Greetings, welcome to the conference call of Simply Good Foods acquisition of Quest Nutrition. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mark Pogharian, VP of Investor Relations. Please go ahead, sir.
Thank you, Hector. Good afternoon, and welcome to Simply Good Foods conference call to discuss the acquisition of Quest Nutrition. Here with me today are Joe Scalzo, our President and Chief Executive Officer, and Todd Cunfer, Chief Financial Officer. I would like to remind you that our notice regarding forward-looking statements is included in our press release and presentation. These materials can be found on our website at thesimplygoodfoodcompany.com. During this call, we will be making comments that are forward-looking. Actual results may differ materially from those expressed or implied due to various risks and uncertainties, important factors, including those discussed in our press release today and in the Risk Factors, MD&A, and other sections of our annual report on Form 10-K and our other SEC filings.
In addition, management will make references to the Simply Good Foods adjusted EBITDA, a non-GAAP financial measure that it believes provides investors with useful information with which to evaluate the company's operating performance. Reconciliations of the company's non-GAAP measures to the most directly comparable GAAP measures are set forth in the quarterly earnings releases available on the company's website. With that out of the way, I will now turn the call over to Simply Good Foods President and CEO, Joe Scalzo.
Thanks, Mark. Good afternoon, and thanks for joining us this afternoon. It's an exciting day at our company as we're announcing a strategic, financially compelling transaction that's an important step on our journey to becoming a broader nutritional snacking company. I'll begin the call with an overview of the transaction, provide investment highlights and details of the Quest Nutrition business, and then I'll turn it over to Todd, who will discuss the financials, after which we'll open the call to your questions. Our growth vision at Simply Good is to build a branded portfolio company that is a leader in the consumer movement towards healthier, more nutritious snacking and meal replacement. During the past year or so, you've heard me comment a number of times that we evaluated many acquisition assets and that it's been challenging to find the right branded business in this category at a reasonable price.
Today, we're announcing the acquisition of Quest Nutrition. It is a perfect fit for our growth vision, a good complement to our Atkins brand, and we believe represents a compelling transaction. With that, let me provide some detail on Quest Nutrition. We're acquiring the business from its founders and VMG Partners, a private equity firm. The agreement has been unanimously approved by the board of directors of both companies. We're excited about this acquisition because Quest is an attractive, fast-growing nutritional brand with about $345 million in sales. Similar to Atkins, Quest products are high in protein, contain minimal amounts of sugars, and are low in carbohydrates. We expect that the combination of our businesses will lead to tremendous incremental growth opportunities. Quest is a strong consumer brand with a broad product offering. Its growing consumer base is young, affluent, urban, and leads an active lifestyle.
While the nutrient profile is very similar to Atkins, its consumer target is highly complementary to Atkins' older, more suburban core user. Quest has built its brand with delicious snacking products and using an impressive social and digital ecosystem. The good news is that from our diligence, we believe the brand is at the right phase of its development to benefit from our company's expertise in growing brand awareness and trial using more broad-reaching media vehicles. Similar to Atkins, Quest household penetration is low, so the runway for growth is significant. Additionally, we believe our relationships in traditional food, mass, and drug retailers can help grow product distribution. Likewise, we believe Quest's expertise in e-commerce, small format retail, social digital, and different snacking forms can improve our Atkins products, marketing, and overall business. With that as background, let me give you an overview of the Quest Nutrition business.
For those of you not familiar with Quest, it's primarily a protein bar business that was founded in 2010 and made its way to retail in 2012. Over the last couple of years, Quest management has done a terrific job transitioning its positioning from a protein bar company to a broader healthy lifestyle snacking brand. Its mission is to provide its consumers with craveable snacks that work for you, not against you. About 70% of the business is in its core protein bar, with the remaining 30% consisting of products such as protein-rich, low-carb chips, protein cookies, powders, and even frozen pizza. No matter which product you consume, the nutritional profile is the same, rich in protein, low in carbs, and low in sugar. Quest's best-in-class digital and social marketing program, combined with new products, has resonated. Most product forms are strong and distribution is increasing.
