Executive Summary / Key Takeaways

• Simply Good Foods is strategically transforming its portfolio, leveraging the high-growth Quest and OWYN brands to capitalize on the accelerating mainstream demand for protein-rich, low-sugar, and low-carb products.
• Quest and OWYN are driving robust double-digit growth, effectively offsetting planned declines in the Atkins brand as it undergoes a strategic rightsizing and revitalization.
• The company's asset-light business model, coupled with world-class in-house R&D, provides significant flexibility for rapid, disruptive innovation and efficient market penetration, reinforcing its competitive moat.
• Despite near-term headwinds from elevated inflation, tariffs, and Atkins' transition, management projects a stronger second half in fiscal year 2026, with long-term growth aligned with its established algorithm.
• Strong cash flow generation and a low net debt-to-EBITDA ratio of approximately 0.5x provide substantial capital allocation flexibility for strategic capacity investments, share repurchases, and future M&A opportunities.

The Shifting Landscape of Nutritional Snacking

The Simply Good Foods Company stands at the forefront of a profound shift in consumer preferences, leading the charge in the rapidly expanding nutritional snacking category. This generational movement sees over 70% of Americans actively seeking more protein, less sugar, and fewer carbohydrates in their diets. This trend has fueled remarkable growth, with the broader nutritional snacking category expanding at least high single digits for the past five years and a notable 13% in fiscal year 2025 alone, marking 17 consecutive quarters of robust growth. This dynamic environment is not merely a niche phenomenon; it is mainstreaming, creating vast new addressable markets beyond traditional health aisles.

Simply Good Foods has strategically positioned itself to capitalize on this megatrend through a diversified portfolio of three uniquely positioned brands: Quest, Atkins, and OWYN. Quest acts as a category disruptor, fundamentally altering the macronutrient profiles of mainstream snacking products. Atkins, a legacy brand, focuses on low-carbohydrate lifestyles and weight management. OWYN, the most recent acquisition, leads in the plant-based, clean-label protein segment.
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A cornerstone of Simply Good Foods' competitive advantage lies in its asset-light business model and robust technological differentiation in product development. The company relies on a diversified pool of contract manufacturers for production, allowing for "significant flexibility, speed-to-market, and targeted capital investment." This operational agility translates into "relatively consistent and robust free cash flow generation over time, driven by strong gross margins." The in-house research and development (R&D) laboratories in El Segundo, California, and Broomfield, Colorado, are central to this model. They enable the company to "develop new products internally and bring them to market quickly through our contract manufacturing network without diverging from high standards of taste, nutritional content, quality, and safety." This capability allows Simply Good Foods to rapidly innovate and "flip the macros" on large, often unhealthy, snacking categories, a key differentiator against larger, more asset-heavy competitors. For instance, the development of Quest's 45-gram protein milkshake, with only 2 grams of sugar and 4 grams or less of net carbs, showcases the R&D team's ability to create indulgent yet nutritionally superior products that resonate with evolving consumer demands.

In the highly competitive consumer packaged goods industry, Simply Good Foods' focused brand portfolio and agility in e-commerce and targeted innovation provide a distinct edge in wellness markets. While larger rivals like Kellanova (K), General Mills (GIS), PepsiCo (PEP), and The Hershey Company (HSY) benefit from immense scale and broader distribution networks, Simply Good Foods' ability to quickly respond to specific dietary trends and engage directly with consumers through digital channels allows for efficient market penetration and strong customer loyalty in its specialized segments. The company's emphasis on product performance and nutritional efficacy, particularly with Quest's disruptive offerings and OWYN's superior taste profile in plant-based options, helps it carve out and defend market share against rivals whose offerings may be broader but less specialized in the high-protein, low-sugar space.

Strategic Evolution and Portfolio Transformation

Simply Good Foods embarked on its journey in March 2017, establishing itself as a key player in the consumer packaged food and beverage sector. The foundational acquisition of NCP-ATK Holdings, Inc. (Atkins) in July 2017 immediately positioned the company in the low-carbohydrate lifestyle market. This was followed by the strategic acquisition of Quest Nutrition, LLC in November 2019, which significantly expanded the product portfolio and introduced a dynamic, performance-oriented brand. Quest quickly became a growth engine, pioneering the mainstreaming of high-protein, low-sugar, and low-carb products. The company's most recent strategic move was the acquisition of Only What You Need, Inc. (OWYN) in June 2024 for approximately $281.90 million, further diversifying its wellness platform with a leading plant-based, allergen-tested protein brand.

