BellRing Brands Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 3, 2022

Key Takeaways

  • Positive Sentiment: BellRing’s Q1 net sales climbed 8.5% to $306.5M with adjusted EBITDA of $59.8M and a 19.5% margin, slightly above expectations.
  • Positive Sentiment: Dymatize net sales surged 41% year-over-year, driven by 8% volume growth and strong take-off of two new Dunkin’ flavors for ISO100.
  • Negative Sentiment: Rising dairy protein and freight costs pressured margins through Q1 and Q2, prompting incremental price increases on shakes and powders to benefit the back half.
  • Neutral Sentiment: Q1 production fell slightly short due to COVID-related labor shortages at co-manufacturers, but new capacity coming online each quarter is on track to boost fill rates by Q3.
  • Positive Sentiment: Post’s planned spin-off of BellRing remains on schedule with a March 8 shareholder vote, expected to enhance strategic flexibility and liquidity for the standalone company.
AI Generated. May Contain Errors.
Earnings Conference Call
BellRing Brands Q1 2022
00:00 / 00:00

There are 16 speakers on the call.

Operator

Welcome to Bellring Brands First Quarter 2022 Earnings Conference Call and Webcast. Hosting the call today from Bellring Brands are Darcy Davenport, President and Chief Executive Officer and Paul Rhode, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 1:30 p. M. During time.

Operator

The dial in number is 800-839-8318. No passcode is required. At this time, all participants have been placed in a listen only mode. It is now my pleasure to turn the floor over to Jennifer Meyer, Investor Relations of Bellring Brands for introductions. You may begin.

Speaker 1

Good morning, and thank you for joining us today for Bellring Brands' First Quarter Fiscal 'twenty two Earnings Call. With me today are Darcy Davenport, our President and CEO and Paul Rhoad, our CFO. Darcy and Paul will begin with prepared remarks and afterwards we'll have a brief question and answer session. The press release The supplemental slide presentation that supports these remarks are posted on our website in both the Investor Relations and the SEC filings sections atbellring.com. In addition, the release and slides are available on the SEC's website.

Speaker 1

Before we continue, I would like to remind you that this call will contain forward looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements. Additional information regarding these risks and uncertainties is discussed under the forward looking statements section in the press release we issued yesterday and other press releases we have issued with respect to post proposed distribution of its interest in Bellring Brands, which are posted on our website. We also urge you to read both the registration statements, the proxy statement and prospectuses, the related amendments of these filings and other documents related to the proposed distribution, a post interest in Bellring Brands that have been and will be filed with the SEC when they become available because they will contain important information. These forward looking statements are current as of the date of this call and management undertakes no obligation to update these statements. As a reminder, this call is being recorded and an audio replay will be available on our website.

Speaker 1

And finally, this call will discuss certain non GAAP measures. For a reconciliation of these GAAP measures to the nearest GAAP measure, to see our press release issued yesterday posted on our website. With that, I will turn the call over to Darcy.

Speaker 2

Thanks, Jennifer, and thank you all for joining us. Last evening, we reported our Q1 results and posted a supplemental presentation to our website. This presentation is designed to provide more insight into our business, consumption of and key metrics and now includes both Premier Protein and Dymatize. Our Q1 came in slightly ahead of expectations with sales of $307,000,000 and adjusted EBITDA of 60,000,000 Net sales grew 9% over prior year led by Dymatize, which was up 41%. Premier Protein grew 5% with both brands benefiting from pricing actions.

Speaker 2

The single digit growth for Premier Protein was expected as we lap prior year promotions that aren't repeating. Our adjusted EBITDA margins were healthy despite significant cost headwinds. As you saw in yesterday's press We reaffirmed our fiscal 2022 guidance for both net sales and adjusted EBITDA to grow between 9% 13%. Other than a slight shift in dimatized sales from Q2 into 1st, we don't expect major deviations to the cadence we communicated last quarter. Not surprisingly, inflation ramped up across freight and dairy proteins this quarter.

Speaker 2

As a result, we announced further price increases on shakes and powders, which will mainly benefit the second half of the year. We expect Q2 sales to be similar to Q1 and to sequentially grow reflecting the incremental pricing actions and new capacity. We will experience margin pressure in Q2 until the price increases are implemented. Overall, we believe the balance of the year leans toward upside. However, we've Seeing how quickly circumstances can change in this environment.