Their channel mix is well diversified. The company has strong relationships with blue-chip customers in both measured and non-measured channels. It also has a small, profitable international business. Therefore, we believe Quest is a scalable business with expected net sales in calendar 2019 of about $345 million, an increase of mid to high teens on a percentage basis versus last year. Calendar 2019 adjusted EBITDA is expected to be $50 million. Given the $20 million of identified synergies and the trajectory of the business, we expect margins to continue to increase as we move forward. Quest is a strongly developed brand across many consumer segments. For many, it's a simple approach to snacking well. As you note on this slide, there's a nice mix of female and male consumers. About half of the consumer base are young, under 35, and lead an active lifestyle. Reasons for consumption vary.
Consumers, primarily educated with household income greater than 75,000, will tell you they consume Quest products for a variety of reasons, including gaining strength after working out, daily nutrition, or for on-the-go meal replacement. On slide seven, you can see the nutritional profile of the core Quest bar. This Quest bar is 21 grams of protein, one gram of sugar, 14 grams of fiber, and four grams of net carbs. Whether you're looking for a meal replacement, a healthier snack, a permissible treat, Quest nutritional profile fits the bill. Given the portability of most of its product offerings, they're easy to take with you for that mid-morning or mid-afternoon snack or on-the-go meal replacement. Importantly, Quest continues to grow with solid retail takeaway across all time periods over the last year. It's not just Quest bars.
Looking at other forms, particularly Quest protein cookies, chips, and frozen pizza, they've essentially flipped the USDA food pyramid to give consumers foods they crave that work for them, not against them. When comparing the level of protein, sugar, and net carbs versus a traditional offering, Quest offers a superior nutritional profile without sacrificing fantastic taste. We believe this strategy can be deployed across other select snack food categories to capture other eating occasions. Many of you are familiar with the Atkins accelerated retail takeaway growth. Quest has experienced similar results, and both brands have outpaced the nutritional snacking category. The nearly double-digit category growth across all time periods versus low single digits for center store packaged food seems to indicate that snacking and meal replacement products with a better nutritional profile continue to gain momentum.
Given the mega-trends behind the better-for-you snacking movement, we believe that we're still in the early innings of driving consumer awareness, adoption, trial, and repeat. Let me now spend a couple of minutes providing you with some investment highlights of the combination of these two great businesses. As we look at the transaction, there's a lot to like. It's a combination of two great brands in a fast-growing category who have scalable and similar business models. Our businesses are complementary. We have familiarity with their ingredients, and we expect our shared supply chain and distribution model will deliver on identified synergies. We both have proven go-to-market strategies that are different yet complementary to each other. The Atkins and Quest brands are tightly aligned with consumer mega trends, such as more frequent snacking occasions and the desire for on-the-go meal replacement.
In addition, there are more than 100 million diabetic and pre-diabetic adults in the U.S., and we're approaching a like number of Americans who are considered obese. There is growing scientific consensus that lower sugar and carbohydrate intake can help reverse these troubling statistics for diabetes and obesity. This evidence is fueling consumer preferences for lower carb and sugar consumption, as well as higher protein content, all of which play to our business strengths and create considerable tailwinds to help drive continued profitable growth. The nutritional snacking category is big. Data from IRI states that the nutritional snack market, bars, shakes, treats in the U.S. is greater than $14 billion. Looking at the IRI all-outlet universe, which excludes e-commerce, convenience stores, and Costco, nutritional snacking is a $5 billion category and has been growing double-digit compound over the last few years.
The category is driven by branded products that sell at premium price points, resulting in attractive margins for manufacturers as well as retailers. Household penetration continues to be low, about 50%. We believe there's continued long runway for growth and upside. Looking at our portfolio, we feel good about the various brand propositions. The acquisition is incremental as we target different consumers. Importantly, brand switching analysis shows there's no meaningful substitution between these two brands. As a nutritional snacking leader, we'll leverage the consumer research and data from both companies to continue to bring meaningful innovation to the market that will continue to grow both of these brand franchises. Nutritional philosophies are similar, the brand promises and consumer targets are very different. Atkins is a low-carb lifestyle brand offering delicious snacking products for adults seeking better health and to manage their weight.
