The Simply Good Foods Company (SMPL) Earnings Call Transcript & Summary

All right, folks. Welcome back after that brief interview, very brief. So I'm thrilled to welcome me, next on stage, Joe Scalzo, President and CEO of Simply Good Foods Company; and Todd Cunfer, the company's CFO. So Joe joined Atkins as a CEO and President in 2013 right after the company had crossed the $300 million revenue mark. Mr. Cunfer joined in 2017 after a 20-year career at Hershey, the business then was generating $400 million in sales. Last year, under leadership of these 2 gentlemen, the business crested the $1 billion mark for the first time. And through the first half of the year, has posted growth of roughly 25%. So truly, scarce, rare and phenomenal success. So gentlemen, please come up, join me. Audience, please welcome, Joe and Todd. So we sit down and they could tell us the secrets of their success, how they keep all this going.

Aren't you going to tell us that?

Yes. I can mix that up. We're sell-side analysts. We do that all the time. So I've always got news. And my apologies for the deafening roar of the audience as you come up on stage. Right? So again, the same thing for the audience. I've got questions that hopefully can carry us to the time, but we really do love audience engagement. [Operator Instructions] We welcome your questions.

So let's jump in. And I don't know, we have so many places we can go, in terms of top line momentum, in terms of margins. Cost margins have been top of mind for a lot of people. So I think I'll jump into sort of the first question, I've scribbled down as I was prepping for this. You're perhaps the only staples company not to have raised your inflation forecast or lower your gross margin outlook for the year, this past earnings cycle, which was odd. It feels like everyone, that's the script. Top line will be better, gross margins lower, earnings, hopefully flat, if not lower than what we thought before. Is this because you've seen your cost peak or because you're just locked in now and you think you've got more pressure that's been deferred into next year?

Yes. So I normally let Todd answer these questions, but I'll take this one for a change of pace. Look, I think we saw inflation as we were closing our -- we're in a fiscal year starts in September. As we're closing our previous fiscal year, we saw the inflation coming, and we were pretty pessimistic about the size and duration of it, which compelled us to take a pretty aggressive price increase in September of that fiscal year. So we've been fortunate in that kind of a high single-digit price increase on a belief that inflation at the time was going to be more challenging and longer duration and is, in fact, proved to be the case. So as we -- we're a little bit better than midway through this fiscal year. It's kind of taken -- it's taken shape the way we expected it to. We're in good shape through the balance of the year, we believe, just based upon the fact that our commodities are, for the most part, locked in for the year. As we look into our fiscal '23 -- or to believe '23, we're seeing continued and in fact, a little bit of acceleration in inflation costs through the first half of our next fiscal year. And in our last earnings call, announced a second price increase, about the same size and magnitude as our first. And that, for us, our belief is, we think inflation should start flattening in the second half of our fiscal year. So as we go into the middle part of the calendar year, we expect that -- we expect to see some flattening and we think we'll be in pretty good shape as we move through fiscal '23.

Sees at high single digits for the first round, correct me if I'm wrong, and comparable, so another high single digit for the second round?

Yes.

And it sounds like you feel confident that, that's adequate to cover not just the inflation you've experienced so far, but the wrap around inflation you see into this year?

Yes. I think the thing that would change that would change our point of view is if we've seen escalating inflation as we move through calendar '23. If it gets worse in the second half of the year, we've been pretty consistent in our belief that our gross margins are a competitive advantage for our business, and we'll pull all the levers we need in order to maintain gross margin. And the reason we say that is, we're in a category that is an underpenetrated category. And so the basis for marketing is your ability to grow household penetration bring people into the category. So Jason mentioned, I joined the business in 2013, so coming up on a decade, and category penetration was in the 30s, it's now in the 50s. So steady progress on penetration improvement as a category. But the basis for your ability to do that is your ability to invest in marketing. So we spend close to 10% of net sales in marketing. We believe that's important to create a consumer pull business, create demand for our brands, give us the wherewithal to communicate our product innovation. So we're going to maintain those gross margins as best we can so that we have the firepower we need for marketing.

And your narrative on pricing sounds awesome, like, hey, if we need it, we just take it. But clearly, there is -- there's some gaining factors, right? There's -- you've got to be cognizant of price thresholds with consumers, you've got to be cognizant of the competitive dynamics, the interplay there. What are you seeing on those thresholds? Are you approaching any of those key thresholds with consumers? Are you seeing any disparate competitive activity that gives you pause?

