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Item 2. Management’s Discussion and Analysis

2024-01-04 compared with 2023-06-29 · 69 added, 147 removed, 148 unchanged (59% of the section changed)

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These statements relate to future events or our future financial or operational performance and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements.

These statements include, but are not limited to, our expectations regarding our supply chain, including but not limited to, raw materials and logistics costs, the effect of price increases, inflationary pressure on us and our contract manufacturers, and the unforeseen business disruptions or other effects due to current global geopolitical tensions, including relating to Ukraine.

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

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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.

Our nutritious snacking platform consists of brands that specialize in providing products for consumers that follow certain nutritional philosophies and health-and-wellness trends:

Atkins® for those following a low-carb lifestyle and Quest® for consumers seeking a variety of protein-rich foods and beverages that also limit sugars and simple carbs.

Quest® for consumers seeking a variety of protein-rich foods and beverages that also limit sugars and simple carbs and Atkins® for those following a low-carb lifestyle.

We distribute our products in major retail channels, primarily in North America, including grocery, club, and mass merchandise, as well as through e-commerce, convenience, specialty, and other channels.

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Business Trends

We continue to actively monitor the effect of the dynamic macroeconomic inflationary environment in the United States and elsewhere, elevated levels of supply chain costs, and the level of consumer mobility, which includes the rate at which consumers return to working outside the home.

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

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.

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.

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 will partially offset the unfavorable effects of the supply chain cost pressures discussed above.

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

therefore, we expect our products will continue to be available for purchase to meet consumer meal replacement and snacking needs for the foreseeable future.

We continue to monitor customer and consumer demand along with our supply chain and logistics capabilities and intend to adapt our plans as needed to continue to drive our business and meet our obligations.

During fiscal 2023 the Company was affected by the 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.

During the thirteen weeks ended November 25, 2023, our business performance improved as strong Quest sales volume growth more than offset Atkins softness.

The Company benefited from lower ingredient and packaging costs which resulted in gross margin expansion versus the year ago period.

The Company continues to engage and have discussions with its contract manufacturers and logistics and transportation providers to have its cost structure reflect lower market prices.

We believe the Company's strategy and positioning will continue to drive profitable growth for our product offerings and growth within the growing nutritional snacking category.

We continue to actively monitor the dynamic supply chain environment in the United States and elsewhere as well as consumer purchasing behavior.

Current or future governmental policies may increase the risk of inflation and possible economic recession, which could 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.

Key Financial Definitions

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• General and administrative.

General and administrative expenses comprise expenses associated with corporate and administrative functions that support our business, including employee compensation, stock-based compensation, professional services, integration costs, restructuring costs, insurance and other general corporate expenses.

General and administrative expenses comprise expenses associated with corporate and administrative functions that support our business, including employee compensation, stock-based compensation, professional services, executive transition costs, integration costs, restructuring costs, insurance and other general corporate expenses.

• Depreciation and amortization.

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Results of Operations

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.

During the thirteen weeks ended November 25, 2023, our net sales increased to $308.7 million compared to $300.9 million for the thirteen weeks ended November 26, 2022, driven by Quest volume growth, which offset softness in Atkins net sales, resulting in a 2.6% increase in our aggregate North America net sales.

Gross profit and gross profit margin improved driven by higher sales volumes and lower ingredient and packaging costs.

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

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

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

Comparison of Unaudited Results for the Thirteen Weeks Ended November 25, 2023 and the Thirteen Weeks Ended November 26, 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) May 27, 2023 % of Net Sales May 28, 2022 % of Net Sales

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

Net sales $ 308,678 100.0 % $ 300,878 100.0 %

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

Net sales 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 $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 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 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 $2.2 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 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 $4.4 million for the thirteen weeks ended May 27, 2023 and May 28, 2022.

Interest expense .

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 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 $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 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 Thirty-Nine Weeks Ended May 27, 2023 and the Thirty-Nine Weeks Ended May 28, 2022

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 %

Net sales were $308.7 million for the thirteen weeks ended November 25, 2023 compared to $300.9 million for the thirteen weeks ended November 26, 2022, representing an increase of $7.8 million, driven primarily by Quest volume growth which offset Atkins softness.