Quest is an active sports performance brand that delivers delicious snacks that support people on their personal quests. Quest has a younger, more active consumer that is highly complementary to that of Atkins. As I touched on earlier, this transaction brings together two businesses that have complementary capabilities and are expected to generate revenue and cost synergies based on scale of the combination. While this transaction adds important scale and broadens the portfolio, from an integration perspective, nutritious snacking is a business we know very well. I'm confident in our ability to execute in the space and achieve the expected synergies of about $20 million. With both companies operating outsourced supply chains, the synergies are in line with this type of transaction and will be achieved as we integrate the business over the next three years.
The savings were primarily realized within materials, purchasing, warehousing, distribution, and SG&A related to the elimination of duplicative support services. As we integrate the businesses, we'll look to preserve the best elements of our growth-oriented cultures and implement best practices across the combined organization. Quest should benefit from Simply Good's knowledge and capabilities in measured channels and broad reach media. Conversely, Simply Good will look to leverage Quest expertise in non-measured channels, e-commerce, social media, and R&D and new product forms. The initiatives the Quest management team instituted over the last few years are working. We see an opportunity to increase distribution and drive more consumers to the brand. For example, we'll look to focus the advertising on a core nutritional philosophy to ensure the right message is conveyed related to key benefits of Quest products.
Additionally, we'll look to leverage existing consumers to increase cross-purchases within the portfolio and drive new consumers to the brand. We'll also leverage our marketing expertise to determine the right balance between digital and on-air advertising for Quest, while always focused on the highest ROI. Also, we'll expect our category management expertise at retail to drive Quest shelf and aisle presence in measured channels. Similar to Simply Good Foods, Quest has a highly capable in-house R&D team that is focused on innovation. Given high loyalty and consumption, we're both focused on providing consumers and retailers with the right level of variety and innovation. We'll look to leverage the knowledge of both organizations to ensure this continues. As I mentioned earlier, we believe there are expansion and white space opportunity for both brands in select channels that are currently under-penetrated.
With that, I'll turn the call over to Todd to discuss some of the financial aspects of the transaction. Todd?
Thanks, Joe, and good afternoon to everyone on the phone and the webcast. I'm excited to be here today to talk about this transaction. Throughout this process, it became very clear to our management team and board of directors that Quest is a very compelling brand and business. Looking at the combined company, net sales are expected to be more than $800 million this year, and we feel very good about delivering top-tier growth going forward. Like Simply Good Foods, Quest revenue is predominantly from North America, but they also have a small international business in similar geographies to our international operations. Quest international business is profitable with margins similar to ours. As Joe stated earlier, this strategic acquisition provides us with scale and a stronger foundation for long-term sustainable growth.
Moving to channel portfolio, Quest generates about half of its U.S. sales in the traditional food, drug, and mass channels. We see an opportunity to apply our extensive FDM knowledge to increase Quest distribution and product offerings through these channels. About 27% of its U.S. sales are generated in the e-commerce, specialty, and convenience store channels where Atkins is underdeveloped. We have been impressed with Quest's creative and successful approach in these channels and look forward to learning and leveraging their expertise. We were attracted to Quest because it's a strong, active nutrition brand with a younger consumer base and believe it is well positioned to benefit from attractive industry tailwinds such as snacking, convenience, meal replacement, and health and wellness. Quest retail takeaway has been strong with growth coming from increased bar velocity as well as new products.
Given the recent performance and the trajectory of our businesses, we feel this combination will accelerate our performance on both the top and bottom line. Quest current margins are about 400 basis points lower than ours. However, given the identified $20 million of synergies, there is a path to closing this gap as we look out a few years. Hence, we feel confident that adjusted EBITDA growth will continue to outpace sales growth. We expect cash flow generation of the combined business to be healthy as it will benefit from the characteristics underpinned by similar asset-light business models. As we've outlined today, Quest is a fast-growing nutritional snacking brand with improving margins and solid cash generation that gives us confidence in our long-term algorithm and delivering on our commitments to our shareholders. Under the terms of the agreement, the $1 billion purchase price will be paid in cash.
The net purchase price is about $870 million, including the present value of tax benefits. This represents a net purchase price multiple of 12.4 times adjusted EBITDA, including synergies. We estimate that $130 million in tax benefits will be about a $15 million reduction to our cash taxes over the next 15 years. We intend to finance the transaction by using approximately $225 million of cash on our balance sheet, as well as committed financing from Barclays, Credit Suisse and Goldman Sachs. The company also anticipates issuing equity, and given the expected solid cash flow generation of the combined businesses, anticipates a net debt to adjusted EBITDA multiple of four times or less by fiscal year-end August 2020. Lastly, we expect this transaction to be cash accretive to EPS in year one and close before the end of calendar year 2019.