Yes. So first, we're not a price gap with either of our brands. So there's not a competitor that we price relative to. So it's absolute price point that determines impact on volume, which is some categories are different, they're price gap-oriented. There really isn't a private label presence in this category. So we don't have a real concern about private label. So for us, it's crossing deciles, crossing dollar thresholds. And we crossed a few with the first price increase. Our experience so far has been not different than what you've been hearing from other food companies. Consumers are less price sensitive than you would normally historically believe based on the modeling. We're going to go into the next price increase believing that sense is just that when everything that we're seeing right now around us, that price sensitivity is increasing, right? We're seeing rise in private label in general and food categories. You're starting to see consumers being a little bit more cautious in their shopping occasions. So I think we're going to start experiencing a little bit more elasticities, and we'll plan for that as we move into fiscal '23. I'm not concerned competitively, you see pricing around us. But frankly, we fundamentally think what we do is more important than what the competition does. So our belief is you got to maintain your margins, we'll price accordingly so we have the room to invest back in our business.

Yes. Yes. And you have to lean in to your point on marketing, marketing is going to drive penetration, leaning on innovation. Innovation is going to expand usage occasions and also draw more penetration.

What Jason isn't saying is, he used to work in our company way back when, so in marketing. So he's very familiar with our business.

It's actually a true story. When -- so it was 2 decades ago now. Yes. Yes, more than 2 decades, yes. Well before you were involved there. And I've got all sort of stories. But let's build off of that. Okay. So yes. True anecdote, I worked at Atkins when it was called Atkins, and we was owned by private equity, and our mandate was to juice the heck out of this growth. This beginning of low-carat craze, it was on fire. So that we could flip it to the next owner. Whether it be a strategic or another private equity, because that's how the game was played. So what we did is we leaned in hard. We leaned in into all these different categories. We were launching everything. We were launching the Atkins brand of pasta. Atkins everything. And then it hit a wall and demand rolled over and all of our cash was tied up in perishable inventory and retailers were saying taking scrap back, give us some money back. It was a big liquidity crunch. And I fled to safety. But -- then North Castle picked it up, then work picked it up. And one thing North Castle did was they cleaned up the portfolio, got back to the basics and said, we've got this really healthy bar and shake business, clean everything else up, focused on this healthy bar and shake business, and they grew year in and year out, and work grew year in, and you grew year in, year out. Now you are beginning to proliferate into new categories again. You're pressing into -- so I'm going to take this full circle. We're pressing...

Going in that circle, go ahead.

Well, let's hope we don't go all way there, but we're pressing into chips again, and we're pressing in -- not chips. We're not pressing into chips. So we're pressing into cookies. At what point do you start to get concerned that maybe you're stretching this brand too far?

Yes. So even in the heyday of Atkins back when you were there, the strength of the business was snacking. So where the brand, I think, got sideways, it was in different parts of the store in different categories. And I would say probably not a lot of consumer insight, not a lot of consumer product testing, right? So our belief, and it's been the belief since I've been there is we're a snacking company, we'll stay in snacking. That's the core strength of our business. Actually, when I arrived at Atkins, they had launched into frozen meal bowls, and there was a good strategic rationale around that. Within 24 months, I licensed that business and got us focused back on snacking. And our first major acquisition was a snacking company. So we're going to stay close to home and snacking where our core strength is. I think we've shown an ability to consistently grow the business in snacking. And then we're trying to capture as many of those occasions that we can. So if you think about snacking behavior, there's parts of the day and there's kind of the need state, you have suite, you have savory, you have salty. So where our core business is bars and shakes, it's easily half of our business, a little bit more. And -- but we're innovating in other snacking occasions now. So salty snacks, we have a cookie business now. We built a pretty good confections business, which tends to be later day parts, different use occasions and -- but we're going to stay focused on snacking. We're going to stay pretty focused on our aisle where we have scale, and we're an important player for retailers. And so we're -- I think we'll avoid the traps of the previous generations of Atkins folks. And we've seen good success. So our Quest business, about 55% of it is protein bars. The rest is other snacking. In our Atkins business, 75% of the business is bars and shakes, 25% is confection. So we see a business going forward where these other snacking occasions and other products are bigger and bigger part of the portfolio because they're incremental and complementary to our core bar and shake business.

And recently, you've replicated some of that on Quest with the choice to move pizza out of the portfolio, right? Over to Bellisio Foods, the same partner, I believe you used for Atkins, the entrees.

Same rationale. It's not core to what we do, different supply chain, different logistics. So it just made sense for us to focus on snacking.

