Q4 2025 Earnings Call: Contradictions Emerge on OWYN Quality, Atkins Strategy, and Margin Timing

Date of Call: January 6, 2026

Financials Results

• Revenue: $340.2M, essentially flat versus a year ago
• EPS: $0.26 diluted EPS versus $0.38 in the year-ago period; adjusted diluted EPS $0.39 versus $0.49
• Gross Margin: 32.3% GAAP, a decline of 590 basis points YOY; 33.1% excluding one-time expenses, a decline of 540 basis points YOY

Guidance:

• Net sales growth expected in the range of negative 2% to positive 2%.
• Gross margins expected to decline 100 to 150 basis points YOY.
• Adjusted EBITDA year-over-year expected in the range of negative 4% to positive 1%.
• Q2 net sales expected to decline 3.5% to 4.5%.
• Q2 gross margins down approximately 300 basis points YOY.
• Adjusted EBITDA expected to decline double digits in Q2.
• Second half net sales growth expected at higher end of full year range.
• Second half gross margins expected roughly in line with or slightly better than FY2025 GAAP gross margins.
• Q4 gross margin expected up nearly 200 basis points YOY.
• Q4 adjusted EBITDA expected up double digits YOY.
• Capital expenditures expected $30M to $40M.
• Net interest expense expected $19M to $21M.
• Weighted average diluted share count expected ~96 million shares.
• Effective tax rate expected 25%.

Business Commentary:

• Quest Performance and Growth Strategy:
• Quest reported 12% consumption growth and nearly 10% growth in net sales for Q1, contributing to overall company stability.

• Growth was driven by expanded distribution, marketing efforts, and recent product innovations.

• Atkins Challenges and Strategic Adjustments:

• Atkins experienced a 19% decline in consumption, largely due to distribution losses at key retailers.

• The company is working with retailers to adjust the product assortment, focusing on repurposing space for more profitable SKUs from Quest and OWYN.

• OWYN's Market Entry and Quality Improvements:

• OWYN's consumption grew by 18%, supported by distribution gains in RTDs and powders.

• The company is addressing lingering product quality issues, with improved ratings and a new formula aimed at rebuilding consumer trust.

• Financial Margins and Cost Management:

• The company's gross margin was 32.3% on a GAAP basis, reflecting higher input costs and tariff impacts.

• Initiatives such as pricing actions, cost-saving measures, and securing favorable supply commitments are aimed at improving margins in the second half of the fiscal year.

• Share Buyback and Capital Allocation:

• The company repurchased over 7% of its common stock, utilizing an incremental $150 million in borrowing.
• This action is based on confidence in the company's long-term growth prospects and the current undervalued stock price.

Sentiment Analysis:

Overall Tone: Positive

• Management reiterated full-year outlook and expressed confidence in second-half improvement. Geoff Tanner stated, 'I'm pleased with our Q1 performance, and I want to reiterate our confidence in our plan for the balance of the year.' Chris Bealer noted, 'Overall, we delivered a solid start to the year relative to our plan with net sales and adjusted EBITDA modestly ahead of our expectations.' They are 'reaffirming our outlook' and 'remain confident that our top and bottom line performance will improve once we get beyond Q2.'

Q&A:

• Question from Peter Grom (UBS): Can you elaborate on the confidence in the back half inflection embedded in guidance? Where do you have highest visibility, and what are key risks?
  Response: Confidence is high due to line of sight to new distribution, merchandising gains, innovation pipeline, and pricing/productivity benefits. Risks include economic conditions, consumer behavior, and tariff rates.

• Question from Brian Holland (D.A. Davidson): What needs to be done to improve the legacy Quest bar business?
  Response: A multi-pronged plan includes platform innovation, increased merchandising, new distribution, and additional marketing to reaccelerate growth, with impact expected in the second half.

• Question from Megan Christine Alexander (Morgan Stanley): Can you provide more color on OWYN's inventory gap and confidence in shipments aligning with consumption?
  Response: The gap was due to heavier initial inventory post-ERP cutover and lingering product quality issues. Shipments are now expected to better align with consumption in Q2.

• Question from Alexia Howard (Bernstein): Do you see a major ramp in gross and operating margins over the next 18 months, getting back to around 37%?
  Response: Yes, drivers include pricing/productivity lag reversing, cocoa cost tailwinds, mix shift to higher-margin brands, and cost synergies from OWYN integration, providing confidence in margin rebuild.

• Question from Jon Andersen (William Blair): How much did pricing help in Q1 and what is the update on Atkins' optimal assortment?
  Response: Pricing benefit was minimal in Q1 (~low single-digit for full year). For Atkins, 75% of sales come from top-half velocity SKUs; distribution losses (~2/3 of decline) will largely pass in April.

• Question from Matthew Smith (Stifel): When will tariff relief start to flow through given revised trade agreements?
  Response: Tariff benefit will start in the second half of FY2026, with full impact expected more into FY2027, offsetting new headwinds from inflation.

• Question from Robert Moskow (TD Cowen): What are the next steps for the GLP-1 clinical study results for Atkins?
  Response: Results are encouraging (e.g., muscle mass retention, fewer side effects) and will be leveraged in 'new year, new you' marketing and retailer outreach starting in coming weeks.

• Question from Stephen Robert Powers (Deutsche Bank): What is the distribution outlook for Quest Salty, and how does increasing competition affect forecasting?
  Response: Confident in continued momentum with line of sight to new distribution and merchandising; competition is expected but confidence remains high due to brand strength and consumer trust.