Let me now turn it back to Joe for some closing comments.
Thanks, Todd. Let me end with a few closing thoughts on this compelling acquisition. Over the last year or so, we've been clear that we're focused on profitable organic growth and strategic M&A as a priority on our path to increasing shareholder value. This deal meets our core objectives of driving profitable growth and increasing shareholder value, and marks an important step in the company's history of becoming a broader nutritional snacking company. We'll leverage our core capabilities in product development, in manufacturing, marketing, and in sales as we integrate and accelerate the Quest business. This combination gives us enhanced presence in nutritional snacking and another lever to accelerate our growth and increase shareholder value. I want to say thank you to all of you for joining us today. I appreciate the lateness of the hour.
Let me turn the call back to the operator as we begin our Q&A session.
At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Our first question comes from the line of Brian Holland with D.A. Davidson & Co. Please proceed with your question.
Yeah, thanks. Good evening, gentlemen. First question.
Hey, Brian.
Hi. Composition of the top line growth in recent years, whatever, it looks fairly similar, at least on a track channel basis. Obviously, as you sort of displayed here with the financials, looks pretty similar. What's the composition of that distribution versus velocity? Can you give us any sense?
Yeah, a little bit of sense. Looking at, call it, the last 6 months, two things that we really liked about the opportunity here with this business. Their core bar business, protein bar business, somewhere around 70% of their business growing right now based on just core-based velocity growth. Their marketing initiatives, their social digital marketing initiatives, the quality of their products, the strength of their repeat have been driving strong velocities in their core bar business. They've had some success with alternative snacking formats. Protein Chips and Protein Cookies have done pretty well. They introduced a Tortilla chip last year and a Protein Cookie, I believe last year also. Got those into early distribution. The velocities have been good on both of those, and they've been growing most recently by expanding in the white space.
We like the profile of the business, the core protein bar business growing on velocity, and then some success in alternative formats and some white space given that.
Thanks. That's helpful color. The margin profile, a little bit lower than yours today, but similar as far as being asset light, I presume all outsourced on the production side. What drives the lower margin versus where Atkins is today? Is that just relative sort of efficiencies of scales at this point in their life cycle, or is there something else that makes that margin inherently lower that is escaping me right now?
At a really high level, their supply chain is evolving. They brought in just an outstanding CEO and a strong management team a little over two years ago. They were in-house manufactured on their protein bars out of Southern California. He came in, really understood, knowing the space really well. They understood that they were high cost and there were some quality issues with their products. They have been evolving to an outsourced model, pretty much a mirror of ours. You're seeing a little bit of a lag in the profitability of the business because of the transition from an insourced model, where you're buying all your ingredients, and you're making them yourself, and you're distributing them, to somebody else making them for you and buying all the ingredients.
The other change they made in their business is they were running a five DC distribution network, which they then consolidated smartly down into one and just happens to be [Five Mile Smarts] in Indiana. They have evolved into a pretty smart supply chain model, and you're starting to see that flow through to the bottom line from a profitability standpoint. We think we can help accelerate that for them as we combine the businesses.
I would say the other thing is a little bit of mix. Both from a product perspective, some of the new items they've launched in the last couple of years that Joe mentioned currently have a little bit lower margin than the core bar portfolio, and then their channel mix as well. They have a broad distribution, a lot of e-commerce, a lot of specialty, a lot of C-store, and that channel mix versus ours is a little less profitable as well. As we've pointed out, we've identified significant synergies. We feel very, very confident in the next couple of years, those EBITDA margins will be very similar to Atkins.
Okay, thanks. On that point, Todd or Joe, the frozen business, obviously, you guys sort of parted with that on the legacy Atkins portfolio. You talked about some of the mix components that would impact the margins, kind of the basis of my last question. Are you comfortable running with that frozen business? I presume that's all outsourced as well, so nothing really to inherit there, but are you comfortable with what that looks like within the context of this sort of combined portfolio? Does that still make sense for you guys?