Yes. Yes. What's the P&L drag going to be as we -- because that's a very recent type thing, right? Like it's very...

Yes, about a 1% top line impact and almost nothing on the bottom line. So very negligible.

And you also chose to clean up a European business by effectively exiting the market. What drove that decision? And same question on P&L drag, so we got -- we get the modeling right. But I'm also really curious on the strategy, too.

Happy to take it. So it was just a very small business for us in several different countries, no scale, didn't have the -- because of that didn't have the gross margins that were required to fund the necessary marketing to drive sustainable growth. And we just decided -- wasn't a core piece of our strategy, and we got out of the business. Also about a 1% drag on the top line for the year and very little on the bottom line as well. Pat breakeven on the bottom line.

We work really hard trying to build a European business. We jokingly say, never has so much been given by so many for so little. But it just -- it was just hard to get scale the -- you have to hit -- you have to be in a complementary price point in order to compete. We couldn't get the cost of goods necessary to do that. So you're in the cycle of you can't get a big enough business and therefore, you can't get cost so you can get the right price for the marketplace and in significant scale so you can invest in marketing to continue to build it. We can never get that wheel going. And so the business I inherited was an inch deep and a mile long. We're in a bunch of different categories that are really -- countries with really small business. And we just -- when we bought the Quest business, we just had more important things to do. So we focused on our U.S. business. We have a very good Australia and New Zealand business. We have a very good Canadian business. But for the most part, we just -- we decided enough was enough and time to get focused as an organization. And again, might be lost on the audience is, we have about 250 -- we're a $1 billion in revenue, 250 employees. So you have to be really choiceful about what you'll work on. You can't choose everything. And so we've been pretty disciplined as a management team on picking the things that we think are the most important, that can drive the most growth, that can keep our margins. And so we're pretty disciplined and we probably hung on to Europe too long, I guess.

I get that. That makes sense. So the long slog, slowly trying to scale a lot of time, energy, money getting there, probably better spend elsewhere.

Yes.

The alternative, of course, as you accelerate that, that scale with an acquisition. Did you explore that?

Actually not. So if we were going to add our first acquisition, it was going to be in the United States, in the HABA aisle, where we have experienced capability. So play to your strengths. I simply think about M&A as if it fits my supply chain, fits my selling organization, is complementary from a consumer or a brand standpoint, you have a chance of winning and adding value. So we -- we'll add to something where we think we have strength as opposed to buy strength and hope it works.

Sure. And for the audience, the HABA aisle is health and beauty aid aisle, which rips you out of a much more competitive snack food aisle. Like a granola bar aisle, you don't want your bars there or the chip aisle. That's a lot of promotional intensity, a lot of competitive dynamics.

Yes, the challenge of health and beauty. So we're in -- we're basically a food in the pharmacy section of the store. And it's just historic, high-protein products started there. Even the bars that have moved to center stores started there, but then retailers needed to grow. So they started moving the lower protein products over into the center of store. I mean, it has this advantage as being there and disadvantages. The disadvantages are it gets shopped about 1 out of every 3 or 4 shopping occasions in a supermarket. So you don't always get to that aisle, right? So you have to really focus on bringing people to your aisle when they're in the store. The advantage of it is we're really big. We make a lot of money for retailers, and we're really important to them. So if you -- we like the aisle because our scale and importance make us an important partner for retailers. And that is also proving to be true in e-commerce, the most scale you have and where you compete, the more important you are to...

I always believe there's an advantage there, the reference price points. You're not next to cheap stuff, cheap bars in a while, which just the reference price there could make your products seem more expensive.

Yes. And we're highly valued in that interesting statistic. Atkins brings more people those into that aisle than most of the other, which you would consider OTC categories completely. So it's a nice complement for the people running that part of a store. You've got a brand that brings people to the aisle and with a chance that you can convert them into different categories. So bigger basket, more sales. So we like -- there are some challenges built into that, but we like the aisle a lot. And you're at price points. We almost exclusively sell multi-serve. So you're not at an entry, you're not selling single packages of bars like in the other aisle. So you get a loyal consumer used to paying well over $5, probably closer to $10 for a product. So we like to build in loyalty that comes with it too.

And that's long been the way that Atkins Bars were sold in the front pack or pack them, not the way Quest used to be sold, right, as much single bar transaction.

That's right.

I know when you acquired it, you talked about the opportunity to push it there. How much success have you had? How far has that pendulum swung now?

