Simply Good Foods Co 10-Q

Item 1. Financial Statements (Unaudited) The Simply Good Foods Company and Subsidiaries Consolidated Balance Sheets (Unaudited, dollars in thousands, except share and per share data) November 25, 2023 August 26, 2023 Assets Current assets: Cash $ 121,391 $ 87,715 Accounts receivable, net 135,561 145,078 Inventories 123,175 116,591 Prepaid expenses 6,076 6,294 Other current assets 10,336 15,974 Total current assets 396,539 371,652 Long-term assets: Property and equipment, net 23,830 24,861 Intangible assets, net 1,104,318 1,108,119 Goodwill 543,134 543,134 Other long-term assets 47,238 49,318 Total assets $ 2,115,059 $ 2,097,084 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 43,249 $ 52,712 Accrued interest 1,574 1,940 Accrued expenses and other current liabilities 34,083 35,062 Current maturities of long-term debt 83 143 Total current liabilities 78,989 89,857 Long-term liabilities: Long-term debt, less current maturities 272,032 281,649 Deferred income taxes 120,200 116,133 Other long-term liabilities 36,660 38,346 Total liabilities 507,881 525,985 See commitments and contingencies (Note 9) Stockholders’ equity: Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued — — Common stock, $0.01 par value, 600,000,000 shares authorized, 102,175,233 and 101,929,868 shares issued at November 25, 2023 and August 26, 2023, respectively 1,022 1,019 Treasury stock, 2,365,100 shares and 2,365,100 shares at cost at November 25, 2023 and August 26, 2023, respectively ( 78,451 ) ( 78,451 ) Additional paid-in-capital 1,303,411 1,303,168 Retained earnings 383,517 347,956 Accumulated other comprehensive loss ( 2,321 ) ( 2,593 ) Total stockholders’ equity 1,607,178 1,571,099 Total liabilities and stockholders’ equity $ 2,115,059 $ 2,097,084 See accompanying notes to the unaudited consolidated financial statements. 3 Table of Contents The Simply Good Foods Company and Subsidiaries Consolidated Statements of Operations and Comprehensive Income (Unaudited, dollars in thousands, except share and per share data) Thirteen Weeks Ended November 25, 2023 November 26, 2022 Net sales $ 308,678 $ 300,878 Cost of goods sold 193,560 189,886 Gross profit 115,118 110,992 Operating expenses: Selling and marketing 31,990 28,534 General and administrative 26,950 25,641 Depreciation and amortization 4,358 4,327 Total operating expenses 63,298 58,502 Income from operations 51,820 52,490 Other income (expense): Interest income 1,090 7 Interest expense ( 6,034 ) ( 7,055 ) Gain on foreign currency transactions 226 108 Other income 6 6 Total other expense ( 4,712 ) ( 6,934 ) Income before income taxes 47,108 45,556 Income tax expense 11,547 9,696 Net income $ 35,561 $ 35,860 Other comprehensive income: Foreign currency translation, net of reclassification adjustments 272 ( 222 ) Comprehensive income $ 35,833 $ 35,638 Earnings per share from net income: Basic $ 0.36 $ 0.36 Diluted $ 0.35 $ 0.36 Weighted average shares outstanding: Basic 99,629,188 99,200,557 Diluted 101,094,736 100,723,036 See accompanying notes to the unaudited consolidated financial statements. 4 Table of Contents The Simply Good Foods Company and Subsidiaries Consolidated Statements of Cash Flows (Unaudited, dollars in thousands) Thirteen Weeks Ended November 25, 2023 November 26, 2022 Operating activities Net income $ 35,561 $ 35,860 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,605 4,952 Amortization of deferred financing costs and debt discount 385 532 Stock compensation expense 4,168 3,313 Estimated credit losses 51 ( 141 ) Unrealized gain on foreign currency transactions ( 226 ) ( 108 ) Deferred income taxes 4,084 3,206 Amortization of operating lease right-of-use asset 1,735 1,660 Other 301 571 Changes in operating assets and liabilities: Accounts receivable, net 9,869 ( 26,288 ) Inventories ( 6,699 ) 638 Prepaid expenses 257 ( 541 ) Other current assets 5,173 8,631 Accounts payable ( 9,806 ) ( 6,609 ) Accrued interest ( 366 ) 97 Accrued expenses and other current liabilities ( 1,337 ) ( 14,843 ) Other assets and liabilities ( 1,232 ) ( 2,212 ) Net cash provided by operating activities 47,523 8,718 Investing activities Purchases of property and equipment ( 744 ) ( 1,151 ) Investments in intangible and other assets ( 56 ) ( 87 ) Net cash used in investing activities ( 800 ) ( 1,238 ) Financing activities Proceeds from option exercises — 4,563 Tax payments related to issuance of restricted stock units and performance stock units ( 3,642 ) ( 2,298 ) Payments on finance lease obligations ( 61 ) ( 78 ) Cash received on repayment of note receivable 600 — Repurchase of common stock — ( 16,448 ) Principal payments of long-term debt ( 10,000 ) ( 6,500 ) Net cash used in financing activities ( 13,103 ) ( 20,761 ) Cash and cash equivalents Net increase (decrease) in cash 33,620 ( 13,281 ) Effect of exchange rate on cash 56 ( 69 ) Cash at beginning of period 87,715 67,494 Cash and cash equivalents at end of period $ 121,391 $ 54,144 5 Table of Contents Thirteen Weeks Ended November 25, 2023 November 26, 2022 Supplemental disclosures of cash flow information Cash paid for interest $ 2,135 $ 6,426 Cash paid for taxes $ 628 $ 8 Non-cash investing and financing transactions Non-cash credits for repayment of note receivable $ 229 $ — Non-cash additions to property and equipment $ 99 $ — Non-cash additions to intangible assets $ 75 $ 53 See accompanying notes to the unaudited consolidated financial statements. 6 Table of Contents The Simply Good Foods Company and Subsidiaries Consolidated Statements of Stockholders’ Equity (Unaudited, dollars in thousands, except share data) Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shares Amount Shares Amount Balance at August 26, 2023 101,929,868 $ 1,019 2,365,100 $ ( 78,451 ) $ 1,303,168 $ 347,956 $ ( 2,593 ) $ 1,571,099 Net income — — — — — 35,561 — 35,561 Stock-based compensation — — — — 3,888 — — 3,888 Foreign currency translation adjustments — — — — — — 272 272 Repurchase of common stock — — — — — — — — Shares issued upon vesting of restricted stock units and performance stock units 245,365 3 — — ( 3,645 ) — — ( 3,642 ) Exercise of options to purchase common stock — — — — — — — — Balance at November 25, 2023 102,175,233 1,022 2,365,100 ( 78,451 ) 1,303,411 383,517 ( 2,321 ) 1,607,178 Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shares Amount Shares Amount Balance at August 27, 2022 101,322,834 $ 1,013 1,818,754 $ ( 62,003 ) $ 1,287,224 $ 214,381 $ ( 1,951 ) $ 1,438,664 Net income — — — — — 35,860 — 35,860 Stock-based compensation — — — — 3,237 — — 3,237 Repurchase of Common Stock — — 546,346 ( 16,448 ) — — — ( 16,448 ) Foreign currency translation adjustments — — — — — — ( 222 ) ( 222 ) Shares issued upon vesting of restricted stock units and performance stock units 180,342 2 — — ( 2,300 ) — — ( 2,298 ) Exercise of options and stock appreciation rights to purchase common stock 353,281 4 — — 4,559 — — 4,563 Balance at November 26, 2022 101,856,457 1,019 2,365,100 ( 78,451 ) 1,292,720 250,241 ( 2,173 ) 1,463,356 See accompanying notes to the unaudited consolidated financial statements. 7 Table of Contents Notes to Unaudited Consolidated Financial Statements (Unaudited, dollars in thousands, except for share and per share data) 1. Nature of Operations and Principles of Consolidation Description of Business The Simply Good Foods Company (“Simply Good Foods” or the “Company”) is a consumer packaged food and beverage company that aims to lead the nutritious snacking movement with trusted brands that offer a variety of convenient, innovative, great-tasting, better-for-you snacks and meal replacements, and other product offerings. The product portfolio the Company develops, markets and sells consists primarily of protein bars, ready-to-drink (“RTD”) shakes, sweet and salty snacks and confectionery products marketed under the Quest® and Atkins® brand names. Simply Good Foods is poised to expand its wellness platform through innovation and organic growth along with acquisition opportunities in the nutritional snacking space. The Company’s nutritious snacking platform consists of brands that specialize in providing products for consumers that follow certain nutritional philosophies and health-and-wellness trends: 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. The Company distributes its products in major retail channels, primarily in North America, including grocery, club, and mass merchandise, as well as through e-commerce, convenience, specialty, and other channels. The Company’s portfolio of nutritious snacking brands gives it a strong platform with which to introduce new products, expand distribution, and attract new consumers to its products. The common stock of Simply Good Foods is listed on the Nasdaq Capital Market under the symbol “SMPL.” Unaudited Interim Consolidated Financial Statements The unaudited interim consolidated financial statements include the accounts of Simply Good Foods