What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-10-24 compared with 2022-10-21 · 89 added, 149 removed, 227 unchanged (51% of the section changed)

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Unless the context requires otherwise in this Report, the terms “we,” “us,” “our,” the “Company” and “Simply Good Foods” refer to The Simply Good Foods Company and its subsidiaries.

The Simply Good Foods Company is a consumer packaged food and beverage company that aims to lead the nutritious snacking movement with trusted brands that offer a variety of convenient, innovative, great-tasting, better-for-you snacks and meal replacements, and other product offerings.

The product portfolio we develop, market and sell consists primarily of protein bars, ready-to-drink (“RTD”) shakes, sweet and salty snacks and confectionery products marketed under the Atkins®, Atkins Endulge®, Quest® and Quest Hero TM brand names.

We believe Simply Good Foods is poised to expand its wellness platform through innovation and organic growth along with acquisition opportunities in the nutritional snacking space.

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Business Trends

Our consolidated results of operations for the fiscal year ended August 27, 2022 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 more severely 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 2023 will continue to be affected by the dynamic macroeconomic inflationary environment in the United States and elsewhere, 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.

Overall consumer spending, particularly in the United States, continued to recover from the effects of the COVID-19 pandemic, which resulted in well documented industry-wide supply chain disruptions across the United States and globally during fiscal year 2022.

As a result, during the fifty-two weeks ended August 27, 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 and disruptions in ingredients.

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

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

We could experience additional lost sale opportunities at our retail and e-commerce customers if our products are not available for purchase because of continued or expanded 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 price increases effective in the first and fourth quarters of fiscal year 2022.

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

The improvement in consumer mobility and shopper traffic patterns experienced during fiscal year 2022 has been variable, and there continues to be uncertainty related to the sustainability and longevity of these trends.

The ultimate effect COVID-19, supply chain challenges, cost pressures discussed above, and the overall effects of the current high inflation environment on consumer purchasing patterns could have on our business continues to be not fully known.

Additionally, management is continuing to monitor the conflict in Ukraine, especially regarding the availability and cost of raw materials that are produced in this region and Europe in general.

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.

Factors contributing to the uncertainty described above, 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 improving consumer purchasing and consumption behavior, and (iv) unforeseen business disruptions or other effects due to current global geopolitical tensions, including relating directly or indirectly to the Ukraine crisis.

Our consolidated results of operations for the fiscal year ended August 26, 2023 improved from the end of fiscal year 2022, driven by net sales growth, while navigating a challenging supply chain environment, inflation, and macroeconomic uncertainty.

We continue to actively monitor the dynamic macroeconomic inflationary environment in the United States and elsewhere, elevated levels of supply chain costs, and consumer behavior.

Current or future governmental policies may increase the risk of inflation and possible economic recession, which could further increase the costs of ingredients, packaging, logistics and finished goods for our business as well as negatively effect consumer behavior and demand for our products.

Our business performance for the fiscal year ended August 26, 2023 was affected by unfavorable raw material costs, higher co-manufacturing costs, and supply chain challenges, including supply chain disruptions resulting from labor shortages and disruptions in sourcing ingredients.

The supply chain environment showed signs of improvement during the year and we expect to see improvement during fiscal year 2024 in the overall cost environment and in our gross margin.

We have continued to proactively engage with our retail customers, contract manufacturers, and logistics and transportation providers, to meet demand for our products and to remain informed of any challenges within our business operations.

Additionally, we instituted price increases effective in the first and fourth quarters of fiscal year 2022.

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

Based on information available to us as of the date of this Report, we believe we will be able to deliver products at acceptable levels to fulfill customer orders on a timely basis;

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Please also see the information under Item 1A.

“Risk Factors” for additional information regarding the risks of pandemics, such as COVID-19, higher raw material, freight, and logistics costs, and supply chain challenges.

Restructuring and Related Charges

In May 2020, we announced certain restructuring activities in conjunction with the implementation of our future-state organization design, which created a fully integrated organization with our completed Quest Acquisition.

The new organization design became effective on August 31, 2020.

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

We substantially completed our restructuring activities during fiscal year 2022.

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

As of August 27, 2022, there was no outstanding restructuring liability.

For the fifty-two weeks ended August 27, 2022, August 28, 2021, and August 29, 2020, we incurred a total of $0.1 million, $4.3 million, and $5.5 million in restructuring and restructuring-related costs, respectively, which have been included within General and administrative on the Consolidated Statements of Income and Comprehensive Income.