Yes. Quest passed Atkins this year in revenue, will pass Atkins?

Yes, past Atkins.

Past Atkins in revenue. So Quest is a bigger brand promise, right? So Atkins lives in low-carb, protein-rich, helps you manage your weight lifestyle. It's kind of where it lives. Smaller audience relative to Quest, but lots of loyalty, high buy rate. Quest lives in the self-fulfillment of an active lifestyle world. So it's more people interested in that. And as we've gotten our hands on the business, we've been able to build out distribution. We're pretty good food, drug, mass, building distribution. We've been able to accelerate the pipeline. You mentioned that we've taken Quest now in the confections, have a peanut butter cup. Spectacular, by the way, if you haven't tried the peanut butter cup. And we built distribution, points of distribution, items in distribution. And you can see it in the business results. We bought a really good business, and we accelerated the growth of it over the last 2 years.

How many sugar alcohols are in that peanut butter cup? Are they dangerous like you get too many in it?

No, there's nothing bad in it for you. So you can eat 4 or 5. It's very good for you.

Okay. Okay. I fell in that trap once upon a time at Atkins and popped a few too many candies and realized a lot of there are side effects there.

No side effects.

That's good to know. So you touched on your innovation success. Peanut butter cups, you have one of them. I haven't tried them. I've got to try them because I love peanut butter cups. So it's a no-brainer for me. Your bar business, though, suffered a bit during COVID. I think mobility trends, particularly around workplace, it fell off. This is like an easy portable mini-meals, meal replacements and then mid-morning snack, whatever it is. And those occasions were displaced. We're not all the way back at workplace mobility, but general mobility is at a better place. Have you seen your bar business respond? And is it -- the data would suggest it's in a better place. But what are you seeing there?

In a better place, certainly in a better place on Quest. It's fully rebounded, I think from a buy rate standpoint. Atkins is better. So we're seeing buy rate improve as being at work. It becomes more prevalent. And if you think about it, COVID kind of disrupted habits and practices around snacking. So pre-COVID, you would go to work, you throw a bar or shake in your bag and you'd have it at work, right? When you're at home, you walk into the kitchen, go into the pantry and you grab something. So the snacking occasions, in particular, in this category where the number of occasions were depressed. And we saw most prevalent in our Atkins bar business, where buy rate was down kind of high single digits. Started to rebound. It's not back to full yet, and we remain pretty optimistic that I believe, as the CEO, will mostly go back to work with a little flexibility. We're easing into it as a society, I think, again, we'll start back at work at our place right after Memorial Day. We're doing a Tuesday, Wednesday, Thursday. Everybody has to be in the office those days, a little flexibility on Monday, Friday. But I think ultimately, work is done at work. Mostly, we'll go back there. And then we've got some other strategies that we're pursuing in order to reduce our vulnerability to work snacking occasions.

And the shakes business held up pretty well throughout this, which kind of surprised me. I would have thought it would have been afflicted by some of the same headwinds. Why do you think it has it? What's been the source of resilience there?

Bars -- If you look at a continuum of consumption of things, right, bars tend to be more snacking. So between meal, [ holy hours ], shakes tend to be more meal replacement. And that occasion isn't -- hasn't been as disruptive as the snacking occasion. So you're seeing pretty strong -- across the board in shakes, you're seeing strong consumption growth, I think because meal replacement continues to be an important benefit for consumers and our business has been very, very strong through most COVID.

So this -- I mean you've got a bar business that hasn't yet fully recovered, more momentum coming. Innovation that's working really well. Clear momentum on your side for the first half results, another price increase going into the market in the back half of the year. These all give you confidence to raise your sales guide to plus 13% to 15% for the year, which is phenomenal. Phenomenal, right? Double-digit growth, we'll all welcome it. But coming off of a 25% growth in the first half, it implies 4.5%, mathematically, taking the midpoint implies 4.5% growth in the back half of the year. How do I foot all that because everything sounds like it's great, and you're saying we're going to slow from 25% growth to 4.5%.

Well, consumption won't be at those levels. Consumption will be much higher than that 4.5%, 5% you just quoted. So we always typically ship -- we build inventory in the first half of the year and then we deplete it and end up in the same place at the end of the year, every single year. This year was a little bit heavier, just the timing of some orders between February and March, where we built a little bit more inventory than normal. And that's why at the earnings call, we quoted hey, we shipped ahead of consumption in the first half, consumption is really going to be strong, still be very strong in the second half. We quoted POS would be low double digits in the second half, much more than that 4.5% that you quoted. So it's a little bit just building of inventory and then depleting it in the second half. But you see the POS data, it's still very, very robust. And so we still feel very, very good about the business.