Speaker 2

While our confidence in the year has grown, at this point, we are reaffirming our guidance. The key drivers that would add opportunity

Speaker 3

or risk to the year

Speaker 2

are our ability to deliver our expected production, elasticity relating to upcoming pricing actions and additional inflation. Now turning to our category brand highlights and updates on past expansion. We continue to see robust growth in the convenient nutrition category. Ready to drink beverages and ready to mix powders both grew 17% versus year ago. Strong consumer tailwinds around wellness and healthier food solutions are driving this growth.

Speaker 2

RTV Beverages added 2.3 points to household penetration and saw growth in purchase size and volume. Ready to mix powders continue to be fueled by an increased interest in proactive health and fitness. Our brands are growing despite supply chain challenges. Premier Protein shake consumption grew 10% across tracked and untracked channels with e commerce and math leading the way. Brand metrics remain strong demonstrating our high consumer loyalty.

Speaker 2

Household penetration and repeat rates are holding steady and velocities are up 45% versus year ago. Our TDPs have started to rebound as we have increased trade inventory levels this quarter. Despite these encouraging signs, we expect premier protein RTD shake consumption in Q2 to lag prior year because we are lapping significant promotional periods. Moving to DYMETYZE. DYMETYZE had a fantastic quarter with consumption in the U.

Speaker 2

S. Up 48% across tracked and untracked channels. All key channels contributed with double digit growth and brand velocities remain strong. Dymatize ISO 100 launched 2 exciting new flavors this quarter Dunkin', cappuccino and mocha latte. Both flavors which were co developed with Dunkin' are off to a great start.

Speaker 2

Our operating environment remains challenging. Supply chain disruptions largely around labor availability at our existing co manufacturers are impacting our ability to rebuild inventory as fast as we want. 1st quarter production came in slightly below our expectations mainly due to COVID driven labor However, we are encouraged with the improvement in January. Our capacity expansions are progressing well and remain on track. As you may remember, we have capacity coming online each quarter starting Q2.

Speaker 2

We are comfortable with our ramp up assumptions despite COVID related challenges. We also made significant progress identifying and vetting additional growth partners who are expected to bring on capacity in fiscal 2023 2024. Finally, I would like to share a brief update on Post distribution of its interest in Bellring. Overall, the transaction remains on track. We have scheduled a special meeting of Bellring stockholders on March 8 to vote on the transaction.

Speaker 2

Post will announce additional details about the spin off in coming weeks. We believe upon completion of the transaction, Bellring will have increased strategic flexibility to manage our capital structure and should benefit from more liquidity in our shares. In closing, we all have been tested over the last 2 years. I've been impressed by how our employees, manufacturing and logistics partners and customers have navigated this period. I believe we'll look back on 2022 as a pivotal year for our brands and our company.

Speaker 2

One where we solidify the foundation of the business, so we can really see what our brands are capable in the future. I continue to believe that We are in the early innings of our category and brands growth. Premier Protein and Dymatize are perfectly positioned to attract new households into the category and improve consumers' health along the way. Thank you and I look forward to updating you on our progress throughout the year. I will now turn the call over to Paul.

Speaker 4

Thanks Darcy and good morning everyone. Net sales for the quarter were $306,500,000 up 8.5%. Adjusted EBITDA was $59,800,000 a slight decline to prior year and EBITDA margin was 19.5%. Premier Protein net sales grew 4.5%, driven by higher average net selling prices reflecting reduced promotional activity and price increases. Recall, while we face capacity constraints, we have temporarily reduced Tetris Shakes SKUs in promotion and marketing.

Speaker 4

This resulted in expected volume declines for Premier Protein in the quarter. Despite this decline, shipments exceeded consumption in the quarter and resulted in increased retailer inventory. Dymatized net sales grew 41% with volumes up 8%. Net sales outpaced volume growth benefiting from higher average net selling prices, which reflected price increases and a favorable mix. Strong velocities and distribution gains drove volume growth.

Speaker 4

Gross profit of $92,000,000 was flat to last year with a decrease in gross profit margin to 30.1%. The gross margin decline results from higher dairy protein cost as well as increased freight, which was mitigated by higher net selling prices. SG and A expenses of $37,000,000 included $2,000,000 of separation costs. Prior year SG and A expenses included $4,600,000 of restructuring and facility closure costs. Both items were treated as adjustments for non GAAP measures.