North America net sales increased 2.6% in the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022, and International net sales increased 0.7% during the same period.

Cost of goods sold .

Cost of goods sold increased $3.7 million, or 1.9%, for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022.

The cost of goods sold increase was primarily driven by higher sales volumes in the thirteen weeks ended November 25, 2023.

Gross profit.

Gross profit increased by $4.1 million, or 3.7%, for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022.

Additionally, gross profit of $115.1 million, or 37.3% of net sales, for the thirteen weeks ended November 25, 2023 increased 40 basis points from 36.9% of net sales for the thirteen weeks ended November 26, 2022.

The increase in gross profit margin was primarily driven by lower ingredient and packaging costs.

Operating expenses .

Operating expenses increased $4.8 million, or 8.2%, for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022 due to the following:

• Selling and marketing.

Selling and marketing expenses increased $3.5 million, or 12.1%, for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022, due to expenses related to growth initiatives.

• General and administrative.

General and administrative expenses increased $1.3 million, or 5.1%, for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022.

The increase in general and administrative expenses was primarily attributable to $0.7 million of stock based compensation expense, $0.4 million of executive transition costs, and other investments in organizational capabilities.

• Depreciation and amortization.

Total operating expenses 183,770 19.9 % 184,493 20.6 %

Income from operations 149,200 16.2 % 159,233 17.8 %

Other income (expense):

Depreciation and amortization expenses was $4.4 million for the thirteen weeks ended November 25, 2023 and $4.3 million for the thirteen weeks ended November 26, 2022, respectively.

Interest income.

Interest expense (23,201) (2.5) % (16,528) (1.8) %

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

Gain on foreign currency transactions 74 — % 503 0.1 %

Other income 10 — % 26 — %

Total other expense (22,457) (2.4) % (46,060) (5.1) %

Income before income taxes 126,743 13.7 % 113,173 12.7 %

Income tax expense 29,810 3.2 % 34,726 3.9 %

Net income $ 96,933 10.5 % $ 78,447 8.8 %

Other financial data:

Adjusted EBITDA (1)

$ 178,301 19.3 % $ 183,086 20.5 %

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

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

Net sales of $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 $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 $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 $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 $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 $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 $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 income increased by $1.0 million for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022, due to higher cash balances, the increase in interest rates, and other sources of interest income.

Interest expense .

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 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.

Interest expense decreased $1.0 million for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022, primarily due to the effect of principal payments reducing the outstanding balance of the Term Facility (as defined below) to $275.0 million as of November 25, 2023, from $400.0 million as of November 26, 2022.

The reduction in the outstanding balance of the Term Facility was partially offset by the increase in interest rates on our Term Facility to 8.0% as of November 25, 2023 from 7.7% as of November 26, 2022.

Additionally, interest expense related to the amortization of deferred financing costs and debt discount decreased $0.1 million for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022.

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.

Foreign currency transactions resulted in a gain of $0.2 million and a gain of $0.1 million for the thirteen weeks ended November 25, 2023 and November 26, 2022, respectively.

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

Income tax expense.

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 $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.

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

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

Net income was $35.6 million for the thirteen weeks ended November 25, 2023, a decrease of $0.3 million compared to net income of $35.9 million for the thirteen weeks ended November 26, 2022.

Net income benefited by higher gross profit, higher interest income, and lower interest expense, partially offset by growth in marketing expenses, higher stock based compensation expenses, executive transition costs, and higher income tax expense.

Adjusted EBITDA.

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.

Adjusted EBITDA increased $1.2 million, or 2.0% for the thirteen weeks ended November 25, 2023 compared to the thirteen weeks ended November 26, 2022, driven primarily by higher gross profit, partially offset by growth in marketing expenses.