and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Unless the context otherwise requires, “we,” “us,” “our” and the “Company” refer to Simply Good Foods and its subsidiaries. The Company maintains its accounting records on a 52/53-week fiscal year, ending on the last Saturday in August of each year. The interim consolidated financial statements and related notes of the Company and its subsidiaries are unaudited. The unaudited interim consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited interim consolidated financial statements reflect all adjustments and disclosures which are, in the Company’s opinion, necessary for a fair presentation of the results of operations, financial position and cash flows for the indicated periods. All such adjustments were of a normal and recurring nature unless otherwise disclosed. The year-end balance sheet data was derived from the audited financial statements and, in accordance with the instructions to Form 10-Q, certain information and footnote disclosures required by GAAP have been condensed or omitted. The results reported in these unaudited interim consolidated financial statements are not necessarily indicative of the results that may be reported for the entire fiscal year and should be read in conjunction with the Company’s consolidated financial statements for the fiscal year ended August 26, 2023, included in the Company’s Annual Report on Form 10-K (“Annual Report”) filed with the SEC on October 24, 2023. 2. Summary of Significant Accounting Policies Refer to Note 2, Summary of Significant Accounting Policies , to the consolidated financial statements included in the Annual Report for a description of significant accounting policies. 8 Table of Contents Recently Issued and Adopted Accounting Pronouncements Recently Issued Accounting Pronouncements Not Yet Adopted In March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. Additionally, in December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848), Deferral of the Sunset Date of Topic 848, which extended the period of time for which ASU 2020-04 could be applied. As a result, the amendments in ASU 2020-04 can be applied to contract modifications due to rate reform and eligible existing and new hedging relationships entered into between March 12, 2020 and December 31, 2024. The amendments of these ASUs are effective for all entities and are applied on a prospective basis. On January 21, 2022, the Company entered into a repricing amendment (the “2022 Repricing Amendment”) to its credit agreement with Barclays Bank PLC and other parties (as amended to date, the “Credit Agreement”), as described in Note 5, Long-Term Debt and Line of Credit. In addition to replacing the London Interbank Offered Rate (“LIBOR”) as the Credit Agreement’s reference rate with the Secured Overnight Financing Rate (“SOFR”), the 2022 Repricing Amendment contemporaneously modified other terms that changed, or had the potential to change, the amount or timing of contractual cash flows as contemplated by the guidance in ASU 2020-04. As such, the contract modifications related to the 2022 Repricing Amendment were outside of the scope of the optional guidance in ASU 2020-04. The Company will continue to monitor the effects of rate reform, if any, on any new or amended contracts through December 31, 2024. The Company does not anticipate the amendments in this ASU will be material to its consolidated financial statements. In November 2023, the Financial Accounting Standards Board (“FASB”) issues Accounting Standard Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the provisions of the amendments and the effect on its future consolidated financial statements. No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material effect on the Company’s consolidated financial statements. 3. Revenue Recognition Revenue from transactions with external customers for each of the Company’s products would be impracticable to disclose and management does not view its business by product line. The following is a summary of revenue disaggregated by geographic area and brands: Thirteen Weeks Ended (In thousands) November 25, 2023 November 26, 2022 North America (1) Atkins $ 119,498 $ 131,745 Quest 181,463 161,472 Total North America 300,961 293,217 International 7,717 7,661 Total net sales $ 308,678 $ 300,878 (1) The North America geographic area consists of net sales substantially related to the United States and there is no individual foreign country to which more than 10% of the