This history of strategic acquisitions underscores Simply Good Foods' ambition to build an industry-leading snacking platform. The company's ability to integrate these brands, leverage its asset-light model, and drive innovation has been central to its growth. Quest, now approaching $1 billion in net sales, exemplifies this success. Its Salty Snacks platform, for instance, has grown into a $300 million-plus business, necessitating a doubling of manufacturing capacity to meet surging demand. Recent innovations like the Quest Bake Shop Chocolate Frosted Donuts, the Overload bar platform, and the 45-gram protein ready-to-drink milkshakes demonstrate the company's commitment to disruptive product development that appeals to a broader, more mainstream audience while maintaining its core nutritional promise.

Financial Performance and Operational Dynamics

Fiscal year 2025 presented a mixed financial picture for Simply Good Foods, reflecting both strong growth drivers and significant headwinds. The company reported 9% net sales growth, including 3% on an organic basis, with adjusted EBITDA growing 3%. On a pro forma basis, including OWYN and excluding the extra week from the prior year, net sales increased over 4% with adjusted EBITDA up approximately 6%. This growth was primarily fueled by Quest and OWYN, which collectively represented nearly three-quarters of the company's net sales and achieved double-digit growth. Quest's retail takeaway grew 12% for the full year, with its Salty Snacks platform up an impressive 34%. OWYN's consumption surged 34% for the full year, establishing it as a leader in the plant-based RTD protein shake segment.

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However, profitability faced pressure. Gross margin for fiscal year 2025 declined 220 basis points, primarily due to elevated commodity expenses, notably cocoa and whey, and the dilutive effect of the OWYN acquisition's initial lower margins. The fourth quarter of fiscal 2025 saw a more pronounced gross margin decline of 450 basis points to 34.3%, impacted by historically high cocoa prices and the initial effects of tariffs. Operating expenses increased, largely due to $20.3 million in OWYN integration expenses and higher employee-related costs, partially offset by reduced marketing spend. A non-cash impairment charge of $60.9 million was recorded for the Atkins brand and related licensing agreements, reflecting updated future revenue projections for the brand.

Despite these challenges, Simply Good Foods maintains a robust financial position. Full-year cash flow from operations in fiscal 2025 was $178 million.

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The company demonstrated strong capital discipline by repaying $150 million of its term loan debt and repurchasing 1.59 million shares of common stock for approximately $50.9 million. This proactive debt management, including the repayment of $240 million of the $250 million borrowed for the OWYN acquisition, has resulted in a healthy net debt to trailing 12-month adjusted EBITDA ratio of approximately 0.5x.

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Capital expenditures for fiscal 2025 were $20 million, including strategic investments in additional manufacturing capacity for the high-growth Salty Snacks business. The Board of Directors further reinforced confidence by approving a $150 million increase to the stock repurchase program in October 2025, bringing the total authorization to $171 million remaining.

Outlook and Strategic Path Forward

Simply Good Foods' outlook for fiscal year 2026 reflects a strategic recalibration to address current headwinds while positioning for sustained long-term growth. Management projects net sales growth in the range of negative 2% to positive 2%, a gross margin decline of 100 to 150 basis points, and adjusted EBITDA year-over-year in the range of negative 4% to positive 1%. This guidance is below the company's long-term algorithm of 4% to 6% growth, but management is confident that actions taken in fiscal 2026 will set the stage for success in fiscal year 2027.

The fiscal year 2026 is anticipated to be a "tale of two halves." The first half is expected to be weaker due to initial elasticities from recently announced pricing actions, the ongoing drag from Atkins' distribution losses, lingering effects from an OWYN product quality issue (related to pea protein sourcing, now mitigated), and tough merchandising comparisons for Quest and OWYN. Specifically, Q1 2026 gross margins are projected around 32.5%, a nearly 600 basis point decline year-over-year, due to minimal benefits from pricing and productivity offsetting high cocoa inflation and tariffs. Q1 2026 adjusted EBITDA is expected to decline by approximately 25% year-over-year.