Refer to Note 16, Restructuring and Related Charges, of our Consolidated Financial Statements included in this Report for additional information regarding restructuring activities.

SimplyProtein Sale

Effective September 24, 2020, we sold the assets exclusively related to our SimplyProtein® brand of products for approximately $8.8 million of consideration, including cash of $5.8 million and a note receivable for $3.0 million, to a newly formed entity led by the Company’s former Canadian-based management team who had been responsible for this brand prior to the sale transaction (the “SimplyProtein Sale”).

In addition to purchasing these assets, the buyer assumed certain liabilities related to the SimplyProtein® brand’s business.

There was no gain or loss recognized as a result of the SimplyProtein Sale.

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.

Quest Acquisition

In November 2019, we completed the acquisition of Quest, a healthy lifestyle food company, for a cash purchase price of approximately $1.0 billion (subject to customary adjustments).

For more information, please see “Liquidity and Capital Resources—Quest Acquisition.”

“Risk Factors” for additional information regarding the risks of inflation, higher raw material, packaging, co-manufacturing, and logistics costs, and supply chain challenges.

Our Reportable Segment

During the fifty-two weeks ended August 27, 2022, we substantially completed our efforts to fully integrate our operations and organization structure after the Quest Acquisition.

We aligned the nature of our production processes and the methods used to distribute products to customers for the Atkins® and Quest® brands.

We also designed our organizational structure to support entity-wide business functions across brands, products, customers, and geographic regions.

Additionally, our chief operating decision maker reviews operating results and forecasts at the consolidated level.

As a result, we determined our operations are organized into one, consolidated operating segment and reportable segment.

Previously, during the fifty-two weeks ended August 28, 2021 and August 29, 2020, we had two operating segments, Atkins and Quest, which were aggregated into one reporting segment due to similar financial, economic and operating characteristics.

For each of the fifty-two weeks ended August 26, 2023 and August 27, 2022, we determined our operations are organized into one, consolidated operating segment and reportable segment based on the following:

• Our Atkins® and Quest® brands are closely aligned in the nature of our production processes, the brands’ product offerings, and the methods used to distribute our products to customers;

• Our organizational structure is designed to support entity-wide business functions across brands, products, customers, and geographic regions;

• Our chief operating decision maker reviews operating results and forecasts at the consolidated level.

Previously, during the fifty-two weeks ended August 28, 2021, we had two operating segments, Atkins and Quest, which were aggregated into one reporting segment due to similar financial, economic and operating characteristics.

Key Financial Definitions

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Operating expenses.

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

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

During the fifty-two weeks ended August 27, 2022, our net sales increased $163.1 million, or 16.2%, and our gross profit increased $35.8 million, or 8.7%, compared to the fifty-two weeks ended August 28, 2021.

Net sales for the fifty-two weeks ended August 27, 2022 were positively affected by the price increases effective in the first and fourth quarters of fiscal year 2022, and both the Atkins® and Quest® brands experienced sales and earnings growth driven by increased retail and e-commerce sales volume.

However, unfavorable effects of higher raw material costs, freight, and logistics costs and supply chain challenges in the fifty-two weeks ended August 27, 2022 resulted in decreased gross profit margin as compared to the fifty-two weeks ended August 28, 2021.

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

During the fifty-two weeks ended August 26, 2023, our net sales increased $74.0 million, or 6.3%, to $1,242.7 million compared to net sales of $1,168.7 million for the fifty-two weeks ended August 27, 2022.

Unfavorable raw material, packaging, and co-manufacturing costs and supply chain challenges in the fifty-two weeks ended August 26, 2023 resulted in decreased gross profit margin as compared to the fifty-two weeks ended August 27, 2022.

As previously discussed above in “Business Trends,” while we expect inflationary cost pressures and supply chain challenges will continue, we do expect to see improvement during fiscal year 2024 in the overall cost environment and in our gross margin.

In assessing the performance of our business, we consider a number of key performance indicators used by management and typically used by our competitors, including the non-GAAP measures EBITDA and Adjusted EBITDA.

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Loss in fair value change of warrant liability — — % (30,062) (2.6) %

Gain on legal settlement — — % 5,000 0.5 %

Gain (loss) on foreign currency transactions 191 — % (5) — %

(Loss) gain on foreign currency transactions (344) — % 191 — %

Other expense 11 — % (453) — %

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Net sales of $1,242.7 million represented an increase of $74.0 million, or 6.3%, for the fifty-two weeks ended August 26, 2023 compared to the fifty-two weeks ended August 27, 2022.