Company’s net sales are attributed or that is otherwise deemed individually material. Charges related to credit loss on accounts receivables from transactions with external customers were $ 0.1 million for the thirteen weeks ended November 25, 2023, and $( 0.1 ) million for the thirteen weeks ended November 26, 2022. As of November 25, 2023 and August 26, 2023, the allowances for doubtful accounts related to these accounts receivable were $ 0.9 million and $ 1.1 million, respectively. Additionally, as of November 25, 2023, the Company had an expected credit loss reserve of $ 1.0 million on a $ 3.0 million note receivable related to the Company’s sale of its SimplyProtein® brand and related assets during its fiscal year 2021. 9 Table of Contents 4. Goodwill and Intangibles As of November 25, 2023 and August 26, 2023, Goodwill in the Consolidated Balance Sheets was $ 543.1 million. There were no impairment charges related to goodwill during the thirteen weeks ended November 25, 2023 or since the inception of the Company. Intangible assets, net in the Consolidated Balance Sheets consists of the following: November 25, 2023 (In thousands) Useful life Gross carrying amount Accumulated amortization Net carrying amount Intangible assets with indefinite life: Brands and trademarks Indefinite life $ 974,000 $ — $ 974,000 Intangible assets with finite lives: Customer relationships 15 years 174,000 56,203 117,797 Licensing agreements 13 years 22,000 10,977 11,023 Proprietary recipes and formulas 7 years 7,000 6,381 619 Software and website development costs 3 - 5 years 6,328 5,633 695 Intangible assets in progress 3 - 5 years 184 — 184 $ 1,183,512 $ 79,194 $ 1,104,318 August 26, 2023 (In thousands) Useful life Gross carrying amount Accumulated amortization Net carrying amount Intangible assets with indefinite life: Brands and trademarks Indefinite life $ 974,000 $ — $ 974,000 Intangible assets with finite lives: Customer relationships 15 years 174,000 53,303 120,697 Licensing agreements 13 years 22,000 10,498 11,502 Proprietary recipes and formulas 7 years 7,000 6,131 869 Software and website development costs 3 - 5 years 6,328 5,356 972 Intangible assets in progress 3 - 5 years 79 — 79 $ 1,183,407 $ 75,288 $ 1,108,119 Changes in Intangible assets, net during the thirteen weeks ended November 25, 2023 were primarily related to recurring amortization expense. Amortization expense related to intangible assets was $ 3.9 million for the thirteen weeks ended November 25, 2023 and $ 3.9 million for the thirteen weeks ended November 26, 2022. There were no impairment charges related to intangible assets during the thirteen weeks ended November 25, 2023 and November 26, 2022. Estimated future amortization for each of the next five fiscal years and thereafter is as follows: (In thousands) Amortization Remainder of 2024 $ 11,721 2025 13,980 2026 13,740 2027 13,556 2028 13,517 2029 and thereafter 63,620 Total $ 130,134 10 Table of Contents 5. Long-Term Debt and Line of Credit On July 7, 2017, the Company (through certain of its subsidiaries) entered into the Credit Agreement. The Credit Agreement at that time provided for (i) a term facility of $ 200.0 million (“Term Facility”) with a seven -year maturity and (ii) a revolving credit facility of up to $ 75.0 million (the “Revolving Credit Facility”) with a five -year maturity. Substantially concurrent with the consummation of the business combination which formed the Company between Conyers Park Acquisition Corp. and NCP-ATK Holdings, Inc. on July 7, 2017, the full $ 200.0 million of the Term Facility (the “Term Loan”) was drawn. On November 7, 2019, the Company entered into a second amendment (the “Incremental Facility Amendment”) to the Credit Agreement to increase the principal borrowed on the Term Facility by $ 460.0 million. The Term Facility together with the incremental borrowing make up the Initial Term Loans (as defined in the Incremental Facility Amendment). The Incremental Facility Amendment was executed to partially finance the acquisition of Quest Nutrition, LLC on November 7, 2019. No amounts under the Term Facility were repaid as a result of the execution of the Incremental Facility Amendment. Effective as of December 16, 2021, the Company entered into a third amendment (the “Extension Amendment”) to the Credit Agreement. The Extension Amendment provided for an extension of the stated maturity date of the Revolving Commitments and Revolving Loans (each as defined in the Credit