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, term loan transaction fees, and other non-core expenses.

stock-based compensation expense, executive transition costs, 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 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

The following unaudited table provides a reconciliation of EBITDA and Adjusted EBITDA to its most directly comparable GAAP measure, which is net income, for the thirteen weeks ended November 25, 2023 and November 26, 2022:

(In thousands) Thirteen Weeks Ended

November 25, 2023 November 26, 2022

Net income $ 35,561 $ 35,860

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Executive transition costs 366 —

Integration of Quest — 175 — 468

Restructuring — — — 98

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

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

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

Adjusted EBITDA $ 61,965 $ 60,766

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

We had $68.8 million in cash as of May 27, 2023.

We had $121.4 million in cash as of November 25, 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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Any failure to comply with the restrictions of the credit facilities may result in an event of default.

The Company was in compliance with all 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 Company was in compliance with all covenants as of November 25, 2023 and August 26, 2023, respectively.

At November 25, 2023, the outstanding balance of the Term Facility was $275.0 million.

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

As of November 25, 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.

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.

The Company did not repurchase any shares of common stock during the thirteen weeks ended November 25, 2023.

During the thirteen weeks ended November 26, 2022, the Company repurchased 546,346 shares of common stock at an average share price of $30.11 per share.

As of November 25, 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):

Thirty-Nine Weeks Ended

May 27, 2023 May 28, 2022

Thirteen Weeks Ended

November 25, 2023 November 26, 2022

Net cash provided by operating activities

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Operating activities.

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.

Our net cash provided by operating activities increased $38.8 million to $47.5 million for the thirteen weeks ended November 25, 2023 compared to $8.7 million for the thirteen weeks ended November 26, 2022.

The increase in cash provided by operating activities was primarily attributable changes in working capital for the thirteen weeks ended November 25, 2023 as compared to the thirteen weeks ended November 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 $7.7 million in the thirteen weeks ended November 25, 2023 compared to $47.6 million of cash consumed in the thirteen weeks ended November 26, 2022.

These increases in cash provided by operating activities were partially offset by the $0.7 million decrease in income from operations to $51.8 million for the thirteen weeks ended November 25, 2023 as compared to $52.5 million for the thirteen weeks ended November 26, 2022.

Additionally, cash paid for interest was $2.1 million

in the thirteen weeks ended November 25, 2023, which was a decrease of $4.3 million as compared to the $6.4 million paid for interest in the thirteen weeks ended November 26, 2022.

In addition, cash paid for taxes increased $0.6 million.

Investing activities .

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.

Our net cash used in investing activities was $0.8 million for the thirteen weeks ended November 25, 2023 compared to $1.2 million for the thirteen weeks ended November 26, 2022.

Our net cash used in investing activities for the thirteen weeks ended November 25, 2023 primarily comprised $0.7 million of purchases of property and equipment.

The $1.2 million of net cash used in investing activities for the thirteen weeks ended November 26, 2022 primarily comprised $1.2 million of purchases of property and equipment.

Financing activities .

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.

Our net cash used in financing activities was $13.1 million for the thirteen weeks ended November 25, 2023 compared to $20.8 million for the thirteen weeks ended November 26, 2022.

Net cash used in financing activities for the thirteen weeks ended November 25, 2023 primarily consisted of $10.0 million in principal payments on the Term Facility, and $3.6 million in tax payments related to issuance of restricted stock units and performance stock units, partially offset by $0.6 million of cash proceeds received from the partial repayment of an outstanding note receivable.

Net cash used in financing activities for the thirteen weeks ended November 26, 2022 primarily consisted of $16.4 million in repurchases of common stock, $6.5 million in principal payments on the Term Facility, and $2.3 million in tax payments related to issuance of restricted stock units and performance stock units, partially offset by $4.6 million of cash proceeds received from option exercises.

New Accounting Pronouncements

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Refer to Note 2, Summary of Significant Accounting Policies , of our unaudited interim consolidated financial statements in this Report for further information regarding recently issued accounting standards.

Quantitative and Qualitative Disclosures about Market Risk

There were no material changes in our market risk exposure during the thirteen week period ended November 25, 2023.

For a discussion of our market risks, see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report.

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