Okay. Okay. And I heard you a loud and clear on the ownership, but you've also talked about service levels still not back all the way to bright. And those sound like -- they sound a quickie comment. So like we've got such good supply that we have over-shipped, but our service levels suck. We're having a hard time shipping to demand. They seem to conflict. Is it just because it's different parts of the portfolio? Or help me understand that.

Yes, it's really due to the impact of our business with COVID. So actually, if you look at our sales first half and second half, they're about the same. The difference is we're lapping easier numbers due to COVID in the first half. If you remember, the second half of last year is when our business -- we started to break out at COVID, people got more comfortable with being out and about. People are getting vaccinated. Then we had a very strong second half of the year last year. So we're still going to have a really nice second half here as well. But it's just a comparable year-over-year growth in the shipments. The actual -- the actual dollars in the first half, second half are about the same.

And we're not really in a -- if you look at the data, we're not in an out-of-stock situation. So fill rates, the industry will quote you a fill rate, which is somebody orders 100, how many do I provide? I provide 90, that's a 90% fill rate. But it doesn't actually reflect the impact on your business because there's slack in the system, right? There's inventory in the system. So until you actually aren't stocking the shelf, that's when it starts impacting revenue. And then fill rate can be a little deceptive in that retailers when they don't get what they want, then double down and order it again, right? So you end up with worse than what's real service, right? So I ordered 10, I got 8. The next time, I order 15 instead of 12, right? So there's a little game that gets played on fill rate. We would say we're not back full from a customer service standpoint. We would like to be in the mid-90s. We're more like high 80s, low 90s. We're not back full, but we've addressed the out-of-stock situation in retail. We're not suffering as nearly as much from out of stocks as we were early in the year and towards the end of last year. And we ended the first half of the year with retailers coming into the second half of the year had good inventory levels. That's not the issue. Part of what retailers are facing too is their business is changing pretty dramatically brick-and-mortar. So they're -- they have business now pick up and delivery, right? So when you're walking around in a supermarket, you see all those people shopping, wearing somebody's -- either those stores or Instacart-clothes shopping for people. When its store employs, those are the people who stock shelves. And the ability of retailers to hold on to staff is difficult, right? High turnover, people doing multiple tasks now. So they're stocking shelves and shopping for people. Even when they have the inventory, sometimes it's hard to get them to shelf right? And that's they're addressing that as we get -- as we work through COVID, but that was part of the challenge, too, of keeping the shelf stocked.

I'm going to go off the topic real quick because it kind of prompts something else. So that's a very expensive cost to serve for the retailer, when you have to go out there and do the shopping [indiscernible] and very few of them are actually charging or at least charging the full incremental cost. You stop there, gosh, this is going to be a challenge for the P&L. But you're also seeing this new revenue stream open up in terms of retail media. Amazon, it's a quite big business for them. Walmart, with a bit of persuasion, Walmart always very good at persuasion, has seen theirs grow quite a bit, too. Is this a growing area of opportunity from a marketing perspective? Are you participating? Do you like the returns? Do you think this will be a lot bigger in the future?

It's -- I think you have to understand what you have from a shopper standpoint to understand how to market it. So we've done a fair amount of research in e-commerce, big -- our #2 customer is Amazon. So we have a big e-commerce. This is a category that's easy for people to order online and replenish online and subscribe and save. So it's a good business on Amazon. It's a good business on walmart.com, target.com, kroger.com. But you have to understand the shopper and how the shopper is different. So as I mentioned to you earlier, we're in the recruiting new buyers to our brand, marketing game. That's our job, right? The people categories have penetrated. So this category is going to be twice at size 1 day. I just don't know what the curve looks like. And people are competing for those people that are not there. And so you have to understand how people come to your brand. In general, in our business, and I think it's probably true in the category, they come in, in brick-and-mortar. So you're recruiting people through mainstream communication to bring people into brick-and-mortar to get them into your brand. If you can convert them to e-commerce also, they buy a lot. So our e-commerce strategy is pretty simple, help with the conversion process of brick-and-mortar to make them a multichannel buyer, find the heavy buyers in the multi-channel and drive consumption on. And the interesting story is what we've learned is, when we make them a multichannel shopper, they don't buy less in brick-and-mortar. They just buy a lot online, and it's frequency of purchase. So they're up the amount of time that they're actually shopping in the category. So with that, you then know what your strategy is from a marketing standpoint. Your strategy on e-commerce is to identify heavy buyers and get them to buy more. Your strategy in brick-and-mortar is to bring your people into your brand and help them become omni shoppers because I can create a really valuable shopper. And so that's how we allocate our marketing dollars. That's how we think about it.