I would say early innings. What I do like about their choice in pizza is it's a snack, right? Some people use it as a meal replacement, some people use it as a snack. We were in the meal bowl business, highly competitive business and off of our core snacking profile, right? That was one of the reasons that we exited the business. This fits the meal replacement snack vision. They're in early innings on pizza, it's only in distribution at Target right now. It's doing very well. They're using outsource for manufacturing, they're managing an outsourced manufacturer and then obviously an outsourced distribution network to get it there. I think early innings, we'll take a look at it, see how it does, and see where we go from there. It's really too early to make that call.
I like it better than the meal bowl business. A lot better than the meal bowl.
Yeah. They have plans right now to get those margins up. What we also love about that pizza business is highly incremental. It's almost 100% incremental to the rest of the portfolio. Yeah, the profitability may be lower, but getting better. It's highly incremental.
I would have never shared this on prior calls, but I eat their pizza. The pizza's pretty good. If you're trying to eat pizza on low carb, it's a nice cheat if you're trying to stay low carb and get a snack you really want. Give it a try. It's at Target.
Well, I wouldn't have admitted this either, but when I can't find Atkins, I have a Quest bar, but that just must mean I'm still very young. Congratulations. Best of luck, gentlemen.
That hurts.
Our next question comes from line of Chris Growe with Stifel. Please proceed with your question.
Hi. Good evening.
Hey, Chris.
Hey, Chris.
Hi, congratulations on this transaction. Looks like a really good one for you. I just had two questions, if I could. I know, Joe, you mentioned in your remarks about the social media that the company uses currently and having to build awareness. I'm just trying to get a sense of, you've got an opportunity to tease some synergies here. I also want to understand how much you feel like you need to invest back in this brand to get it to the same level of spending, for example, as Atkins and trying to really build this in the core channels we're hearing today.
Yeah. First of all, their social digital platform is in-house, so core capability, core strength, and they're pretty great at it. They built a loyal following of consumers. They kind of grew up in the CrossFit craze, having launched in 2012, 2013. They're kind of linked with that, and they've done a nice job to use that as a springboard for a broader consumer audience. They've done a terrific job. They spend decent amount of marketing as a % of sales. I think the number's around 6% or so. We think they're at the right-- If you talk to their CEO, he would say that would be the next stage in their evolution, right? Start moving from just that as their platform to using broader mass media. He knew he was going to have to build some capability to do that.
We just have that organic already. I think we'll start down that path because I think it can bring consumers in quicker and drive higher penetration and more buyers. We'll start down that path. We'll see what the return for that kind of thing is. Our experience has been pretty high. Then we'll feed that as the data suggests it should be fed. Ultimately, I aspire to get their marketing to % of sales in line with Atkins. We won't be shy about investing back some of the synergies in order to do that.
Sure. Okay. Thank you for that. Just another question around, we've talked a lot about the 39 million consumers that are programmatic or lifestyle that you're targeting today. You talked about the sort of synergy with the consumers that Quest attracts and that they're attracted to. My question just is, how do we think about the size of their consumer base and those that are trying to lose weight, that kind of 100 million consumers that's out there and how they overlap that 39 million? Just curious on that.
Yeah. The interesting thing is the highest level in that when we did that incident study at the top of the chart was people interested in managing their weight and people not interested in managing their weight, right? About two-thirds of adults interested in weight management, about one-third not. Quest plays mostly in that space, right? Completely incremental to our business, right? They're consumers that we're not looking at because the brand promise of Atkins really doesn't relate to them, right? I think even within those self-directed low carbers looking to manage weight, there's a component of those consumers that are younger, that are more active, that maybe aren't at the perfect weight, that'll probably be more open to Quest than they would be to Atkins, at least right now, where it is in its positioning.
Again, I'm pretty comfortable there's a big universe out there, that they're complementary target audiences, because I think the brand promises are fundamentally different. That Quest lives in this helping you achieve what you want, your own personal quest, what you're trying to achieve. It's got an active lifestyle component to it. That's very different than with Atkins. Atkins is an older, more established consumer group, probably less active, more focused on how they look and feel, than a Quest consumer. We're talking two different promises to, frankly, a different target audience, and we're confident we can go after both of those groups with both of these brands.
