 2023 as discussed above.

Adjusted EBITDA decreased $4.8 million, or 2.6% for the thirty-nine weeks ended May 27, 2023 compared to the thirty-nine weeks ended May 28, 2022, driven primarily by better than expected net sales and lower SG&A costs.

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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The Company 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, integration costs, restructuring costs, loss in fair value change of warrant liability, and other non-core expenses.

stock-based compensation expense, executive transition costs, integration costs, restructuring costs, loss in fair value change of warrant liability, term loan transaction fees, and other non-core expenses.

The Company believes that EBITDA and Adjusted EBITDA, when used in conjunction with net income, are useful to provide additional information to investors.

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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 thirteen and twenty-six weeks ended February 25, 2023 and February 26, 2022:

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

February 25, 2023 February 26, 2022 February 25, 2023 February 26, 2022

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 thirty-nine weeks ended May 27, 2023 and May 28, 2022:

(In thousands) Thirteen Weeks Ended Thirty-Nine Weeks Ended

May 27, 2023 May 28, 2022 May 27, 2023 May 28, 2022

Net income $ 35,431 $ 38,834 $ 96,933 $ 78,447

9 unchanged sentences

Loss in fair value change of warrant liability — — — 30,062

Term loan transaction fees 2,423 — 2,423 —

(178) (73) (64) (331)

4 unchanged sentences

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

We had $63.2 million in cash as of February 25, 2023.

We had $68.8 million in cash as of May 27, 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.

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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 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:

On January 21, 2022, the Company entered into the “2022 Repricing Amendment” to the Credit Agreement.

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:

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;

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 our domestic subsidiaries that is not a named borrower under the Credit Agreement has provided a guarantee on a secured basis.

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 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 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.

We were in compliance with all covenants as of February 25, 2023 and August 27, 2022, respectively.

At February 25, 2023, the outstanding balance of the Term Facility was $365.0 million.

We are not required to make principal payments on the Term Facility over the twelve months following the period ended February 25, 2023.

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

As of February 25, 2023, there were no amounts drawn against the Revolving Credit Facility.

The Company was in compliance with all covenants as of May 27, 2023 and August 27, 2022, respectively.

At May 27, 2023, the outstanding balance of the Term Facility was $325.0 million.

We are not required to make principal payments on the Term Facility over the twelve months following the period ended May 27, 2023.

The outstanding balance of the Term Facility is due upon its maturity in March 2027.

As of May 27, 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 twenty-six weeks ended February 25, 2023, we repurchased 546,346 shares of common stock for $16.4 million, averaging a purchase price per share of $30.11.

We did not repurchase any shares of common stock during the thirteen weeks ended February 25, 2023.

During the thirteen and twenty-six weeks ended February 26, 2022, we repurchased 571,271 shares of common stock for $20.4 million, averaging a purchase price per share of $35.68.

As of February 25, 2023, approximately $71.5 million remained available for repurchases under our $150.0 million stock repurchase program.

The Company did not repurchase any shares of common stock during the thirteen weeks ended May 27, 2023.

During the thirty-nine weeks ended May 27, 2023, the Company repurchased 546,346 shares of common stock at an average share price of $30.11 per share.

During the thirteen weeks ended May 28, 2022, the Company repurchased 218,221 shares of common stock at an average share price of $37.16 per share.

During the thirty-nine weeks ended May 28, 2022, the Company repurchased 789,742 shares of common stock at an average share price of $36.09 per share.

As of May 27, 2023, approximately $71.5 million remained available for repurchases under our $150.0 million stock repurchase program.

Refer to Note 10, Stockholders’ Equity, of the Notes to Unaudited 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):

Twenty-Six Weeks Ended

February 25, 2023 February 26, 2022

Thirty-Nine Weeks Ended

May 27, 2023 May 28, 2022

Net cash provided by operating activities

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Operating activities.

Our net cash provided by operating activities increased $23.0 million to $53.3 million for the twenty-six weeks ended February 25, 2023 compared to $30.3 million for the twenty-six weeks ended February 26, 2022.

The increase in cash provided by operating activities was primarily attributable to the $17.4 million decrease in cash paid for taxes and changes in working capital for the twenty-six weeks ended February 25, 2023 as compared to the twenty-six weeks ended February 26, 2022.

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, consumed cash of $28.9 million in the twenty-six weeks ended February 25, 2023 compared to $38.8 million of cash consumed in the twenty-six weeks ended February 26, 2022.