Speaker 4

Excluding these items, SG and A increased $1,000,000 and was favorable fifty basis points as a percentage of sales. Our cash flow in the Q1 was unfavorably impacted by higher working capital. A decrease in payables and an increase in power inventories drove this result. We expect further working capital increases throughout the year as we rebuild our RTD shake inventory levels. During the quarter, we saw an attractive entry point and repurchased 800,000 shares of our Class A common stock at an average price of $23.34 per share.

Speaker 4

Our remaining share repurchase authorization is $42,000,000 As of December 31, net debt was $489,000,000 and net leverage was 2.1 times. During the Q1, we repaid debt of $90,000,000 using cash on hand. Turning to our outlook, we are maintaining our guidance for net sales of $1,360,000,000 to $1,410,000,000 and adjusted EBITDA of $255,000,000 to $265,000,000 As Darcy highlighted, the year is progressing slightly ahead of expectations with net sales and adjusted EBITDA growth weighted to the second half. Inflation has outpaced our initial estimates, so we expect additional caused headwinds for both shakes and powders. However, we are executing a price increase to help offset these impacts, which will benefit gross margins in the second half.

Speaker 4

During the Q2, we expect high single digit net sales growth as higher net pricing and volume growth for our powder portfolio is partially offset by volume declines on RTD shakes as we lap promotional activity. We expect adjusted EBITDA to grow significantly from prior benefiting from the pullback of promotions and marketing. 2nd quarter adjusted EBITDA is expected to decline sequentially driven by inflation ahead of pricing as well as modestly higher SG and A. Finally, as Darcy mentioned, Post's distribution of its interest in Bellring remains on track. We We expect approximately $400,000,000 of cash will be distributed to Bellring stockholders including Post.

Speaker 4

As a result, we expect net debt at Bellring will increase to an amount not to exceed 4 times adjusted EBITDA. More details will be provided over the coming weeks. In closing, we are encouraged by the solid start We're facing short term challenges and historical emphasis has never been brightened. I will now turn it over to the operator for questions.

Operator

We will take our first question today from Andrew Lazar with Barclays. Your line is open.

Speaker 5

Good morning, everybody.

Speaker 2

Good morning.

Speaker 6

Thanks for the question. I guess first off, I know that Darcy you preferred to 2021 as kind of A year where Bellring sort of had almost 2 years of growth sort of compressed into 1 year. And a lot of that had a lot to do with, of course, having the capacity, But also a lot of the incremental shelf space gains, in a lot of key sort of key customers that you benefited from. I'm curious if you could kind of maybe characterize how as we go through this year. Are there major shelf reset windows where you think there can still be incremental progress made?

Speaker 6

And obviously, how does the capacity situation play into your ability to Sort of take advantage of those Wyndham others are having sort of similar issues as you are. And then I just got a follow-up.

Speaker 2

Sure. So that right now as you know we reduced our SKUs our Petrus SKUs this year because of our capacity is constrained. For the most part, basically are spreading out our phasing on our core items, because it's one they're one of the most productive SKUs on the shelf. So we're not in the place right now that for the next year we're going to be expanding our shelf space on our TETRA SKUs. What's I think encouraging is we do have some innovation coming on outside of the 30 gram line toward the end of the year.

Speaker 2

But for the most part, this year, it's a catch up year for the 30 gram shake line. And so we're not going to be expanding shelf space considerably.

Speaker 6

Got it. And then I think when you took some of the initial price increases heading into this year, At least for planning purposes, you had assumed that competitors would not necessarily follow. So it was a kind of a prudent conservative stance heading in. I guess, are you making a similar assumption with some of the incremental pricing that you're taking? Or, and how do you think about Your elasticity assumptions for this next round of pricing, at least from how you're forecasting and modeling it internally.

Speaker 6

Thanks so much.

Speaker 2

We are. We're assuming that, we included some modest elasticity in our assumptions. So in our first round, We tended to be the 1st to move on pricing in the category and then most competitors followed fairly soon afterwards. But we have an approach to when we take pricing, we assume elasticity and then when we see what happens in the marketplace, we adjust those assumptions.

Speaker 7

Thank you.

Speaker 3

Thanks.

Operator

The next question comes from Pamela Kaufman with Morgan Stanley. Your line is open.

Speaker 3

Good morning. Good morning. Good morning, Kate. You mentioned that production in the Q1 was slightly below expectations. Can you talk about how much of your fiscal 2022 top line capacity coming online over the next few quarters?