Okay. Thanks for your time.
Yeah. Thanks.
Our next question comes from the line of Jason English with Goldman Sachs. Please proceed with your question.
Hi, this is Vivek Srivastava speaking on behalf of Jason. I had a question on cost synergies. Can you provide more color on the timing of the cost synergies? Which buckets among procurement, warehouse, distribution sector the synergies are more tethered to?
Sure. Right now, we've actually done a lot of work on this, both internally and we've had some outside resources to help as well. As we've said, we've identified around $20 million. Most of that is in the SG&A land where there's duplicative efforts going on between both of our businesses, which have about 150 employees. There are also some substantial supply chain costs as well. We think there are some ingredients, material savings. We can leverage our strategic sourcing project that we've done in the last year. There's also some freight and warehousing savings. For example, we each have one warehouse in Indiana that are about 2 miles apart, using the same 3PL, the same freight carrier. We feel there's a great opportunity there. Again, most of it is in SG&A.
There's a good portion of it in supply chain as well, and we feel there's probably some more upside as well.
Thanks. I have one on revenue synergies. Where do you see most of the revenue synergies come from? Is it channel expansion, category broadening, or maybe geographical expansion? When do you think they will start flowing in?
Yeah. Just high philosophical to high level, I think, if you look at the front-end selling organizations, we have strength in Food/Drug/Mass. They have strength in small format and specialty and e-commerce. There's going to be complementary skills there, and we'll be able to leverage both of that broader skill set against both of the brands. We really like that. Their team has had particular success in new formats. From an R&D standpoint, I think they have a core strength in new product R&D, which can help. Our R&D organization, particularly good with different formats of bars, so an opportunity for cross-innovation on both of the businesses. Again, I think, from a synergy standpoint, lots of opportunity. I'd say in e-commerce, their largest customer is Amazon. 20% of their business is e-commerce. We're at five.
There's a big opportunity. Just looking at where they are in development, they're probably three or four years ahead of us. I think they can accelerate the Atkins capabilities in e-commerce and help us capture some of that opportunity too.
Yeah, I just want to add, the way we think about this acquisition, this is really a growth play. These are both brands and assets that are growing significantly right now. What we feel that is really the large opportunity here. Synergies are a nice addition to the model that we've built, but the real upside here is the growth play.
Thanks.
Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question.
Good evening, everyone.
Hey, Alexia.
Hi there. First of all, can I ask about how you're thinking about the personnel leadership transition here as you take over this similarly sized brand, maybe a little bit smaller than the one you already have. How many of the existing leaders are you going to keep on in full-time roles? How are you thinking about making sure that that transition works smoothly? Then I have one follow-up.
Yeah. Great question. Their CEO, Dave Ritterbush, just terrific talent. He has been the catalyst for the turnaround in their business in the last three years. He will be with us. He is going to be a member of the board of directors of our company and a president of Quest, and one of the leaders of the integration of the business over time. We, again, very early innings, very early thinking. At the highest level, there's going to be a lot of the support services are going to be duplicative. We'll deal with that over time. It's a matter of recruiting the team at Quest in order to keep capabilities that they're going to bring to the table. With Dave on board, we feel pretty confident we'll be able to do that.
Great. As a follow-up, what % of sales are through e-commerce channels at present at Quest, and how quickly are they growing? I'll pass it on. Thank you.
Yeah, it's high teens is total e-commerce. They're growing, I think, like 40%, 50%. They're doing exceptionally well. We believe that at Amazon, they are the number one bar business, one bar brand out there. They have a fantastic team, as Joe has pointed out. We have a really strong team as well, and I think together it's going to be lots of upside. Really excited about the merger.
That's a great question. It's one of the areas we can't wait to put the two teams together and figure out what we can learn, right? I think they're a little ahead of us. Alexia, I think, probably a few years ahead of us. I think there's going to be a nice learning curve. I think we can accelerate Atkins. They're big, and they continue to grow. Real opportunity in e-commerce. This is one of the businesses that grew up in the advent of e-commerce, so it was always one of their important channels.
Great. Thank you so much. I'll pass it on.
You're welcome.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. One moment please, as we pull for more questions. Our next question comes from the line of Bill Chappell with SunTrust Robinson Humphrey. Please proceed with your question.