The increase was primarily attributable to retail and e-commerce sales volume growth for both the Atkins® and Quest® brands, which increased our North America net sales by 18.1% in the fifty-two weeks ended August 27, 2022 compared to the fifty-two weeks ended August 28, 2021.

Additionally, we instituted price increases effective in the first and fourth quarters of fiscal year 2022.

The increase in net sales was partially offset by a 23.8% decline in our international business due to the decision to wind down our European business.

The European exit represented a 1.2% headwind to total net sales growth.

The increase was primarily attributable to the price increase effective in the fourth quarter of fiscal year 2022, which drove growth of 6.6% in North America net sales for the fifty-two weeks ended August 26, 2023 compared to the fifty-two weeks ended August 27, 2022.

The increase in North America net sales was partially offset by a 3.8% decline in our international business and a 0.6% headwind to net sales growth related to our shift from direct sales to licensing the Quest® frozen pizza business in the third quarter of fiscal year 2022.

Cost of goods sold.

Cost of goods sold increased $66.1 million, or 9.1%, for the fifty-two weeks ended August 26, 2023 compared to the fifty-two weeks ended August 27, 2022.

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

Additionally, our cost of goods sold for the fifty-two weeks ended August 27, 2022 was unfavorably affected by higher raw material, freight, and logistics costs and supply chain challenges.

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

The cost of goods sold increase was primarily driven by higher raw material, packaging and logistics costs.

Gross profit.

Gross profit increased $35.8 million, or 8.7%, for the fifty-two weeks ended August 27, 2022 compared to the fifty-two weeks ended August 28, 2021, which was primarily driven by the sales volume growth for both the Quest® and Atkins® brands as discussed above.

Gross profit of $445.6 million, or 38.1% of net sales, for the fifty-two weeks ended August 27, 2022 decreased 260 basis points from 40.7% of net sales for the fifty-two weeks ended August 28, 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 fifty-two weeks ended August 27, 2022 as previously discussed.

The decrease in gross profit margin was partially offset by the favorable effects of the price increases which became effective in the first and fourth quarters of fiscal year 2022.

Gross profit of $453.4 million increased $7.9 million, or 1.8%, for the fifty-two weeks ended August 26, 2023 compared to the fifty-two weeks ended August 27, 2022.

Gross profit as a percentage of net sales was 36.5% for the fifty-two weeks ended August 26, 2023, a decrease of 160 basis points from 38.1% of net sales for the fifty-two weeks ended August 27, 2022.

This decrease in gross profit margin was primarily driven by unfavorable raw material, packaging, and co-manufacturing costs and supply chain challenges, partially offset by the price increase effective in the fourth quarter of fiscal year 2022.

Operating expenses.

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• Selling and marketing .

Selling and marketing expenses increased $8.8 million, or 7.8%, for the fifty-two weeks ended August 27, 2022 compared to the fifty-two weeks ended August 28, 2021, primarily related to additional brand building initiatives for both Atkins® and Quest®.

Selling and marketing expenses decreased $2.2 million, or 1.8%, for the fifty-two weeks ended August 26, 2023 compared to the fifty-two weeks ended August 27, 2022, primarily related to a reduction in marketing spend.

• General and administrative .

General and administrative expenses decreased $2.3 million, or 2.2%, for the fifty-two weeks ended August 27, 2022 compared to the fifty-two weeks ended August 28, 2021.

The decrease was primarily attributable to reductions in costs related to business integration activities of $2.5 million, restructuring charges of $4.2 million, and incentive compensation in the fifty-two weeks ended August 27, 2022 compared to the fifty-two weeks ended August 28, 2021.

These decreases were partially offset by an increase in stock-based compensation of $3.4 million and increased corporate expenses in the fifty-two weeks ended August 27, 2022 compared to the fifty-two weeks ended August 28, 2021.

General and administrative expenses increased $7.7 million, or 7.4%, for the fifty-two weeks ended August 26, 2023 compared to the fifty-two weeks ended August 27, 2022.

The increase was primarily attributable to $2.4 million of fees related to the extension of the Term Loan (as defined below), $3.4 million of executive officer transition costs, and an increase of $2.8 million in stock-based compensation expense in the fifty-two weeks ended August 26, 2023.

These increases were partially offset by the discontinuation of costs related to business integration activities and restructuring charges of $0.6 million and a reduction in employee-related expenses in the fifty-two weeks ended August 26, 2023.

• Depreciation and amortization .