Speaker 3

And it seems like the balance has shifted more towards pricing now given the incremental pricing you've taken in the quarter. So is that kind of the right way to think about the composition of your top line outlook for the

Speaker 2

So I'll hit the production question first. The production below expectations in Q1 was related to it was mostly in our existing co manufacturers. So the new capacity that is coming online starts in Q2. And then your question around How much is associated with existing versus new of our production this coming year is from existing coming manufacturers. I think what's encouraging, seeing an improvement in January With our existing co manufacturers, it really was related to kind of the Omicron variant and having absences.

Speaker 2

We are still seeing some absences, but what's encouraging in January is despite the fact that we are seeing absences and kind of labor shortages. We're still getting the production. So that tells me that we're being prioritized over

Operator

other customers.

Speaker 2

The growth was predominantly coming from pricing originally and that will obviously be the case with our upcoming incremental pricing that we took we announced this quarter. And then but from Dymatize, it's a mix. So it's a mix between volume and pricing. Thanks. Paul, anything else?

Speaker 4

Obviously, with the price increase that does obviously push a bit more towards pricing, but as Darcy talked about in her prepared remarks, the increases obviously gives us confidence in the year. We're waiting Kind of see how things play out with the last season, those kinds of things, but it gives us obviously a lot of confidence.

Speaker 3

Thanks. And given some of the supply challenges in Tetra Pak, have you explored other Since for packaging, I know you also sell bottled RTDs. Can you more meaningfully shift your mix to that format?

Speaker 2

So we do have bottles, but bottles are constrained too. So it's really the across the and because of the dramatic demand increase that happened last year, Both bottles and TETRA's are constrained. So it's not as easy and our TETRA business is so large that the idea of just shifting to another package size is just not feasible. I think we are moving our we're making some kind of what some co man shifts on our bottle business, which will dramatically increase our ability to satisfy the increasing demand for our bottles. So again, it's not as easy as just shifting, but I am confident in our increase that we have planned from a TETRA standpoint.

Speaker 2

It's later in the year and then into 2023. And like I said, bottles are also increasing. Thank you.

Operator

Our next question comes from Jason English with Goldman Sachs. Your line is open. Good

Speaker 7

morning. Good morning.

Speaker 8

I've got Good morning. A couple of questions. First, you all confused me on some of the comments and guidance, but it's probably my fault as I'm distracted over here and trying to juggle too many balls. But Can you go back and I think you started with Q1 to Q2, but sequentially growing, which seemed And then there was also some comments on EBITDA, which sounded upbeat, but then you commented Sequentially lower on the comeback reason they can clarify those for me please.

Speaker 2

Sure. I'll hit the net sales and I'm going to let Q2 similar to Q1, and then sequentially growing. And then Paul, do you want to talk about EBITDA?

Speaker 4

Yes. So our comments on EBITDA is sequentially down from the Q1, which is consistent with our initial expectation going into the year. Inflation on our Q1 into Q2 ahead of our pricing. And then we do We expect a modest increase in that sequentially down from

Speaker 6

Good morning.

Speaker 4

Yes, seasonality, but was there a

Speaker 8

year on year comment in there though that I missed too?

Speaker 4

There was not. Year over year, obviously, there's it's a different dynamic because in last year in the second quarter, if you're talking about the We promote heavily in the Q2 typically. That is not the case this year. So there's a benefit on pricing both from reducing the promotion spend as well as the list price increases that we took on powders in October and back on shakes back in April. So So we have the benefit of pricing, but we also have a significantly higher inflation in the Q2 versus last year.

Speaker 4

In particular, whey protein was at its low point, Which is our powder product in the Q2 of last year and it's significantly higher this year. So that's the dynamics going on with EBITDA. Yes, you're right. It was lower because of marketing spend. That's the piece the one piece I did miss to mention is that we're also We typically spend pretty heavily in marketing in the Q2, because we do TV advertising and we're not planning to do that this year.

Speaker 4

That's another element of the EBITDA increase from last year, but again, sequentially down from Q1.

Speaker 8

Understood. And bigger picture question for you Darcy. I remember around the time of separation, you talked about your aspirations To have premier reach, I think you can correct me if I'm wrong on this, but have premier reach at 10% sort of penetration level. The penetration growth I'm looking at for the brand has been phenomenal. It's actually accelerated during COVID, and you're now north of 8%.

