Simply Good Foods Co 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements. When used anywhere in this Report, the words “expect,” “believe,” “anticipate,” “estimate,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements. 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 tension. 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. These statements reflect our current views with respect to future events and are based on assumptions subject to risks and uncertainties. Such risks and uncertainties include those related to our ability to sell our products. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended August 26, 2023 (“Annual Report”) and our unaudited consolidated financial statements and the related notes appearing elsewhere in this Report. In addition to historical information, the following discussion contains forward-looking statements, including, but not limited to, statements regarding the Company’s expectation for future performance, liquidity and capital resources that involve risks, uncertainties and assumptions that could cause actual results to differ materially from the Company’s expectations. The Company’s actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified in Item 1A. “Risk Factors” of our Annual Report. The Company assumes no obligation to update any of these forward-looking statements. 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. Overview 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 Quest® and Atkins® 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: 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. Our portfolio of nutritious snacking brands gives us a strong platform with which to introduce new products, expand distribution, and attract new consumers to our products. Business Trends 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 and twenty-six weeks ended February 24, 2024, our business performance improved as strong Quest sales volume more than offset continued softness in Atkins. The Company benefited from lower ingredient and packaging costs which resulted in gross margin expansion versus fiscal 2023. 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. 18 Table of Contents Key Financial Definitions Net sales. Net sales consist primarily of product sales less the cost of promotional activities, slotting fees and other sales credits and adjustments, including product returns. Cost of goods sold. Cost of goods sold consists primarily of the costs we pay to our contract manufacturing partners to produce the products sold. These costs include the purchase of raw ingredients, packaging, shipping and handling, warehousing, depreciation of warehouse equipment, and a tolling charge for the contract manufacturer. Cost of goods sold includes products provided at no charge as part of promotions and the non-food materials provided with customer orders. Operating expenses. 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: • Selling and marketing. Selling and marketing expenses comprise broker commissions, customer marketing, media and other marketing costs. • 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, executive transition costs, integration costs, restructuring costs, insurance and other general corporate expenses. • Depreciation and amortization. Depreciation and amortization costs consist of costs associated with the depreciation of fixed assets and capitalized leasehold improvements and amortization of intangible assets. Results of Operations During the thirteen weeks ended February 24, 2024, our net sales increased to $312.2 million compared to $296.6 million for the thirteen weeks ended February 25, 2023, driven by Quest volume growth, which more than offset continued softness in Atkins net sales, resulting in a 5.1% 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. Because not all companies use identical calculations, this presentation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. See “Reconciliation of EBITDA and Adjusted EBITDA” below for a reconciliation of EBITDA and Adjusted EBITDA to net income for each applicable period. 19 Table of Contents Comparison of Unaudited Results for the Thirteen Weeks Ended February 24, 2024, and the Thirteen Weeks Ended February 25, 2023 The following unaudited table presents, for the periods indicated, selected information from our Consolidated Statements of Operations and Comprehensive Income, including information presented as a percentage of net sales: Thirteen Weeks Ended Thirteen Weeks Ended (In thousands) February 24, 2024 % of Net Sales February 25, 2023 % of Net Sales Net sales $ 312,199 100.0 % $ 296,584 100.0 % Cost of goods sold 195,329 62.6 % 193,852 65.4 % Gross profit 116,870 37.4 % 102,732 34.6 % Operating expenses: Selling and marketing 34,643 11.1 % 29,948 10.1 % General and administrative 29,933 9.6 % 25,934 8.7 % Depreciation and amortization 4,211 1.3 % 4,345 1.5 % Total operating expenses 68,787 22.0 % 60,227 20.3 % Income from operations 