• Question from Unknown Analyst (Stephens): How should we think about growth in the RTD space and potential for positive consumption across brands?
  Response: RTD category is growing >10%; OWYN is differentiated as clean/plant-based, Quest has highest protein, and Atkins has a unique weight-maintenance role, especially relevant for GLP-1 users, supporting confidence in growth.

Contradiction Point 1

OWYN Product Quality Issue Status

This is a substantial contradiction regarding the resolution of a critical operational issue. The shift from declaring the issue is "largely resolved" to later stating its effects were still "lingering" and impacting inventory represents a material change in the narrative around product stability and supply chain health.

Could you clarify the path forward for OWYN, including recent brand performance, following the product quality issues that impacted the quarter? - Peter Grom (UBS)

2025Q4: The product issue... is largely resolved. The company has implemented a newer formulation, is shipping it, and has increased trade and marketing investments to recover. - Geoff Tanner(CEO)

Can you explain OWYN's inventory destocking progress this quarter? Is the gap narrowing in Q2, and will shipments match strong consumption? - Megan Christine Alexander (Morgan Stanley)

20260108-2026 Q1: The inventory gap was due to being heavy coming into Q1 (partly from an ERP cutover) and lingering effects from product quality issues. - Geoff Tanner(CEO)

Contradiction Point 2

Atkins Brand Strategy and SKU Rationalization

This is a substantial contradiction involving a clear change in company strategy. The shift from explicitly planning to reduce the Atkins brand footprint to stating a strong, long-term commitment to it, particularly for a key consumer segment (GLP-1), signals a significant strategic pivot that alters the competitive positioning and resource allocation narrative.

As fall 2025 resets approach, can you discuss performance, particularly regarding new innovation and your largest customer? - Megan Christine Alexander (Morgan Stanley)

2025Q2: Atkins is expected to have a slightly smaller footprint as the company shifts space to Quest/OWYN. - Geoff Tanner(CEO)

What steps are needed to reaccelerate growth in the legacy bar business—merchandising, rightsizing SKUs, or other strategies? - Brian Holland (D.A. Davidson)

20260108-2026 Q1: The brand remains committed long-term, especially for the GLP-1 consumer segment. - Geoff Tanner(CEO)

Contradiction Point 3

Gross Margin Trajectory and Timing

This is a substantial contradiction concerning the timing of a key financial benefit. The shift in guidance from expecting tariff benefits to flow through in the next fiscal year (FY26) to now stating they will start in the *second half* of the *current* fiscal year represents a delay in a material cost-saving headwind, directly impacting near-term margin forecasts.

Can you explain the change in the gross margin guide? You cited 100 bps from input costs/tariffs versus 150 bps previously, along with offsetting factors. What is driving this shift, and how clear is your visibility on input costs? - Megan Christine Alexander (Morgan Stanley)

2025Q2: Tariffs are estimated to be a $5-10M headwind for FY25... The significant benefits are expected in FY26 and are partially offset by higher inflation assumptions... - Shaun Mara(CFO)

When will tariff relief from new trade agreements take effect: this year's second half or fiscal 2027? - Matthew Smith (Stifel)

20260108-2026 Q1: Tariff benefits, including Annex 3 exemptions, will start to flow through in the second half of this fiscal year... - Christopher Bealer(CFO)

Contradiction Point 4

Atkins SKU Rationalization and Lower-Velocity SKUs

This is a substantial contradiction regarding market strategy and product portfolio management. The change in characterization from the sales decline being concentrated in "underperforming tail SKUs" (implying a broader issue) to explicitly labeling a significant portion of SKUs as "at risk" and part of a rationalization plan indicates a shift in how management is framing the brand's health and the scale of corrective action needed.

Is the 20% expected decline this year concentrated in lower-velocity SKUs and is there still pressure in the core? - Megan Christine Alexander (Morgan Stanley)

2025Q4: The majority of top-selling SKUs (representing 75% of Atkins sales) are growing healthily. The sales decline is concentrated in the underperforming tail SKUs... - Geoff Tanner(CEO)

What is the update on "tail" SKUs for Atkins and the process to reach an optimal assortment? - Jon Andersen (William Blair)

20260108-2026 Q1: For Atkins, 75% of sales come from SKUs in the top half of velocity (considered safe), while 10-15% are in the lowest quartile (at risk). The company is working with retailers to replace low-velocity Atkins SKUs... - Geoff Tanner(CEO)

Contradiction Point 5

OWYN's Growth Trajectory and Guidance

This is a substantial contradiction involving changes in the company's strategic narrative and confidence timeline for a key brand. The shift from stating the brand's deceleration was "fully anticipated" with clear confidence in a reacceleration "in the summer/fall" to a more tentative discussion of a "standard" relationship with "significant upside" but no specific timeline, represents a notable softening in the forward-looking tone and guidance precision for a critical growth driver.

Was the slowdown in OWYN's track data already factored into the guidance? Can you outline guardrails for OWYN's performance in fiscal 2026? - Peter K. Grom (UBS)

2025Q3: The OWYN deceleration in Q3 was fully anticipated and reflected in guidance... **Confidence remains high for OWYN's long-term growth, with distribution gains expected to reaccelerate in the summer/fall**. - Geoff E. Tanner(CEO)

How should we interpret the gap between OWYN's 4.5% household penetration and 20% aided brand awareness, and evaluate the increased marketing investment? - Brian Holland (D.A. Davidson)

20260108-2026 Q1: The relationship between aided awareness and household penetration is standard, but the low numbers indicate **significant upside opportunity**. The plan to accelerate growth includes increasing marketing (more than double)... - Geoff Tanner(CEO)