Speaker 8

So are we approaching sort of an upward governing limit Where you think this can go? Or is there now more scope for penetration growth than perhaps you were envisioning just a few years ago?

Speaker 2

Yes, I think this brand continually surprises. I think that not only do I think that there's more upside from a category standpoint, but we are increasing household penetration faster than I would have predicted. So yes, I think that We're going to I believe that we can get up to I mean, so one of the Some of the comparisons I have used are some of the mainstream brands, like Cliff and Kind, in the nutrition bar space. And they are right above 10, 11, 12. And so I use that as a barometer.

Speaker 2

And I still use that as a barometer of where we can get to in the kind of medium term.

Speaker 7

Got it. Okay. Thank you. I'll pass it on.

Speaker 2

Thanks.

Operator

We'll go now to Ben Bienvenu with Stephens. Your line is open.

Speaker 7

Hey, guys. Good morning. Jim Celera on for Ben. Wanted to ask a little bit on the production side and inflation. How long of a lead time will there be To get fill rates and service levels back to normal, assuming the Omicron production kind of shakes out in the second quarter.

Speaker 7

So it actually is normal at the end of the second quarter. Do fill rates get back to normal levels in the Q3, Q4? Or is that still looking into next year?

Speaker 2

Yes. Our bill rates and service levels will continue to increase. We are already seeing kind of month on month Trade inventory levels improved, and again, we'll continue to see that by, I would say, Q3, they're going to look a lot better beginning of Q3, they're going to be looking a lot better.

Speaker 7

Okay. If I could add visibility into freight costs in the back half of the year, Whether it's you anticipate it to be kind of where it's been at for the first half, it's going to go up maybe a little bit of relief there?

Speaker 4

Yes. We do expect that freight will go up into the Q3. And then based on the essence we've seen, it kind of flattens out at that point. And so from a year over year perspective, we have more of a headwind in the first half than we have in the second half. So that's our current thinking.

Speaker 7

Okay. Thanks guys. I'll pass it on.

Speaker 2

Thank you.

Operator

The next question comes from Bill Chappell with Truist Securities. Your line is open.

Speaker 9

Thanks. Good morning.

Speaker 2

Good morning. Good morning.

Speaker 9

Hey, Darcy. I guess first question on Premier Protein, what do you envision elasticity looks like in that category as you raise prices? Because I mean, you have a highly High market share within the drink side of it. Are people just buying less in general? Do you if they are there's elasticity, are they switching to lower priced brands?

Speaker 9

Are they switching to some other form? Just trying to understand, I mean, it doesn't seem like there'd be a whole lot of elasticity, especially with your base, but I assume you're factoring some in one way or the other with higher prices.

Speaker 2

To date, we have seen no elasticity. We have been watching it. Basically, we increased price and volume went up. However, we are not assuming that's going to continue. So we are assuming some modest elasticity Until we see it in marketplace and kind of the facts and circumstances that we see in the marketplace based on what competitors do, etcetera, how much the retailer reflects that shelf, then we will make any adjustments to our assumptions.

Speaker 9

Okay. Thanks. And then just look kind of on that on the cost front, you're trying to understand, for lack Better terms, how much term in nature, I mean, certainly everything from labor to freight to But when you're when it's coming from the co man, how much do you think rolls off as commodities get better in 6 months or We're conversely labor is kind of here to stay at a higher rate. Any thinking about kind of profitability going forward?

Speaker 4

Yes. So I'll break it into 2 pieces. So from a commodity front, what we're seeing is whey protein And even milk proteins are at historical highs. Whey protein has been pretty tight, the supply and demand dynamic, but it doesn't look like it's likely until Fiscal 2023 or at least that's kind of the current thinking. So I do think there's some opportunity obviously as we get on the other side because we're talking about protein rates on our powder business that are 2x or plus what they were just a year ago.

Speaker 4

So that's got to come back down. So obviously that's one Milk proteins are kind of steadily going up besides our shakes. And so I think that one we'll have to keep an eye on, but it seems like both those markets should Come back down. There should be a transitory piece of that. On our co mans, our relationships, they are typically long term contracts and I don't want to get into specifics because it varies by customer, but we're a little bit insulated from that.

Speaker 4

If labor costs obviously stay high, it will obviously get absorbed at some point. Tolling, The production cost is somewhere in 15%, 20% of our overall cost, so it's really the commodities that are driving the profitability.

Operator

We'll go now to Chris Growe with Stifel.