48,083 15.4 % 42,505 14.3 % Other income (expense): Interest income 924 0.3 % 246 0.1 % Interest expense (5,596) (1.8) % (8,497) (2.9) % (Loss) on foreign currency transactions (23) — % (214) (0.1) % Other income — — % — — % Total other expense (4,695) (1.5) % (8,465) (2.9) % Income before income taxes 43,388 13.9 % 34,040 11.5 % Income tax expense 10,265 3.3 % 8,398 2.8 % Net income $ 33,123 10.6 % $ 25,642 8.6 % Other financial data: Adjusted EBITDA (1) $ 57,840 18.5 % $ 50,900 17.2 % (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 . Net sales were $312.2 million for the thirteen weeks ended February 24, 2024, compared to $296.6 million for the thirteen weeks ended February 25, 2023, representing an increase of $15.6 million, driven primarily by Quest volume growth which offset Atkins softness. North America net sales increased 5.1% in the thirteen weeks ended February 24, 2024, compared to the thirteen weeks ended February 25, 2023, and International net sales increased 12.2% during the same period. Cost of goods sold . Cost of goods sold increased $1.5 million, or 0.8%, for the thirteen weeks ended February 24, 2024, compared to the thirteen weeks ended February 25, 2023. The cost of goods sold increase was primarily driven by higher sales volumes in the thirteen weeks ended February 24, 2024. Gross profit. Gross profit increased by $14.1 million, or 13.8%, for the thirteen weeks ended February 24, 2024, compared to the thirteen weeks ended February 25, 2023. Additionally, gross profit of $116.9 million, or 37.4% of net sales, for the thirteen weeks ended February 24, 2024, increased 280 basis points from 34.6% of net sales for the thirteen weeks ended February 25, 2023. The increase in gross profit margin was primarily driven by lower ingredient and packaging costs. 20 Table of Contents Operating expenses . Operating expenses increased $8.6 million, or 14.2%, for the thirteen weeks ended February 24, 2024, compared to the thirteen weeks ended February 25, 2023 due to the following: • Selling and marketing. Selling and marketing expenses increased $4.7 million, or 15.7%, for the thirteen weeks ended February 24, 2024, compared to the thirteen weeks ended February 25, 2023, due to increased expenses related to growth initiatives and higher advertising costs. • General and administrative. General and administrative expenses increased $4.0 million, or 15.4%, for the thirteen weeks ended February 24, 2024, compared to the thirteen weeks ended February 25, 2023. The increase in general and administrative expenses was primarily attributable to an increase of $1.5 million in stock-based compensation, higher employee costs and corporate expenses. • Depreciation and amortization. Depreciation and amortization expense was $4.2 million for the thirteen weeks ended February 24, 2024 and $4.3 million for the thirteen weeks ended February 25, 2023, respectively. Interest income. Interest income increased by $0.7 million for the thirteen weeks ended February 24, 2024, compared to the thirteen weeks ended February 25, 2023, due to higher cash balances than prior year period and the increase in interest rates. Interest expense . Interest expense decreased $2.9 million for the thirteen weeks ended February 24, 2024, compared to the thirteen weeks ended February 25, 2023, primarily due to the effect of principal payments reducing the outstanding balance of the Term Facility (as defined below) to $240.0 million as of February 24, 2024, from $365.0 million as of February 25, 2023. Additionally, interest expense related to the amortization of deferred financing costs and debt discount decreased $0.1 million for the thirteen weeks ended February 24, 2024, compared to the thirteen weeks ended February 25, 2023. (Loss) on foreign currency transactions. Foreign currency transactions resulted in an immaterial loss and a loss of $0.2 million for the thirteen weeks ended February 24, 2024, and February 25, 2023, respectively. The variance is attributable to changes in foreign currency rates related to our international operations. Income tax expense. Income tax expense increased $1.9 million for the thirteen weeks ended February 24, 2024, compared to the thirteen weeks ended February 25, 2023. The increase in our income tax expense was primarily driven by higher income from operations and changes in permanent differences. Net income . Net income was $33.1 million for the thirteen weeks ended February 24, 2024, an increase of $7.5 million compared to net income of $25.6 million for the thirteen weeks ended February 25, 2023. Net income was benefited by higher gross profit, higher interest income, and lower interest expense, partially offset by growth in marketing expenses, higher stock-based compensation expenses, and higher income tax expense. Adjusted EBITDA. Adjusted EBITDA increased $6.9 million, or 13.6%, for the thirteen weeks ended February 24, 2024, compared to the thirteen weeks ended February 25, 2023, 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. 