And that's the beauty of retail media, you can actually identify these consumers, whether it be because of the loyalty program or the credit card data, like you know who's buying this in store and you can introduce them to that ad.

And in e-commerce, a small group of people make a lot of purchases. So if you can identify who those are and incent them. And it's just not Amazon, it's Walmart.com, it's target.com, it's kroger.com. It's all these early stages online shopping platforms. If you can identify the heavier buyers, you just dedicate your resources to get them to increase the frequency of their purchases.

Yes. That's going to be really interesting to see how that all plays out. It feels a bit like trade did in the late '70s, early '80s, and super, super effective. So it became oversaturated. We'll see if this follows the same life cycle.

I'm actually not that old, so I can't...

I wasn't there either, but I've read the books. Okay. I've got 2 more topics, succession planning and capital allocation and real quick check with the audience. Does anyone have a question that they want to get in. Yes, we got a question over here. Do you mind hitting the button on the mic so I don't have to repeat it.

Okay. So I just want to -- I don't know that -- I want to make sure that I'm understanding this correctly. So for Atkins, the new buyer growth is really driven by the marketing. And is that the same for Quest to the same extent? Or does their channel help and the fact that they're in C-stores, the fact that they maybe have more single-serve, is that driving more new buyers to Quest while Atkins is primarily relying on just pure marketing?

Actually, both brands have considerable consumer pull marketing over the top. The point I was making is almost all the new buyers come in when you're actually physically shopping, not online. So online is a complement to people going into stores, whether it be a C-store, whether it be Walmart, whether it be a local supermarket, that's where you bring the new shoppers into the category. They're not shopping online for your category for the first time. They're already familiar with your brand and then they're coming there to make secondary purchases. And so both of our brands -- so your dollars in the various channels have a specific purpose. Generate -- in the case of over-the-top marketing, it's generate awareness, drive consideration, get people to come in brick-and-mortar and try the product. And in the case of both brands, there's a philosophy around the brand that we're communicating and then new products that we launch that we want to build awareness with. Once we got them, then we use dot-com as a way to get them to buy more frequently and you can get the buy rate up. And these are brands that Atkins is a mind-boggling brand from a buy rate standpoint. So if you're in your second year of buying Atkins, you're buying 100 products a year, 95 products a year. And that's not a heavy buyer. That's an average second-year buyer. Heavy buyers are buying 150-plus. So you're talking about people eating products every day. So you need innovation, you need new products, you have to keep it fresh because that's how committed they are to the brand and the purchases. Quest, similar heavy -- you got heavy buyers just not the magnitude of Atkins. More like an average buyer in a year is probably buying around 35 of Quest versus a much bigger number than Atkins.

Okay. Great question. Thank you. I think we have time for one more question. So let's close on this note. We'll lead the succession planning for another day. But capital allocation, your leverage ratio is down to 1.6x. So it's low right? You really have plenty of firepower. Where is the appetite in terms of M&A? And you can always have appetite but if there's nothing good to eat, you probably won't eat anything, at least I hope that's the case. Are there any sort of quality assets out there? And what does the quality asset look like for you?

Yes. I mean in the last year, as the leverage has come down, we started to get active again and look at M&A due diligence. We've looked at some very interesting assets. Often, the prices have been very elevated. Now that IPO markets dried up, SPAC market has dried up, we're seeing expectations for pricing starting to come back to us. So we're optimistic we can get something done in the next year or so. We're patient. We have a great organic business. We want something close to home, at least $100 million, a unique brand positioning, something that we can really develop strong with marketing and potentially other product forms as well. So look, we would love to find something else to buy, and we're very active in that process. Meanwhile, we have a low leverage balance sheet, where we're now starting to buy some shares back when the market kind of gets a little nutty, which it's been over the last several months. So we have -- we love the flexibility of -- can still pay down some debt, can now buy shares back. We got an additional $50 million authorization by the Board back in April or -- and so we, again, love to do a deal if we can get a deal done.

Brilliant. On that note, the clock literally just went to 0. We could not have planned this any better. Gentlemen, thank you so much for your time.

All right. Thank you.

Thank the audience for this.