Speaker 10

Thank you. Good morning.

Speaker 2

Good morning. Good morning.

Speaker 6

Hi.

Speaker 10

I just had a quick question for you and sorry if I missed this, but Have you said just to get an order of magnitude on the size of the price increases you have in place, the new ones for shakes and for powders?

Speaker 4

Go ahead, Darcy. Go ahead. Sorry.

Speaker 2

You can tell we're not so the second round The pricing is slightly higher than the ones we took before. We didn't just at order of magnitude and premier protein double digits on Dymatize and this round is slightly higher than that.

Speaker 11

Okay. And that's mostly going

Speaker 10

to kick start in the second quarter, is that right?

Speaker 7

Correct.

Speaker 10

Okay. And then I just was curious, you have a chart in your, the slide deck around showing TDPs and How they've started to increase. So I just want to get a sense of it sounds like your the supply of product was a little below what you thought, Doesn't mean it didn't grow. Obviously, it did grow. It was more available.

Speaker 10

Does that line keep going up? Do you keep continue to see an increase in TDPs as you get more and more Supply availability, I guess, is that what's going to determine that rebuild there?

Speaker 2

Yes. I mean, generally, I think there will be So you'll see a slight increase as our fill rates and service level, we do expect TDP down versus year ago because of the

Speaker 10

Yes. Okay. And I guess just to be clear on that then as I'm thinking like for the Q2, if you're promoting less That presumably would negatively affect TDPs. Again, not that it can't grow, but it would certainly have a year over year effect on TDPs. Is that right?

Speaker 2

I mean the promotion won't have anything to do with the TDPs, if I'm understanding your question, but just the number of SKUs on the shelf. So We will see so I mean that is really what's affecting the TDPs.

Speaker 10

Okay. I got it. Thank you.

Speaker 7

Thanks.

Operator

We'll go now to Rob Dickerson with Jefferies. Your line is open.

Speaker 12

Great, thanks. I just have a quick question on the inventory side. Darcy, you're saying it sounds like Basically, maybe all production this year, it's coming from existing suppliers. It sounds like maybe some of them are getting a little bit better As you kind of get through Q2, consumption still obviously up decently, Volumes are down, sorry, when that's the gap. So I'm just curious, like kind of in terms of the inventory situation you have with retailers, Yes, when we compare that with the reduction in SKUs, it's like you feel like you're in a pretty good place as you look Forward through the year, right?

Speaker 12

Like you've reduced the SKUs, maybe the but as you right sized the SKUs relative to your capacity, like there shouldn't be Kind of further decline, right, just given, lower capacity relative to consumption demand, like if that catches up, if

Speaker 2

So Rob, are you asking about I mean, I would say our strategy is sound, meaning that we do not expect any change to the number of SKUs that we're going to have and we believe that the Fill rate and service levels will continuously increase throughout the year. We will also who will gradually increase our safety stock throughout the year. Is that what you're asking?

Speaker 12

Yes. I just want to make sure that if you reduce the SKUs, right, if you've looked and you've forecasted yourself That the amount of capacity you have should be able to continue to fill those SKUs that you plan to have on shelf this year.

Speaker 2

Yes, absolutely. That's correct. The one thing I will just note is that when you're looking at consumption, at the Investor Relations website. We have some high highs and then we've increases when we have promotions. And so when you're looking at consumption, you just have to factor in that you're going to see some negatives and promotions.

Speaker 2

And that is expected. And so I think that it's just It's good to have that in the back of your mind when you're looking at the kind of track channel consumption on a week to week basis.

Speaker 12

I guess back to Jason's question quickly, there was a lot in Actually, what have you. I mean, is like if we're thinking about dollars. Would you say that maybe sequentially from Q1 to Q2 that maybe EBITDA would be like a similar absolute dollar number. I mean, I know You're not specifically guiding to that number, but obviously with just kind of where the full year EBITDA guide is, right, back half improvement.

Speaker 4

Just to be clear, we expect EBITDA to decline sequentially from Q1 to Q2 because we're lapping due to expected to decline and that is again because of higher And so that day is the primary piece. But no, we expect it to be down. Keep in mind that we've said that we expect that sales and EBITDA growth will be weighted to the second half of the fiscal year, But we do expect it to be squintly down.

Speaker 12

Right. So I mean kind of net net here where you came in Q1 and Q2 despite all the moving pieces and volatility. I mean, it seems like the business is still tracking kind of as you expected coming out of Q4.