21 Table of Contents Comparison of Unaudited Results for the Twenty-Six Weeks Ended February 24, 2024, and the Twenty-Six Weeks Ended February 25, 2023 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: Twenty-Six Weeks Ended Twenty-Six Weeks Ended (In thousands) February 24, 2024 % of Net Sales February 25, 2023 % of Net Sales Net sales $ 620,877 100.0 % $ 597,462 100.0 % Cost of goods sold 388,889 62.6 % 383,738 64.2 % Gross profit 231,988 37.4 % 213,724 35.8 % Operating expenses: Selling and marketing 66,633 10.7 % 58,482 9.8 % General and administrative 56,883 9.2 % 51,575 8.6 % Depreciation and amortization 8,569 1.4 % 8,672 1.5 % Total operating expenses 132,085 21.3 % 118,729 19.9 % Income from operations 99,903 16.1 % 94,995 15.9 % Other income (expense): Interest income 2,014 0.3 % 253 — % Interest expense (11,630) (1.9) % (15,552) (2.6) % Gain (loss) on foreign currency transactions 203 — % (106) — % Other income 6 — % 6 — % Total other expense (9,407) (1.5) % (15,399) (2.6) % Income before income taxes 90,496 14.6 % 79,596 13.3 % Income tax expense 21,812 3.5 % 18,094 3.0 % Net income $ 68,684 11.1 % $ 61,502 10.3 % Other financial data: Adjusted EBITDA (1) $ 119,805 19.3 % $ 111,666 18.7 % (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. Net sales of $620.9 million represented an increase of $23.4 million, or 3.9%, for the twenty-six weeks ended February 24, 2024, compared to the twenty-six weeks ended February 25, 2023. The increase in sales was primarily driven by Quest volume growth which offset Atkins softness. North America and International net sales increased 3.9% and 6.5%, respectively, versus last year. Cost of goods sold . Cost of goods sold increased $5.2 million, or 1.3%, for the twenty-six weeks ended February 24, 2024, compared to the twenty-six weeks ended February 25, 2023. The cost of goods sold increase was primarily driven by higher sales volumes in the twenty-six weeks ended February 24, 2024. Gross profit. Gross profit increased $18.3 million, or 8.5%, for the twenty-six weeks ended February 24, 2024, compared to the twenty-six weeks ended February 25, 2023. Additionally, gross profit of $232.0 million, or 37.4% of net sales, for the twenty-six weeks ended February 24, 2024 increased 160 basis points from 35.8% of net sales for the twenty-six weeks ended February 25, 2023, due primarily to lower ingredient and packaging costs. Operating expenses . Operating expenses increased $13.4 million, or 11.2%, for the twenty-six weeks ended February 24, 2024, compared to the twenty-six weeks ended February 25, 2023, due to the following: • Selling and marketing. Selling and marketing expenses increased $8.2 million, or 13.9%, for the twenty-six weeks ended February 24, 2024, compared to the twenty-six weeks ended February 25, 2023, primarily due to increased expenses related to 22 Table of Contents growth initiatives and higher advertising costs. • General and administrative. General and administrative expenses increased $5.3 million, or 10.3%, for the twenty-six weeks ended February 24, 2024, compared to the twenty-six weeks ended February 25, 2023. The increase in general and administrative expense was primarily attributable to a $2.2 million increase in stock-based compensation, $0.1 million increase in executive officer transition costs, and higher employee costs and corporate expenses in the twenty-six weeks ended February 24, 2024. • Depreciation and amortization. Depreciation and amortization expenses were $8.6 million and $8.7 million for the twenty-six weeks ended February 24, 2024, compared to the twenty-six weeks ended February 25, 2023, respectively. Interest income. Interest income increased by $1.8 million for the twenty-six weeks ended February 24, 2024, compared to the twenty-six weeks ended February 25, 2023, due to higher cash balances, the increase in interest rates, and other sources of interest income. Interest expense . Interest expense decreased $3.9 million for the twenty-six weeks ended February 24, 2024, compared to the twenty-six weeks ended February 25, 2023, primarily due to the effect of principal payments reducing the outstanding balance of the Term Facility (as defined below) to $240.0 million as of February 24, 2024, from $365.0 million as of February 25, 2023. Additionally, interest expense related to the amortization of deferred financing costs and debt discount decreased $0.2 million for the twenty-six weeks ended February 24, 2024, compared to the twenty-six weeks ended February 25, 2023. Gain (loss) on foreign currency transactions. Foreign currency transactions resulted in a gain of $0.2 million and a loss of $0.1 million for the twenty-six weeks ended February 24, 2024, and February 25, 2023, respectively. The variance is attributable to changes in foreign currency rates related to our international operations. Income tax expense. Income tax expense increased $3.7 million for the twenty-six weeks