Depreciation and amortization expenses increased $0.3 million, or 1.8%, for the fifty-two weeks ended August 27, 2022 compared to the fifty-two weeks ended August 28, 2021, primarily due to increased depreciation expense related to the $5.2 million of purchases of property and equipment during the fifty-two weeks ended August 27, 2022.

Depreciation and amortization expenses were $17.4 million and $17.3 million for the fifty-two weeks ended August 26, 2023 compared to the fifty-two weeks ended August 27, 2022, respectively.

Interest income.

Interest income was immaterial for the fifty-two weeks ended August 27, 2022 compared to interest income of $0.1 million for the fifty-two weeks ended August 28, 2021.

Interest income was $1.1 million for the fifty-two weeks ended August 26, 2023 compared to an immaterial amount of interest income for the fifty-two weeks ended August 27, 2022, primarily due to the increase in interest rates.

Interest expense.

Interest expense decreased $9.7 million for the fifty-two weeks ended August 27, 2022 compared to the fifty-two weeks ended August 28, 2021 primarily due to principal payments reducing the outstanding balance of the Term Facility (as defined below) to $406.5 million as of August 27, 2022 from $456.5 million as of August 28, 2021.

Additionally, interest expense related to the amortization of deferred financing costs and debt discount decreased $2.1 million for the fifty-two weeks ended August 27, 2022 compared to the fifty-two weeks ended August 28, 2021.

Interest expense increased $8.2 million for the fifty-two weeks ended August 26, 2023 compared to the fifty-two weeks ended August 27, 2022 primarily due to the increase in interest rates on our Term Facility (as defined below) to 7.9% as of August 26, 2023 from 6.2% as of August 27, 2022.

Additionally, interest expense related to the amortization of deferred financing costs and debt discount increased $0.2 million for the fifty-two weeks ended August 26, 2023 compared to the fifty-two weeks ended August 27, 2022.

Loss in fair value change of warrant liability .

During the fifty-two weeks ended August 27, 2022 and August 28, 2021, we recorded a non-cash loss of $30.1 million and $66.2 million, respectively, 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 fully exercised on a cashless basis, resulting in a net issuance of 4,830,761 shares of our common stock.

As a result, there were no outstanding liability-classified Private Warrants as of August 27, 2022.

Gain on legal settlement.

We recorded a $5.0 million gain on a legal settlement during the fifty-two weeks ended August 28, 2021.

Gain (loss) on foreign currency transactions.

Foreign currency transactions resulted in a $0.2 million gain and an immaterial loss for the fifty-two weeks ended August 27, 2022 and August 28, 2021, respectively.

There were no outstanding liability-classified warrants issued through a private placement (“Private Warrants”) during the fifty-two weeks ended August 26, 2023.

During the fifty-two weeks ended August 27, 2022, we recorded a non-cash loss of $30.1 million related to changes in valuation of our liability-classified Private Warrants, which was primarily driven by movements in our stock price.

On January 7, 2022, the Private Warrants were exercised on a cashless basis, resulting in a net issuance of 4,830,761 shares of our common stock.

(Loss) gain on foreign currency transactions.

Foreign currency transactions resulted in an immaterial loss and an immaterial gain for the fifty-two weeks ended August 26, 2023 and August 27, 2022, respectively.

During the fifty-two weeks ended August 27, 2022, we recognized a foreign currency translation gain of $1.1 million related to the liquidation of a foreign subsidiary.

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Income tax expense increased $0.1 million for the fifty-two weeks ended August 26, 2023 compared to the fifty-two weeks ended August 27, 2022.

The increase in our income tax expense is primarily driven by higher income from operations.

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

Net income was $133.6 million for the fifty-two weeks ended August 26, 2023, an increase of $25.0 million, compared to net income of $108.6 million for the fifty-two weeks ended August 27, 2022.

The increase in net income was primarily related to the $29.1 million increase in income from operations driven by the Atkins® and Quest® brand sales volume growth as discussed above, the $36.1 million decrease in the non-cash loss in fair value change of our Private Warrant liability, and the $9.7 million decrease in interest expense in the fifty-two weeks ended August 27, 2022 compared to the fifty-two weeks ended August 28, 2021.

These increases were partially offset by the $2.0 million increase in income tax expense in the fifty-two weeks ended August 27, 2022 compared to the fifty-two weeks ended August 28, 2021 as well as the non-recurring $5.0 million gain on a legal settlement in the fifty-two weeks ended August 28, 2021.