Speaker 2

Yes. I mean The

Speaker 4

first half is tracking yes, The first half is tracking like we expected with the slight shift of dimatized sales into Q1 from Q2. But yes, the first half is tracking as we expect.

Speaker 2

I mean Rob, I would just say big picture. This year is going much like we expected, slight movement sales from Q2 to Q1, and that is just it's really nothing, it's just a little sales phasing. And then we saw inflation kick up higher than we expected, although The we saw that coming on the last call and therefore we took price and that affects the back half. I mean, but all other than the cadence is largely what we expected.

Speaker 12

Perfect. Thank you.

Speaker 7

Thanks.

Operator

We'll go now to Ken Zaslow with Bank of Montreal. Your line Your line is open.

Speaker 13

Hey, good morning guys.

Speaker 2

Good morning. Two

Speaker 13

questions. One is, can you walk us through the capacity Bill over the next 18 to 24 months of how it works, exactly how much incremental So capacity is coming online through the next on a quarter by quarter basis?

Speaker 2

Yes. So basically we are for through 2023. I mean, and so we see increased and that mostly comes from the existing co mans are pretty stable. So the increases come from new co mans. They start slotting in, in Q2 of this year.

Speaker 2

There is not a huge benefit this year in 2022. So small still call it 90% of our production is coming from existing for 2022, but then Those new co mans start increasing and become contributors, real contributors in 2023. Then we also bring on additional co mans in 2023. So we basically add 3 new ones in 2022 and we add 2 more in 2023. And the big ones which are sorry Michael Foods would come on in later 2023.

Speaker 2

They start up later in the year and so become kind of smaller contributors in 2023, but bigger contributors in 20 24.

Speaker 13

Would you say that 2023 additional capacity is 5%, 10%, 15% and then when you get to 24%, How would you kind of do that?

Speaker 2

Hold on. I'm calculating.

Speaker 13

Take your time.

Speaker 2

So call it less in 2022, new capacity is less than 10%. It becomes, yes, 20% to 25% of 23%. And then it ramps up from there. And remember, we can because some of the new capacity in 2023, they're actually new greenfield facilities. That timeline is basically 24 months.

Speaker 2

We are still talking to partners for kind of late 2023 2024.

Speaker 13

Okay. My second question is, if you believe you answered an earlier question that you think household penetration kind of You look to certain brands and you need 10%, the 100 basis points, 5% more capacity coming online. You obviously don't really believe that 10% is your high watermark, right? I mean that doesn't I I mean, you obviously believe that you're building capacity because there's demand and that demand is going to take you above that 10% household penetration, I'm assuming. So Again, why would you even know that there is a limit to the demand of what it is?

Speaker 13

Why limit yourself to a household penetration? It seems like you've hit a tipping point. And I'm not trying to be Well, it just seems odd to come up with some arbitrary 10%. Just I don't know. It's just a thought and I'll leave it there.

Speaker 2

I completely agree. And I don't and by the way, I don't see it as a limit. I think it is a step along the way. And I truly believe that this brand has I think the category in general is just I mean I said early innings, but it has so much more upside. And I've used this analogy before, but even within our category, nutrition bars have mainstreamed much are only at 25.

Speaker 2

Powders are even lower. So there's no reason why Shakes can't get close to nutrition bars. And so I think that the upside is immense and I think advantage of that because it's a mainstream approachable brand that shows that it appeals to and have every needs state and or within the category. So I do not believe that 10% is the limit at all. I think it's a step along the way.

Speaker 13

Appreciate it.

Speaker 2

Thank you.

Operator

We'll go now to Kaumil Gajrawala with Credit Suisse. Your line is open.

Speaker 7

Hey, everybody. Good morning. First one, a very quick one when

Speaker 14

you talk about fiscal or calendar?

Speaker 7

Fiscal. And then one of the things that we didn't talk about as it relates to capacity is, if there were any key Ingredients for inputs or materials packaging they have. I I think you mentioned those little foil wrappers, things like that. Is that all resolved now? Or is it still some There is a things to watch out for.

Speaker 4

Yes, there's nothing that's problematic at the moment. We Extended lead times early on to try to prevent those things from happening. Yes, we haven't seen any impacts.

Speaker 7

Okay, great. That's all. Thank you. Thank you.

Operator

Our next question comes from John Baumgartner with Mizuho. Your line is open.