Agreement) from July 7, 2022 to the earlier of (i) 91 days prior to the then-effective maturity date of the Initial Term Loans and (ii) December 16, 2026. On January 21, 2022, the Company entered into the “2022 Repricing Amendment” to the Credit Agreement. The 2022 Repricing Amendment, among other things, (i) reduced the interest rate per annum applicable to the Initial Term Loans outstanding under the Credit Agreement immediately prior to the effective date of the 2022 Repricing Amendment, (ii) reset the prepayment premium for the existing Initial Term Loans to apply to Repricing Transactions (as defined in the Credit Agreement) that occur within six months after the effective date of the 2022 Repricing Amendment, and (iii) implemented SOFR and related replacement provisions for LIBOR. On April 25, 2023, the Company entered into the “2023 Repricing Amendment” to the Credit Agreement. The 2023 Repricing Amendment, (i) reduced the interest rate per annum applicable to the Initial Term Loans outstanding under the Credit Agreement immediately prior to April 25, 2023, and (ii) provided for an extension of the maturity date of the Initial Term Loans from July 7, 2024, to March 17, 2027. The 2023 Repricing Amendment did not change the interest rate on the Revolving Credit Facility, which continues to bear interest based upon the Company’s consolidated net leverage ratio as of the end of the fiscal quarter for which consolidated financial statements are delivered to the Administrative Agent under the Credit Agreement. No additional debt was incurred, or any proceeds received by the Company in connection with the 2023 Repricing Amendment. No amounts under the Term Facility were repaid as a result of the execution of the 2023 Repricing Amendment. Effective as of the 2023 Repricing Amendment, the interest rate per annum for the Initial Term Loans is based on either: i. A base rate equaling the higher of (a) the “prime rate,” (b) the federal funds effective rate plus 0.50 %, or (c) the Adjusted Term SOFR Rate (as defined in the Credit Agreement) applicable for an interest period of one month plus 1.00 % plus (x) 1.50 % margin for the Term Loan or (y) 2.00 % margin for the Revolving Credit Facility; or ii. SOFR plus a credit spread adjustment equal to 0.10 % for one-month SOFR, 0.15 % for up to three-month SOFR and 0.25 % for up to six-month SOFR, subject to a floor of 0.50 %, plus (x) 2.50 % margin for the Term Loan or (y) 3.00 % margin for the Revolving Credit Facility. In connection with the closing of the 2023 Repricing Amendment, the Company expensed $ 2.4 million primarily for third-party fees and capitalized an additional $ 2.7 million primarily for the payment of upfront lender fees (original issue discount). The Simply Good Foods Company is not a borrower under the Credit Agreement and has not provided a guarantee of the Credit Agreement. Simply Good Foods USA, Inc., is the administrative borrower and certain other subsidiary holding companies are co-borrowers under the Credit Agreement. Each of the Company’s domestic subsidiaries that is not a named borrower under the Credit Agreement has provided a guarantee on a secured basis. As security for the payment or performance of the debt under the Credit Agreement, the borrowers and the guarantors have pledged certain equity interests in their respective subsidiaries and granted the lenders a security interest in substantially all of their domestic assets. All guarantors other than Quest Nutrition, LLC are holding companies with no assets other than their investments in their respective subsidiaries. The Credit Agreement contains certain financial and other covenants that limit the Company’s ability to, among other things, incur and/or undertake asset sales and other dispositions, liens, indebtedness, certain acquisitions and investments, consolidations, mergers, reorganizations and other fundamental changes, payment of dividends and other distributions to equity and warrant holders, and prepayments of material subordinated debt, in each case, subject to customary exceptions materially consistent with credit facilities of such type and size. The Revolving Credit Facility has a maximum total net leverage ratio equal to or less than 6.00 :1.00 contingent on credit 11 Table of Contents extensions in excess of 30 % of the total amount of commitments available under the Revolving Credit Facility. Any failure to comply with the restrictions of the credit facilities may result in an