Hey, thanks for squeezing me in. I'd understand the total business of Quest is growing 17% over the past year. Can you break that down of how the bar business has done versus new categories that they've moved into? When they moved into some of these new categories, there's some pretty high growth rates, obviously, for chips and pizza and other things, I didn't know how long they've been in those markets.
Yeah, the great news is when you look at measured channels in the IRI and Nielsen data that you guys get, their bar business is growing at similar rates as their total business. They're in some other channels like specialty, which is when you follow people like GNC and those types of retailers, those kinds of businesses are in decline. From a shipment standpoint, the bar business is growing around 10% in a measured channel. It's growing well into the teens, if not 20%. Frankly, that was the one concern when we started looking at this business was this really just a white space distribution play, and we were pleasantly surprised that the biggest piece of the business, the core bar business, was growing very, very well, and it was almost all base velocity.
The rest of the business, as Joe pointed out earlier, there's a lot of white space and opportunities growth in the last 12 to 18 months there. The products are doing well, but the core business is growing through base velocity.
I should consider the bar business, sorry to, as kind of a 10% grower. Is that the right way to think about it?
From a shipment perspective, it's about 10%, yes.
Yeah, the one thing that's going to be a little different as we talk about this business over time is it has a large not measured channel component to it. They do a particularly good job in small format, an area that we've just started focus on in the last year or so. Looking just at Nielsen or IRI data is insufficient to understand how the business is doing. The one thing we loved about this business, which is unusual in nutritious snacking, fast-growth nutritious snacking, is the core business has been growing based on base velocity growth. There's no hockey stick in white space growth that we really need to worry about here. That just tells you their marketing is working. What they're doing with their social digital is pretty effective. It's driving purchases of their bars.
They've done a nice job in other snacking formats. They've launched in the last few years a protein cookie just recently a protein tortilla. Both of those have done, in early placement, done really well from a velocity standpoint, the playbook there is you frankly just start expanding in the white space. The only other area that I think is, as we look at it with our lens, which is a food, drug, mass lens, the only area that we see in Quest, which is, I think from a bar standpoint, pretty compelling, is they have a balance of single bars. They're in the same aisle we're in. They're in the HBA aisle, sometimes across the aisle, sometimes immediately adjacent. They're in the sports performance section. They're more single bars than they are multi-pack bars.
We see that as a significant opportunity because if you look at the purchase behavior of those consumers in those channels, they're buying more than one or two bars. There's a real trade-off. It's been a strategy that we've used at Atkins to drive velocity of purchase in our business. We think there's a real opportunity to get people into more multi-packs. We've done it. We've gone from singles to 4 and 5 packs to 8 packs. They're still predominantly a single business with a real opportunity to grow, and their management team is smart enough and astute enough to already seen it and start moving in that direction.
Thank you. That leaves my other question. Is there something inherent of why their margin, at least their total margins, and I don't know what their bar margins are 400 or 500 basis points lower than yours? Is it because they're single-serve or is it because of the ingredients, or is there something else? Is there a possibility you can get it up to your margins, or is there something inherent that it would never get that high?
No, absolutely. We believe we will, in the next few years, get their margins up to our margins. As Joe mentioned earlier, some of it is they've made a dramatic change in their supply chain in the last two years. They have not completed that work, and they're in the process of doing that, so there is some gross margin expansion there. There's obviously some gross margin and EBITDA margin expansion opportunities from the synergies that we talked about already. Then product mix, customer mix. The bars are very high-margin business similar to ours. Some of the other products, frankly, just have slightly lower margins than the bar business and some of their channel mix as well as you get into e-commerce and especially channel are slightly below kind of traditional FDMx margins as well.
That kind of is the rationale for why their margins are lower today. We have high confidence we will have similar margins in the future.
Got it. Thank you.
By the way, just as an add, their bars are actually more premium priced than Atkins bars are, so higher price points. There's no reason we can't get our margins pretty close to Atkins margin over time.
Got it. Thank you.
Thank you.
Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to management for closing remarks.
Yeah. I just want to thank all of you for joining us. As you can tell, we're really excited about the acquisition, and we look forward to seeing those of you on the buy side on September fourth at the Barclays conference. Again, thank you and good night.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.