Speaker 7

Good morning. Thanks for the question.

Speaker 2

Hi, John.

Speaker 15

Maybe first off, Darcy, congrats on diamond size. I'd like to ask about powders Against the broader evolution of the category, maybe moving beyond COVID volatility into the new normal with work from home and such. And how you think about the role for powder within the category? Have you seen the core consumer for powder change at all pre versus post COVID? How do you see powders and RTD coexisting as powders grow from here?

Speaker 15

And then for Bellring, how can you best, I guess, make powder products complementary to the RTD business.

Speaker 2

Yes, it's a great question. So I'm going to pick up where I was talking about potential of RTDs versus nutrition bars. Powders have even lower household penetration than RTDs. So I think that is and where Premier helped mainstream or has started to help mainstream RTVs. I also believe that powders are at kind of earlier stage of that mainstream trajectory.

Speaker 2

So They're different than all of the different forms are have kind of unique occasions. So if you think RTDs are more meal replacement, although can be used kind of in between meals, but more meal replacement. Well, powders are mostly used, with food, with smoothies, after workouts, where they're consumed, RTDs and nutrition bars mostly on the go, powders at home. So they're very complementary. And so I we have been very successful on Premier Protein with powders, obviously, Dymatizes our number one powder brand.

Speaker 2

Both of them go after unique and complementary consumers. And then of course, as I was saying before, they have kind of unique and complementary occasions as well.

Speaker 15

Okay, great. And I guess from a supply chain perspective, There's a lot of focus now understandably on the month to month and quarter to quarter. But aside from just, I guess, simply increasing, are there opportunities underway here with The changes in supplier base now I guess through F2023, F2024 that sort of place you in a better position Either format wise or profit wise to come out of this recalibration with new channels for growth, whether it's out of home, C stores, instant consumption. Is there opportunity to sort of affect the change in the composition of your capabilities and channels for the longer term sort of coming out of this year?

Speaker 2

Absolutely. So I think that I said this in my prepared remarks just about how I think we're going to look back at 2021 as A really pivotal year, because I think that what we're going to look back on is really kind of laying the foundation, laying the table for kind of outsized growth in the future, building up where we currently from a production standpoint for instance, we have 5 locations now. Our bottle capacity dramatically, which will allow us to Go, we can really sell bottles or Tetra down the street, etcetera. But we 2 different places and then expanding our distribution from there. So yes, I believe this year is more about capability building,

Speaker 1

so then

Speaker 2

we could take advantage of that in the future. Great.

Speaker 15

Thanks for your time. Appreciate it.

Speaker 2

Thank you.

Operator

We'll go now to Bryan Spillane with Bank of America. Your line is open.

Speaker 5

Hi. Thanks, operator. Good morning. I just had one question and it's, if we look at fiscal if we look at the current fiscal year and just the amount of consumer facing spend that you're anticipating this year, I guess, so both promotions and advertising and marketing. What is that relative to normal?

Speaker 5

And I guess what I'm trying to get at is we move past The supply constraints, how much more marketing would we have to add back as we go forward?

Speaker 4

Yes. So on the marketing side, I think in 2021, we spent around what we call advertising promotion. This year, we're pulling back on that around 2%. Going forward, obviously, we want to Invest in that, but we also think that will drive top line growth as well as we've seen from our recent past that it's very It would drive obviously top line. But yes, we would expect over the longer term, to at least spend back at the 3% level and perhaps look to increase that over time as our supply comes on.

Speaker 5

Is the order of magnitude, if I remember this directly at the time of the separation, right, you had been through a supply chain or supply constraints prior to the separation. And then And that next fiscal year, the margin step back because there was more marketing spend that went in. So just like Order of magnitude, will it look like that?

Speaker 4

No. So the situation was a little bit different back then. So we did see a fiscal year, I think it was fiscal 2020 that had a stepped up margin. The quarter down, so we benefited from a price increase as well as from favorable protein costs. But no, No.

Speaker 4

I don't think our margin structure should be impacted, obviously, and we'll have to make sure we're rightsizing At these historical high prices, it gets harder to get back to the gross margins that we've experienced in the past. But I do think over the long term, Things will even out and we should see gross margins back where they've been historically coming at 33%, 34% range, which allows us to spend marketing at the 100

Speaker 5

All right. Thank

Speaker 7

you.

Operator

We have a question and answer session.

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