event of default. The Company was in compliance with all covenants as of November 25, 2023 and August 26, 2023, respectively. Long-term debt consists of the following: (In thousands) November 25, 2023 August 26, 2023 Term Facility (effective rate of 8.0% at November 25, 2023) $ 275,000 $ 285,000 Finance lease liabilities (effective rate of 5.6% at November 25, 2023) 83 143 Less: Deferred financing fees 2,968 3,351 Total debt 272,115 281,792 Less: Current finance lease liabilities 83 143 Long-term debt, net of deferred financing fees $ 272,032 $ 281,649 The Company is no t 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 November 25, 2023, the Company had letters of credit in the amount of $ 3.5 million outstanding. These letters of credit offset against the $ 75.0 million availability of the Revolving Credit Facility and exist to support three of the Company’s leased buildings and insurance programs relating to workers’ compensation. No amounts were drawn against these letters of credit at November 25, 2023. The Company utilizes market approaches to estimate the fair value of certain outstanding borrowings by discounting anticipated future cash flows derived from the contractual terms of the obligations and observable market interest and foreign exchange rates. The Company carries debt at historical cost and discloses fair value. As of November 25, 2023 and August 26, 2023, the book value of the Company’s debt approximated fair value. The estimated fair value of the Term Loan is valued based on observable inputs and classified as Level 2 in the fair value hierarchy. 6. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is used: Level 1 – Valuations based on quoted prices for identical assets and liabilities in active markets. Level 2 – Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 – Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. Components of the balance sheet such as accounts receivable, cash and cash equivalents and others approximated fair value as of November 25, 2023. 7. Income Taxes The tax expense and the effective tax rate resulting from operations were as follows: Thirteen Weeks Ended (In thousands) November 25, 2023 November 26, 2022 Income before income taxes $ 47,108 $ 45,556 Provision for income taxes $ 11,547 $ 9,696 Effective tax rate 24.5 % 21.3 % The effective tax rate for the thirteen weeks ended November 25, 2023 was 3.2 % more than the effective tax rate for the thirteen weeks ended November 26, 2022, which was primarily driven by permanent differences. 12 Table of Contents 8. Leases The components of lease expense were as follows: Thirteen Weeks Ended (In thousands) Statements of Operations Caption November 25, 2023 November 26, 2022 Operating lease cost: Lease cost Cost of goods sold and General and administrative $ 2,259 $ 2,252 Variable lease cost (1) Cost of goods sold and General and administrative 796 738 Total operating lease cost 3,055 2,990 Finance lease cost: Amortization of right-of-use assets Cost of goods sold 53 68 Interest on lease liabilities Interest expense 1 5 Total finance lease cost 54 73 Total lease cost $ 3,109 $ 3,063 (1) Variable lease cost primarily consists of common area maintenance, such as cleaning and repairs. The right-of-use assets and corresponding liabilities related to both operating and finance leases are as follows: (In thousands) Balance Sheets Caption November 25, 2023 August 26, 2023 Assets Operating lease right-of-use assets Other long-term assets $ 38,286 $ 40,022 Finance lease right-of-use assets Property and equipment, net 73 125 Total lease assets $ 38,359 $ 40,147 Liabilities Current: Operating lease liabilities Accrued expenses and other current liabilities $ 7,724 $ 7,566 Finance lease liabilities Current maturities of long-term debt 83 143 Long-term: Operating lease liabilities Other long-term liabilities 35,306 37,272 Finance lease liabilities Long-term debt, less current maturities — — Total lease liabilities $ 43,113 $ 44,981 Future maturities of lease liabilities as of November 25, 2023 were as follows: (In thousands) Operating Leases Finance Leases Fiscal year ending: Remainder of 2024 7,145 84 2025 8,750 — 2026 6,952 — 2027 7,110 — 2028 6,447 — Thereafter 13,496 — Total lease payments 49,900 84 Less: Interest ( 6,870 ) ( 1 ) Present value of lease liabilities $ 43,030 $ 83 13 Table of Contents The weighted-average remaining lease terms and weighted-average discount rates for operating and finance leases were as follows: November 25, 2023 August 26, 2023 Weighted-average remaining lease term (in years) Operating leases 6.08 6.24 Finance leases 0.37 0.61 Weighted-average discount rate Operating leases 4.4 % 4.4 % Finance leases 5.6 % 5.6 % Supplemental and other information related to leases was as follows: Thirteen Weeks Ended (In thousands) November 25, 2023 November 26, 2022 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 2,926 $ 2,040 Operating cash flows from finance leases $ 175 $ 131 Financing cash flows from finance leases $ 61 $ 78 9. Commitments and Contingencies Litigation The Company is a party to certain litigation and claims that are considered normal to the operations of the business. From time to time, the Company has been and may again become involved in legal proceedings arising in the ordinary course of business. The Company is not presently a party to any litigation that it believes to be material, and the Company is not aware of any pending or threatened litigation against it that its management believes could have a material adverse effect on its business, operating results, financial condition or cash flows. Other The Company has entered into endorsement contracts with certain celebrity figures and social media influencers to promote and endorse the Quest® and Atkins® brands and product lines. These contracts contain endorsement fees, which are expensed ratably over the life of the contract, and performance fees, that are recognized at the time of achievement. Based on the terms of the contracts in place and achievement of performance conditions as of November 25, 2023, the Company will be required to make payments of $ 2.9 million over the next year. 10. Stockholders’ Equity Stock Repurchase Program The Company adopted a $ 50.0 million stock repurchase program on November 13, 2018. On April 13, 2022, and October 21, 2022, the Company announced that its Board of Directors had approved the addition of $ 50.0 million and $ 50.0 million, respectively, to its stock repurchase program, resulting in authorized stock repurchases of up to an aggregate of $ 150.0 million. Under the stock repurchase program, the Company may repurchase shares from time to time in the open market or in privately negotiated transactions. The stock repurchase program does not obligate the Company to acquire any specific number of shares or acquire shares over any specific period of time. The stock repurchase program may be suspended or discontinued at any time by the Company and does not have an expiration date. 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 under the stock repurchase program. 14 Table of Contents 11. Earnings Per Share Basic earnings or loss per share is based on the weighted average number of common shares issued and outstanding. In computing diluted earnings per share, basic earnings per share is adjusted for the assumed issuance of all potentially dilutive securities, including the Company’s employee stock options and non-vested stock units. In periods in which the Company has a net loss, diluted loss per share is based on the weighted average number of common shares issued and outstanding as the effect of including common stock equivalents outstanding would be anti-dilutive. The following table reconciles the numerators and denominators used in the computations of both basic and diluted earnings per share: Thirteen Weeks Ended (In thousands, except per share data) November 25, 2023 November 26, 2022 Basic earnings per share computation: Numerator: Net income available to common stockholders $ 35,561 $ 35,860 Denominator: Weighted average common shares outstanding - basic 99,629,188 99,200,557 Basic earnings per share from net income $ 0.36 $ 0.36 Diluted earnings per share computation: Numerator: Net income available for common stockholders $ 35,561 $ 35,860 Numerator for diluted earnings per share $ 35,561 $ 35,860 Denominator: Weighted average common shares outstanding - basic 99,629,188 99,200,557 Employee stock options 1,172,483 1,299,543 Non-vested stock units 293,065 222,936 Weighted average common shares - diluted 101,094,736 100,723,036 Diluted earnings per share from net income $ 0.35 $ 0.36 Diluted earnings per share calculations for the thirteen weeks ended November 25, 2023 and November 26, 2022 excluded 0.8 million and 0.4 million shares of common stock issuable upon exercise of stock options, respectively, that would have been anti-dilutive. Diluted earnings per share calculations for the thirteen weeks ended November 25, 2023 and November 26, 2022 excluded an immaterial number of shares and 0.1 million shares of non-vested stock units, respectively, that would have been anti-dilutive. 