The increase was primarily driven by the $30.1 million non-cash fair value loss incurred in the fifty-two weeks ended August 27, 2022 related to the measurement of our liability-classified Private Warrants which did not repeat in fiscal year 2023, and growth in net sales.

Adjusted EBITDA.

Adjusted EBITDA increased $26.8 million, or 12.9%, for the fifty-two weeks ended August 27, 2022 compared to the fifty-two weeks ended August 28, 2021, driven primarily by sales volume growth for the Atkins® and Quest® brands, which was partially offset by the unfavorable effects of higher raw material, freight, and logistics costs and supply chain challenges in the fifty-two weeks ended August 27, 2022 as discussed above.

Adjusted EBITDA increased $11.5 million, or 4.9%, for the fifty-two weeks ended August 26, 2023 compared to the fifty-two weeks ended August 27, 2022, driven primarily by net sales growth due to the price increase effective in the fourth quarter of fiscal year 2022, partially offset by unfavorable raw material, packaging, and co-manufacturing costs and supply chain challenges in the fifty-two weeks ended August 26, 2023 as previously discussed.

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

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Simply Good Foods defines EBITDA as net income or loss before interest income, interest expense, income tax expense, depreciation and amortization, and Adjusted EBITDA as further adjusted to exclude the following items:

stock-based compensation expense, integration costs, restructuring costs, gain or loss in fair value change of warrant liability, gain or loss due to legal settlements, 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.

Management of the Company uses EBITDA and Adjusted EBITDA to supplement net income because these measures reflect operating results of the on-going operations, eliminate items that are not directly attributable to the Company’s underlying operating performance, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to the key metrics the Company’s management uses in its financial and operational decision making.

The Company also believes that EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in its industry.

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

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

Management uses EBITDA and Adjusted EBITDA to supplement net income because these measures reflect operating results of the on-going operations, eliminate items that are not directly attributable to our underlying operating performance, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to the key metrics management uses in its financial and operational decision making.

We also believe that EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.

EBITDA and Adjusted EBITDA may not be comparable to other similarly titled captions of other companies due to differences in the non-GAAP calculation.

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Stock-based compensation expense 14,480 11,697

Executive transition costs 3,390 —

Term loan transaction fees 2,423 —

Integration of Quest — 468

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

Gain on legal settlement — (5,000)

Adjusted EBITDA $ 245,555 $ 234,043

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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 which formed the Company between Conyers Park Acquisition Corp.

and NCP-ATK Holdings, Inc.

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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:

The Extension Amendment provided for an extension of the stated maturity date of the Revolving Commitments and Revolving Loans (each as defined in the Credit Agreement) from July 7, 2022 to the earlier of (i) 91 days prior to the then-effective maturity date of the Initial Term Loans and (ii) December 16, 2026.

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

On April 25, 2023, we entered into the “2023 Repricing Amendment” to the Credit Agreement.

The 2023 Repricing Amendment, (i) reduced the interest rate per annum applicable to the Initial Term Loans outstanding under the Credit Agreement immediately prior to April 25, 2023, and (ii) provided for an extension of the maturity date of the Initial Term Loans from July 7, 2024, to March 17, 2027.

The 2023 Repricing Amendment did not change the interest rate on the Revolving Credit Facility, which continues to bear interest based upon our consolidated net leverage ratio as of the end of the fiscal quarter for which consolidated financial statements are delivered to the Administrative Agent under the Credit Agreement.

No additional debt was incurred, or any proceeds received by us in connection with the 2023 Repricing Amendment.

No amounts under the Term Facility were repaid as a result of the execution of the 2023 Repricing Amendment.

Effective as of the 2023 Repricing Amendment, the interest rate per annum for the Initial Term Loans is based on either:

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, we expensed $2.4 million primarily for third-party fees and capitalized an additional $2.7 million primarily for the payment of upfront lender fees (original issue discount).

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

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We are not required to make principal payments on the Term Facility over the twelve months following the period ended August 26, 2023.

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

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

As of August 26, 2023, there were no amounts drawn against the Revolving Credit Facility.

Stock Repurchase Program

On April 13, 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 $100.0 million.

On October 21, 2022, we announced that our Board of Directors had approved the addition of $50.0 million to our stock repurchase program, resulting in authorized stock repurchases of up to an aggregate of $150.0 million.

During the fifty-two weeks ended August 26, 2023, we repurchased 546,346 shares of common stock for $16.4 million, averaging a purchase price per share of $30.11.

We did not repurchase any shares of common stock during the fifty-two weeks ended August 28, 2021 and August 29, 2020.