However, trends are expected to improve meaningfully in the second half of fiscal year 2026, driven by an exciting slate of innovation launches across brands, normalizing elasticities, the full resolution of OWYN's product issues, and tailwinds from distribution gains. Gross margins are expected to show sequential improvement from Q2 2026, with Q4 2026 potentially seeing nearly 200 basis points of year-over-year expansion. Adjusted EBITDA is also projected to return to growth in the second half, with Q4 2026 expected to be the strongest period, up double digits year-over-year. This outlook assumes current economic conditions, consumer purchasing behavior, and prevailing tariff rates remain generally consistent.

Strategic initiatives for fiscal year 2026 are focused on strengthening the core growth engines and revitalizing Atkins:

• Quest: Expected to deliver high single-digit growth, driven by continued momentum in Salty Snacks (which will see $30 million to $40 million in CapEx for capacity expansion), the new Overload bar platform, and the recently launched RTD milkshakes. Marketing spend for Quest will increase to drive awareness and household penetration.
• OWYN: Expected to achieve double-digit growth, reaccelerating post-mitigation of the pea protein quality issue. The company plans significant increases in trade and marketing investments to boost trial and growth rates, leveraging OWYN's low aided awareness (20%) and significant distribution upside (ACV in mid-60s for shakes, 26% for powders). OWYN's powders business, currently 12% of the brand's mix, is also growing significantly.
• Atkins: Consumption is expected to decline approximately 20% in fiscal year 2026 as the company proactively rightsizes its shelf space. This involves trimming underperforming "tail SKUs" (only 10-15% of SKUs are in the bottom quartile) and repurposing that space for higher-performing Quest and OWYN products. New advertising, packaging, innovation (including a smaller bar pack size), and a focus on GLP-1 drug users are aimed at stabilizing and ensuring the long-term sustainability and profitability of the brand.

Risks and Competitive Dynamics

While Simply Good Foods is well-positioned, several risks warrant investor attention. The company's dependence on a global supply chain makes it vulnerable to inflationary pressures, particularly for key ingredients like cocoa and whey, and the impact of tariffs. While the company estimates its net tariff exposure for fiscal 2026 to be less than 2% of cost of goods sold, these costs can still pressure margins. The reliance on a limited number of major retailers, with Walmart Inc. (WMT) accounting for 31% and Amazon (AMZN) for 18% of fiscal 2025 consolidated sales, presents concentration risk, especially given at-will contracts that do not guarantee minimum purchase amounts. The recent distribution losses for Atkins at club stores highlight this vulnerability.

The highly competitive nutritional snacking industry, with numerous multinational and local players, means Simply Good Foods must continually innovate and invest in brand awareness. Despite lacking proprietary, quantifiable technology differentiators, its asset-light model offers agility, but larger competitors possess greater financial resources, broader market presence, and more established distribution networks. The increasing acceptance of weight management medications (GLP-1s) also poses a dynamic risk, although Simply Good Foods is proactively positioning Atkins as a complementary solution. Furthermore, integration risks associated with acquisitions, as seen with the OWYN product quality issue, can temporarily impact performance.

Conclusion

The Simply Good Foods Company is executing a compelling transformation, strategically aligning its portfolio with the accelerating mainstream demand for high-protein, low-sugar, and low-carb products. The robust growth of Quest and OWYN, fueled by disruptive innovation and expanding physical availability, is driving the company's future. While the strategic rightsizing of Atkins and persistent inflationary and tariff pressures present near-term challenges, management's proactive measures, including aggressive productivity initiatives, targeted pricing, and increased marketing investments in growth brands, are designed to navigate these headwinds.

The company's asset-light model and strong R&D capabilities provide a sustainable competitive advantage, enabling rapid product development and efficient market response. With a strong balance sheet and significant capital flexibility, Simply Good Foods is well-equipped to continue investing in its growth platforms, pursuing strategic M&A, and returning value to shareholders. The anticipated stronger performance in the second half of fiscal year 2026 and the commitment to its long-term growth algorithm underscore the company's confidence in its ability to deliver sustained value creation by leading the evolution of nutritional snacking.