ended February 24, 2024, compared to the twenty-six weeks ended February 25, 2023. The increase in our income tax expense was primarily driven by higher income from operations and changes in permanent differences. Net income . Net income was $68.7 million for the twenty-six weeks ended February 24, 2024, an increase of $7.2 million compared to net income of $61.5 million for the twenty-six weeks ended February 25, 2023. Net income was benefited by higher gross profit, higher interest income, and lower interest expense, and was partially offset by growth in marketing expenses, higher stock-based compensation expenses, and higher income tax expense. Adjusted EBITDA. Adjusted EBITDA increased $8.1 million, or 7.3% for the twenty-six weeks ended February 24, 2024, compared to the twenty-six weeks ended February 25, 2023, driven primarily by higher net gross profit, partially offset by investments in growth initiatives and higher advertising costs. For a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, see “Reconciliation of EBITDA and Adjusted EBITDA” below. 23 Table of Contents Reconciliation of EBITDA and Adjusted EBITDA EBITDA and Adjusted EBITDA are non-GAAP financial measures commonly used in our industry and should not be construed as alternatives to net income as an indicator of operating performance or as alternatives to cash flow provided by operating activities as a measure of liquidity (each as determined in accordance with GAAP). 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, 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. EBITDA and Adjusted EBITDA may not be comparable to other similarly titled captions of other companies due to differences in the non-GAAP calculation. The following unaudited table provides a reconciliation of EBITDA and Adjusted EBITDA to its most directly comparable GAAP measure, which is net income, for the thirteen and twenty-six weeks ended February 24, 2024, and February 25, 2023: (In thousands) Thirteen Weeks Ended Twenty-Six Weeks Ended February 24, 2024 February 25, 2023 February 24, 2024 February 25, 2023 Net income $ 33,123 $ 25,642 $ 68,684 $ 61,502 Interest income (924) (246) (2,014) (253) Interest expense 5,596 8,497 11,630 15,552 Income tax expense 10,265 8,398 21,812 18,094 Depreciation and amortization 5,187 4,952 10,792 9,904 EBITDA 53,247 47,243 110,904 104,799 Stock-based compensation expense 4,568 3,019 8,736 6,332 Executive transition costs — 421 366 421 Other (1) 25 217 (201) 114 Adjusted EBITDA $ 57,840 $ 50,900 $ 119,805 $ 111,666 (1) Other items consist principally of exchange impact of foreign currency transactions and other expenses. 24 Table of Contents Liquidity and Capital Resources Overview We have historically funded our operations with cash flow from operations and, when needed, with borrowings under our Credit Agreement (as defined below). Our principal uses of cash have been working capital, debt service, repurchases of our common stock, and acquisition opportunities. We had $135.9 million in cash as of February 24, 2024. 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. As circumstances warrant, we may issue debt and/or equity securities from time to time on an opportunistic basis, dependent upon market conditions and available pricing. We make no assurance that we can issue and sell such securities on acceptable terms or at all. Our material future cash requirements from contractual and other obligations relate primarily to our principal and interest payments for our Term Facility, as defined and discussed below, and our operating and finance leases. Refer to Note 5, Long-Term Debt and Line of Credit, and Note 8, Leases, of the Notes to Unaudited Consolidated Financial Statements in this Report for additional information related to the expected timing and amount of payments related to our contractual and other obligations. Debt and Credit Facilities On July 7, 2017, we (through certain of our subsidiaries) entered into a credit agreement with Barclays Bank PLC and other parties (as amended to date, 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, we entered into a second amendment (the “Incremental Facility Amendment”) to the Credit Agreement to increase the principal borrowed on the Term Facility by $460.0 million. The Term Facility together with the incremental borrowing make up the Initial Term Loans (as defined in the Incremental Facility Amendment). The Incremental Facility Amendment was executed to partially finance the acquisition of Quest Nutrition, LLC on November 7, 2019. No amounts under the Term Facility were repaid as a result of the execution of the Incremental Facility Amendment. Effective as of December 16, 2021, we entered into a third amendment (the “Extension Amendment”) to the Credit Agreement. The Extension Amendment provided for an extension of the stated maturity date of the Revolving Commitments and Revolving Loans (each as defined in the Credit Agreement) from July 7, 2022 to the earlier of (i) 