During the fifty-two weeks ended August 27, 2022, we repurchased 1,720,520 shares of common stock for $59.9 million, averaging a purchase price per share of $34.79.

We did not repurchase any shares of common stock during the fifty-two weeks ended August 28, 2021.

As of August 26, 2023, approximately $71.5 million remained available for repurchases under our $150.0 million stock repurchase program.

Refer to Note 11, Stockholders’ Equity of the Consolidated Financial Statements included in Item 8 of this Report for additional information related to our stock repurchase program.

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 our common stock.

Such Private Warrants were held by Conyers Park Sponsor, LLC (“Conyers Park”), a related party.

Each whole warrant entitled the holder to purchase one share of our common stock at a price of $11.50 per share.

On January 7, 2022, Conyers Park elected to exercise the Private Warrants in full on a cashless basis, resulting in a net issuance of 4,830,761 shares of the Company’s common stock.

As a result, there were no outstanding liability-classified Private Warrants as of August 27, 2022.

Refer to Note 12, Stockholders’ Equity of the Consolidated Financial Statements included in Item 8 of this Report for additional details regarding the Private Warrants.

Public Equity Offering

On October 9, 2019, we completed an underwritten public offering of 13,379,205 shares of our common stock at a price to the public of $26.35 per share.

We paid underwriting discounts and commissions of $0.19 per share resulting in net proceeds to us of $26.16 per share, or approximately $350.0 million (the “Offering”).

We paid $0.8 million for legal, accounting and registrations fees related to the Offering.

The net proceeds were used to pay a portion of the purchase price and related fees and expenses for the Quest Acquisition.

Quest Acquisition

On August 21, 2019, our wholly-owned subsidiary Simply Good Foods USA, Inc., formerly known as Atkins Nutritionals, Inc.

(“Simply Good USA”) entered into a Stock and Unit Purchase Agreement (the “Purchase Agreement”) with VMG Voyage Holdings, LLC, VMG Tax-Exempt II, L.P., Voyage Employee Holdings, LLC, and other sellers, as defined in the Purchase Agreement, to Quest, a healthy lifestyle food company.

On November 7, 2019, pursuant to the Purchase Agreement, Simply Good USA completed the Quest Acquisition, for a cash purchase price of approximately $1.0 billion, subject to customary post-closing adjustments.

The Quest Acquisition was funded through a combination of cash, equity and debt financing.

Total consideration paid on the closing date was $988.9 million.

Cash sources of funding included $195.3 million of cash on hand, net proceeds of approximately $350.0 million from an underwritten public offering of common stock, and $443.6 million in new term loan debt.

In the third fiscal quarter of 2020, we received a post-closing release from escrow of approximately $2.1 million related to net working capital adjustments, resulting in a total net consideration paid of $986.8 million.

Business transaction costs within the Consolidated Statements of Income and Comprehensive Income for the fifty-two weeks ended August 29, 2020 was $27.1 million, which included $14.5 million of transaction advisory fees related to the Quest Acquisition, $3.2 million of banker commitment fees, $6.1 million of non-deferrable debt issuance costs related to the incremental term loan, and $3.3 million of other costs, including legal, due diligence, and accounting fees.

The following table sets forth the major sources and uses of cash for the fifty-two weeks ended August 26, 2023 and August 27, 2022.

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Operating activities.

Our net cash provided by operating activities decreased $21.5 million to $110.6 million for the fifty-two weeks ended August 27, 2022 compared to $132.1 million for the fifty-two weeks ended August 28, 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 $63.8 million in the fifty-two weeks ended August 27, 2022 compared to $21.5 million of cash consumed in the fifty-two weeks ended August 28, 2021.

Additionally, cash paid for taxes increased $17.0 million to $49.2 million for the fifty-two weeks ended August 27, 2022 as compared to $32.2 million for the fifty-two weeks ended August 28, 2021.

These decreases in cash provided by operating activities were partially offset by the $29.1 million increase in income from operations to $202.8 million for the fifty-two weeks ended August 27, 2022 as compared to $173.7 million for the fifty-two weeks ended August 28, 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 $19.2 million in the fifty-two weeks ended August 27, 2022, which was a decrease of $8.6 million as compared to the $27.8 million paid for interest in the fifty-two weeks ended August 28, 2021.

Our net cash provided by operating activities increased $60.5 million to $171.1 million for the fifty-two weeks ended August 26, 2023 compared to $110.6 million for the fifty-two weeks ended August 27, 2022.