12. Omnibus Incentive Plan Stock-based compensation includes stock options, restricted stock units, performance stock unit awards and stock appreciation rights, which are awarded to employees, directors, and consultants of the Company. Stock-based compensation expense for equity-classified awards is recognized on a straight-line basis over the requisite service period of the award based on their grant date fair value. Stock-based compensation expense is included within General and administrative expense, which is the same financial statement caption where the recipient’s other compensation is reported. The Company recorded stock-based compensation expense of $ 4.2 million and $ 3.3 million in the thirteen weeks ended November 25, 2023 and November 26, 2022, respectively. 15 Table of Contents Stock Options The following table summarizes stock option activity for the thirteen weeks ended November 25, 2023: Shares underlying options Weighted average exercise price Weighted average remaining contractual life (years) Outstanding as of August 26, 2023 2,668,462 $ 20.41 5.56 Granted 17,633 33.02 Exercised — — Forfeited ( 3,815 ) 39.38 Outstanding as of November 25, 2023 2,682,280 $ 20.47 5.35 Vested and expected to vest as of November 25, 2023 2,682,280 $ 20.47 5.35 Exercisable as of November 25, 2023 2,188,820 $ 16.69 4.64 As of November 25, 2023, the Company had $ 4.8 million of total unrecognized compensation cost related to stock options that will be recognized over a weighted average period of 1.5 years. During the thirteen weeks ended November 25, 2023 the Company did not receive cash from stock option exercises. During the thirteen weeks ended November 26, 2022, the Company received $ 4.6 million in cash from stock option exercises. Restricted Stock Units The following table summarizes restricted stock unit activity for the thirteen weeks ended November 25, 2023: Units Weighted average grant-date fair value Non-vested as of August 26, 2023 514,498 $ 35.59 Granted 194,353 36.94 Vested ( 151,239 ) 30.34 Forfeited ( 7,589 ) 38.69 Non-vested as of November 25, 2023 550,023 $ 37.47 As of November 25, 2023, the Company had $ 15.6 million of total unrecognized compensation cost related to restricted stock units that will be recognized over a weighted average period of 1.8 years. Performance Stock Units During the thirteen weeks ended November 25, 2023, the Company granted performance stock units under its equity compensation plan. Performance stock units vest in a range between 0 % and 200 % based upon certain performance criteria in a three -year period. Performance stock units were valued using a Monte Carlo simulation. The following table summarizes performance stock unit activity for the thirteen weeks ended November 25, 2023: Units Weighted average grant-date fair value Non-vested as of August 26, 2023 191,779 $ 42.41 Granted 178,788 38.66 Vested ( 189,884 ) 21.52 Forfeited — — Non-vested as of November 25, 2023 180,683 $ 59.28 As of November 25, 2023, the Company had $ 7.6 million of total unrecognized compensation cost related to performance stock units that will be recognized over a weighted average period of 2.2 years. 16 Table of Contents Stock Appreciation Rights Stock appreciation rights (“SARs”) permit the holder to participate in the appreciation of the Company’s common stock price and are awarded to non-employee consultants of the Company. The Company’s SARs settle in shares of its common stock once the applicable vesting criteria have been met. The SARs outstanding as of November 25, 2023 cliff vest two years from the date of grant and must be exercised within five years . The following table summarizes SARs activity for the thirteen weeks ended November 25, 2023: Shares underlying SARs Weighted average exercise price Outstanding as of August 26, 2023 150,000 $ 37.67 Granted — — Exercised — — Forfeited — — Outstanding as of November 25, 2023 150,000 $ 37.67 The SARs exercised in the thirteen weeks ended November 26, 2022 resulted in a net issuance of 38,850 shares of the Company’s common stock. The SARs granted in the thirteen weeks ended November 26, 2022 are liability-classified; therefore the related stock-based compensation expense is based on the vesting provisions and the fair value of the awards. 17 Table of Contents