91 days prior to the 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 25 Table of Contents 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 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 February 24, 2024, and August 26, 2023, respectively. At February 24, 2024, the outstanding balance of the Term Facility was $240.0 million. We are not required to make principal payments on the Term Facility over the twelve months following the period ended February 24, 2024. The outstanding balance of the Term Facility is due upon its maturity in March 2027. As of February 24, 2024, there were no amounts drawn against the Revolving Credit Facility. Stock Repurchase Program On October 21, 2022, we announced that our Board of Directors 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 twenty-six weeks ended February 24, 2024. During the twenty-six weeks ended February 25, 2023, the Company repurchased 546,346 shares of common stock at an average share price of $30.11 per share. As of February 24, 2024, 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. Cash Flows The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands): Twenty-Six Weeks Ended February 24, 2024 February 25, 2023 Net cash provided by operating activities $ 93,991 $ 53,346 Net cash used in investing activities $ (1,278) $ (1,933) Net cash used in financing activities $ (44,656) $ (55,709) Operating activities. Our net cash provided by operating activities increased $40.6 million to $94.0 million for the twenty-six weeks ended February 24, 2024, compared to $53.3 million for the twenty-six weeks ended February 25, 2023. The increase in cash provided by operating activities was primarily attributable to changes in working capital for the twenty-six weeks ended February 24, 2024, as compared to the twenty-six weeks ended February 25, 2023. 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 $5.5 million in the twenty-six weeks ended February 24, 2024 compared to $36.2 million of cash consumed in the twenty-six weeks ended February 25, 2023, an improvement of $30.7 million. In addition, income from operations increased by $4.9 million to $99.9 million for the twenty-six weeks ended February 24, 2024, as compared to $95.0 million for the twenty-six weeks ended February 25, 2023. Additionally, cash paid for interest was $11.2 26 Table of Contents million in the twenty-six weeks ended February 24, 2024, which was a decrease of $3.1 million as compared to the $14.3 million paid for interest in the twenty-six weeks ended February 25, 2023. Interest income increased by $1.8 million for the twenty-six weeks ended February 24, 2024, compared to the twenty-six weeks ended February 25, 2023, due to higher cash balances, the increase in interest rates, and other sources of interest income. In addition, cash paid for taxes decreased $0.9 million. Investing activities . Our net cash used in investing activities was $1.3 million for the twenty-six weeks ended February 24, 2024 compared to $1.9 million for the twenty-six weeks ended February 25, 2023. Our net cash used in investing activities for the twenty-six weeks ended February 24, 2024, primarily comprised $1.1 million of purchases of property and equipment. The $1.9 million of net cash used in investing activities for the twenty-six weeks ended February 25, 2023, primarily comprised $1.7 million of purchases of property and equipment. Financing activities . Our net cash used in financing activities was $44.7 million for the twenty-six weeks ended February 24, 2024, compared to $55.7 million for the twenty-six weeks ended February 25, 2023. Net cash used in financing activities for the twenty-six weeks ended February 24, 2024, primarily consisted of $45.0 million in principal payments on the Term Facility, and $3.8 million in tax payments related to issuance of restricted stock units and performance stock units, partially offset by $3.0 million of cash proceeds received from option exercises, and $1.2 million of cash proceeds received from the partial repayment of an outstanding note receivable. Net cash used in financing activities for the twenty-six weeks ended February 25, 2023, primarily consisted of $16.4 million in repurchases of common stock, $41.5 million in principal payments on the Term Facility, and $2.4 million in tax payments related to issuance of restricted stock units and performance stock units, partially offset by $4.8 million of cash proceeds received from option exercises. New Accounting Pronouncements For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our consolidated financial statements, refer to our Annual Report. 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. 27 Table of Contents Item 3. Quantitative and Qualitative Disclosures about Market Risk There were no material changes in our market risk exposure during the thirteen-week period ended February 24, 2024. For a discussion of our market risks, see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report.