Changes in operating activity cash was primarily attributable to an improvement in working capital, comprised of changes in accounts receivable, net, inventories, prepaid expenses, accounts payable, and accrued expenses and other current liabilities, which are driven by the timing of payments and receipts and seasonal building of inventory.

Changes in working capital consumed cash of $21.2 million, an improvement of $42.6 million, in the fifty-two weeks ended August 26, 2023 compared to $63.8 million of cash consumed in the fifty-two weeks ended August 27, 2022.

Additionally, cash paid for interest was $25.5 million in the fifty-two weeks ended August 26, 2023, which was a increase of $6.3 million as compared to the $19.2 million paid for interest in the fifty-two weeks ended August 27, 2022.

This cash consumption offset income from operations, which increased by $2.1 million to $204.9 million for the fifty-two weeks ended August 26, 2023 as compared to $202.8 million for the fifty-two weeks ended August 27, 2022, primarily attributable to net sales growth in North America.

In addition, cash paid for taxes decreased $21.8 million to $27.4 million for the fifty-two weeks ended August 26, 2023 as compared to $49.2 million for the fifty-two weeks ended August 27, 2022.

Investing activities.

Our net cash used in investing activities was $12.2 million for the fifty-two weeks ended August 26, 2023 compared to $8.2 million for the fifty-two weeks ended August 27, 2022.

Our net cash used in investing activities for the fifty-two weeks ended August 27, 2022 primarily comprised $5.2 million of purchases of property and equipment and the issuance of a $2.4 million note receivable.

The $2.5 million of net cash used in investing activities for the fifty-two weeks ended August 28, 2021 primarily comprised the $5.9 million purchases of property and equipment and the issuance of a $1.6 million note receivable, partially offset by the $5.8 million of cash proceeds received from the SimplyProtein Sale.

Our net cash used in investing activities for the fifty-two weeks ended August 26, 2023 primarily comprised $11.6 million of purchases of property and equipment.

The $8.2 million of net cash used in investing activities for the fifty-two weeks ended August 27, 2022 primarily comprised the $5.2 million purchases of property and equipment and the issuance of a $2.4 million note receivable.

Financing activities.

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Net cash used in financing activities for the fifty-two weeks ended August 26, 2023 primarily consisted of $121.5 million in principal payments on the Term Facility and $16.4 million in repurchases in common stock.

Net cash used in financing activities for the fifty-two weeks ended August 28, 2021 primarily consisted of $150.0 million in principal payments on the Term Facility.

Net cash used in financing activities for the fifty-two weeks ended August 27, 2022 primarily consisted of $50.0 million in principal payments on the Term Facility and $59.9 million in repurchases of common stock.

Critical Accounting Policies, Judgments and Estimates

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Revenue Recognition

We recognize revenue when performance obligations under the terms of a contract with its customer are satisfied.

We recognize revenue when performance obligations under the terms of a contract with our customer are satisfied.

We have determined that fulfilling and delivering products is a single performance obligation.

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We review these estimates regularly and makes revisions as necessary.

Uncertainties

related to the estimate of variable consideration are resolved in a short time frame and do not require any additional constraint on variable consideration.

Uncertainties related to the estimate of variable consideration are resolved in a short time frame and do not require any additional constraint on variable consideration.

Adjustments to variable consideration have historically been insignificant.

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The process of evaluating goodwill and indefinite-lived intangibles for impairment is subjective and requires significant judgment at many points during the analysis.

During the fifty-two weeks ended August 27, 2022, we substantially completed our efforts to fully integrate our operations and organization structure after the Quest Acquisition.

We aligned the nature of our production processes and the methods used to distribute products to customers for the Atkins® and Quest® brands.

We also designed our organizational structure to support entity-wide business functions across brands, products, customers, and geographic regions.

Additionally, our chief operating decision maker reviews operating results and forecasts at the consolidated level.

As a result, we determined our operations are organized into one, consolidated operating segment and reporting unit.

Previously, during the fifty-two weeks ended August 28, 2021 and August 29, 2020, we had two reporting units which were our operating segments, Atkins and Quest.

• Our Atkins® and Quest® brands are closely aligned in the nature of our production processes, the brands’ product offerings, and the methods used to distribute our products to customers;

• Our organizational structure is designed to support entity-wide business functions across brands, products, customers, and geographic regions;

• Our chief operating decision maker reviews operating results and forecasts at the consolidated level.

