Operator: Our next question comes from the line of Jim Salera with Stephens Inc. Please proceed with your question.
Jim Salera: I wanted to ask, you gave some good detail and appreciate on kind of the Atkins revitalization. When you’re having these conversations with your retail partners, are there certain metrics that they want to see, whether it’s from the existing Atkins on shelf presence or maybe in terms of like new product innovation for you guys to win the distribution back? And any color you could offer on that would be helpful.
Geoff Tanner: I just want to — just your last point first, our distribution is extremely strong right now. So that hasn’t been an issue for us. I have been on the road. I’ve met with every retailer, many multiple times since joining the company. And I’ve had conversations about Atkins and I’ve been candid about some of our commercial missteps, which I think have appreciated. But those conversations have every time gone to the importance of the weight management category and how we are the clear leader in that category, and they want us to win. They are extremely aware, as I’ve talked about, of the size, the 80% want to lose weight, maintain weight. And this is an important job for consumers that they need to support. And they are committed to Atkins long-term health.
They also — when you talk to them — to them, it’s all about incrementality. And that’s what Atkins bring to the category, particularly with this type buy rate. So in those conversations, I’ve laid out our 6-point plan to revitalize the brand. They’re excited about it. They’re giving us the time, they’re giving us the support. And they know — they look at this category in relation to the rest of the store. They see what — how it’s performing today and they see potential. We talked about doubling it over the next 5 to 7 years. And they know that Atkins is a critical component of that plan. So very, very positive conversations with retailers.
Jim Salera: And if I could sneak a follow-up in for Shaun. High-quality problem to have, but as we look forward, you guys don’t really have any need to pay down debt. You don’t have any CapEx really expenditures as we’re modeling the cash build, I mean, should we think of like share repo as a use of some of the excess cash you guys build? Should we just expect cash to build on the balance sheet? Does that get put back into maybe the R&D pipeline or some advertising? Just any way we can think about that moving forward?
Shaun Mara: I mean we have — first of all, take a step back. We love our model. We love the cash it throws off. You guys know that as you look at our results overall. This year, we’ll be continuing that overall. And right now, we’re happy to be lower than 1 times levered. Especially when you think about the fact we were over 4 times, 4.5 times about 4 years ago with Quest, acquisition. So we have a small group that meets pretty right early to discuss capital allocation. We evaluate debt paydown, share buyback and M&A opportunities as they come up. We’ll continue to do that in fiscal ’24, but those are certainly the areas that we’re looking for from the standpoint of use of the cash.
Operator: Our next question comes from the line of Jon Andersen with William Blair. Please proceed with your question.
Jon Andersen: I have a question on Quest. The consumption obviously remains quite strong there, running up mid-20s. I’m wondering if you could talk a little bit about the composition of that growth that you’re seeing and the composition going forward. So you referenced the household penetration rate being relatively modest, I think, at 15%. When we think about that kind of mid-20s consumption, how much of that is household penetration gain? How much is buy rate among existing users? And can you talk a little bit more about your plan to maintain strong consumption in fiscal ’24 on the Quest brand?
Geoff Tanner: When we acquired Quest, it was primarily a bar business, I think bars are about 80% of the business. Today, bars are just a little bit over 50%. And that is because in the last few years, we have successfully launched new products and formats that have really propelled the business. For example, in fiscal ’24, we anticipate our salty snack platform to be over $200 million in net sales, 25% of the Quest portfolio. But to your question, importantly, this innovation has proven to be highly incremental to the brand and very importantly, to the category. For example, 30% of new users to the brand have come from chips. But critically, why we’ve been growing the bar business has grown 22% year-to-date. So Quest has proven it’s one of the few brands that can successfully extend across multiple product forms.
I’ll go a step further. Our consumers are demanding it, and our retailers are asking for it and that’s the opportunity. I spent a lot of time with Quest consumers over the last 6 months. To them Quest is a lifestyle brand, it sort of brilliant hack of sorts. It’s not just a product brand, and it’s why they’re demanding us to bring out additional formats that we’re focused on. So what I would suggest is if you think about a large and perhaps growing carbohydrate, dense snack where we can flip the macros you can probably bet we’re looking at it. We’ve seen, again, that innovation to be highly incremental, brings in new users. But very importantly, retailers see it to us bringing in new category users. And that’s why we’re getting the support of retailers.
And then, I guess, lastly, you’ve talked about where we’re going with the brand. Yes, we’ll continue to push out on innovation. There’s still distribution weight space. I think Jason made a reference to that. But the next arrow we’re pulling out in Quest is marketing. It’s talked about the awareness is relatively low versus most brands. There’s an opportunity to drive additional witness and household penetration behind a focused and world-class marketing campaign that we’ll be rolling out in the new year. So those are the 3 drivers of Quest, but I’ll just underscore, this is an incremental brand driving incremental consumers.
Shaun Mara: I mean I think as you step back, if you look at the ’23 growth, we’ve had tremendous growth. I mean, obviously, we benefited like everyone else as we go through that, which we’re not going to have this year. We’re really excited about the opportunity to continue to grow that brand in the mid-teens with all the growth being volume overall. So when we did the acquisition way back when one of the opportunities that we saw with distribution. We saw that build this year. We’re going to continue to see that going forward. But I think the strength of that brand has been recognized by retailers and there’s really a growth engine for them as I look at that category overall.
Operator: Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.
Rob Dickerson: I just wanted to ask, I guess, a little bit about magnitude of kind of the new marketing campaign, right? I mean, if we go back kind of historically with simply kind of as it had de-spec and part of the platform was to kind of run kind of a higher relative rate of marketing kind of brand push, right, low CapEx model, solid top line growth. If we go back even to the, I don’t know, fiscal ’17, ’18 years, selling and marketing expenses were almost at 14% and in ’23, we were sub-10%. And then I also understand over time as you can kind of recapture some of this gross margin. I would assume that the level of that marketing spend is stepping up. You’re speaking to a new campaign. We have a new brand ambassador. So I’m just trying to get a sense of maybe firstly, if we think about fiscal ’24, like how much should we be thinking selling or marketing would actually be up year-over-year or as a percentage of sales?
And then maybe just any incremental color on kind of what material gross margin expansion kind of implies in fiscal ’24?