These increases in cash provided by operating activities were partially offset by the $9.0 million decrease in income from operations to $95.0 million for the twenty-six weeks ended February 25, 2023 as compared to $104.0 million for the twenty-six weeks ended February 26, 2022, primarily driven by the unfavorable effects of higher raw material and co-manufacturing costs and supply chain challenges as discussed in “Results of Operations” above.

Additionally, cash paid for interest was $14.3 million in the twenty-six weeks ended February 25, 2023, which was an increase of $4.1 million as compared to the $10.2 million paid for interest in the twenty-six weeks ended February 26, 2022.

Our net cash provided by operating activities increased $43.0 million to $110.4 million for the thirty-nine weeks ended May 27, 2023 compared to $67.4 million for the thirty-nine weeks ended May 28, 2022.

The increase in cash provided by operating activities was primarily attributable to the $23.9 million decrease in cash paid for taxes, and changes in working capital for the thirty-nine weeks ended May 27, 2023 as compared to the thirty-nine weeks ended May 28, 2022.

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, consumed cash of $25.8 million in the thirty-nine weeks ended May 27, 2023 compared to $44.2 million of cash consumed in the thirty-nine weeks ended May 28, 2022.

These increases in cash provided by operating activities were partially offset by the $10.0 million decrease in income from operations to $149.2

million for the thirty-nine weeks ended May 27, 2023 as compared to $159.2 million for the thirty-nine weeks ended May 28, 2022, primarily driven by the unfavorable effects of higher raw material and co-manufacturing costs and supply chain challenges as discussed in “Results of Operations” above.

Additionally, cash paid for interest was $21.3 million in the thirty-nine weeks ended May 27, 2023, which was an increase of $7.0 million as compared to the $14.3 million paid for interest in the thirty-nine weeks ended May 28, 2022.

Investing activities .

Our net cash used in investing activities was $1.9 million for the twenty-six weeks ended February 25, 2023 compared to $6.0 million for the twenty-six weeks ended February 26, 2022.

Our net cash used in investing activities for the twenty-six weeks ended February 25, 2023 primarily comprised $1.7 million of purchases of property and equipment.

The $6.0 million of 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.

Our net cash used in investing activities was $10.4 million for the thirty-nine weeks ended May 27, 2023 compared to $7.3 million for the thirty-nine weeks ended May 28, 2022.

Our net cash used in investing activities for the thirty-nine weeks ended May 27, 2023 primarily comprised $10.1 million of purchases of property and equipment.

The $7.3 million of net cash used in investing activities for the thirty-nine weeks ended May 28, 2022 primarily comprised $4.7 million of 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 $55.7 million for the twenty-six weeks ended February 25, 2023 compared to $47.9 million for the twenty-six weeks ended February 26, 2022.

Net cash used in financing activities for the twenty-six weeks ended February 25, 2023 primarily consisted of $16.4 million of repurchases in common stock, $41.5 million in principal payments on the Term Facility, and $2.4 million in tax payments related to issuance of restricted stock units and performance stock units, partially offset by $4.8 million of cash proceeds received from option exercises.

Net cash used in financing activities for the twenty-six weeks ended February 26, 2022 primarily consisted of $20.4 million in repurchases of common stock, $25.0 million in principal payments on the Term Facility, and $3.3 million in tax payments related to issuance of restricted stock units and performance stock units, partially offset by $1.5 million of cash proceeds received from option exercises.

Our net cash used in financing activities was $98.6 million for the thirty-nine weeks ended May 27, 2023 compared to $78.5 million for the thirty-nine weeks ended May 28, 2022.

Net cash used in financing activities for the thirty-nine weeks ended May 27, 2023 primarily consisted of $16.4 million of repurchases in common stock, $81.5 million in principal payments on the Term Facility, and $2.8 million in tax payments related to issuance of restricted stock units and performance stock units, partially offset by $5.0 million of cash proceeds received from option exercises.

Net cash used in financing activities for the thirty-nine weeks ended May 28, 2022 primarily consisted of $28.5 million in repurchases of common stock, $50.0 million in principal payments on the Term Facility, and $3.5 million in tax payments related to issuance of restricted stock units and performance stock units, partially offset by $4.3 million of cash proceeds received from option exercises.

During the thirteen weeks ended May 27, 2023, the Company extended its Term Loan maturity to March 2027 from July 2024.

The Company paid $2.7 million of incremental deferred financing fees, primarily for the payment of upfront lender fees (original issue discount), in conjunction with the term loan transaction.

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