We assess goodwill and indefinite-lived intangible assets using either a qualitative or quantitative approach to determine whether it is more likely than not that the fair values of the reporting units or indefinite-lived intangible assets are less than their carrying amounts.

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The qualitative assessments did not identify indicators of impairment, and it was determined that it was more likely than not each reporting unit and indefinite-lived intangible had fair values in excess of their carrying values.

Accordingly, no further impairment assessment was necessary, and no impairment charges related to goodwill or indefinite-lived intangibles were recognized in the fifty-two weeks ended August 27, 2022 or August 28, 2021.

Additionally, we determined there was not a material risk for future possible impairments as of the date of the most recent assessment.

For fiscal year 2020, we elected to bypass the qualitative assessment and proceed directly to performing the first step of the quantitative goodwill impairment assessment for each reporting unit.

We performed the first step of the quantitative goodwill impairment assessment by comparing the fair value of each of our reporting units, Atkins and Quest, to its carrying amount, including goodwill.

The estimated fair values of the Atkins and Quest reporting units substantially exceeded their carrying values.

We determined neither reporting unit was impaired, therefore, no impairment charges related to goodwill were recorded in the fifty-two weeks ended August 29, 2020.

Additionally, for fiscal year 2020, we elected to qualitatively assess for impairment the indefinite-lived intangible related to our Quest brand and trademark.

The qualitative assessment indicated that it was more likely than not that the Quest brand and trademark indefinite-lived intangible’s fair value exceeded its carrying amount, and as a result we did not perform a quantitative assessment.

For our indefinite-lived brand and trademark intangible related to our Atkins brand, we elected to bypass the qualitative assessment and proceed directly to performing the quantitative impairment assessment.

The estimated fair value of the Atkins brand and trademark indefinite-lived intangible substantially exceeded its carrying value.

During the fourth quarter of fiscal 2020, we determined there were indicators of impairment related to the SimplyProtein brand intangible asset, including but not limited to an offer to sell the SimplyProtein brand.

Therefore, we performed a quantitative assessment of our brand intangible asset, which indicated the fair value did not exceed the carrying value, resulting in a loss on impairment of $3.0 million in the fifty-two weeks ended August 29, 2020.

Additionally, we determined there was not a material risk of impairments as of the date of the most recent assessment.

We also have intangible assets that have determinable useful lives, consisting primarily of customer relationships, proprietary recipes and formulas, licensing agreements, and software and website development costs.

Costs of these finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives.

Costs of these finite-lived intangible assets are

amortized on a straight-line basis over their estimated useful lives.

Finite-lived intangible assets are tested for impairment when events or circumstances indicated that the carrying amount may not be recoverable.

For the fifty-two weeks ended August 26, 2023, August 27, 2022 and August 28, 2021, we did not identify indicators of impairment related to our finite-lived intangible assets, and as such there were no impairments recorded related to finite-lived intangible assets.

We also determined that there was no material risk for future possible intangible impairments related to our finite-lived intangible assets as of the date of the most recent assessments.

We also determined that there was no material risk of intangible impairments related to our finite-lived intangible assets as of the date of the most recent assessments.

We are subject to income taxes in the United States and numerous other jurisdictions.

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Warrant Liability

As of August 28, 2021, we had outstanding Private Warrants that allowed holders to purchase 6,700,000 shares of our common stock.

Such Private Warrants were held by Conyers Park, a related party.

During the fifty-two weeks ended August 27, 2022 and August 28, 2021, we had outstanding Private Warrants that allowed holders to purchase 6,700,000 shares of our common stock.

Such Private Warrants were held by Conyers Park Sponsor, LLC (“Conyers Park”), a related party.

Each whole warrant entitled the holder to purchase one share of our common stock at a price of $11.50 per share.

On January 7, 2022, Conyers Park elected to exercise the Private Warrants in full on a cashless basis, resulting in a net issuance of 4,830,761 shares of the Company’s common stock.

As a result of the cashless exercise on January 7, 2022, there were no outstanding Private Warrants as of August 27, 2022.

On January 7, 2022, Conyers Park elected to exercise the Private Warrants in full on a cashless basis, resulting in a net issuance of 4,830,761 shares of our common stock.

As a result of the cashless exercise on January 7, 2022, there were no outstanding Private Warrants as of August 26, 2023 or August 27, 2022.

During the reporting periods the Private Warrants were outstanding, we accounted for our Private Warrants as a derivative warrant liability in accordance with ASC Topic 815-40, Derivatives and Hedging:

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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-K

Item 7. Management’s Discussion and Analysis