BellRing Brands Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 13 speakers on the call.

Operator

Good day, and welcome to the Bellring Brands Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. You will then hear an automated message advising that your hand has been raised. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the call over to Jennifer Meyer, Investor Relations for Bellring.

Speaker 1

Good morning. Thank you for joining us today for Bellring Brands' 2nd Quarter Fiscal 2023 Earnings Call. With me today are Darcy Davenport, Our President and CEO and Paul Rhode, our CFO. Darcy and Paul will begin with prepared remarks and afterwards, we'll have a brief question and answer session. The press release and supplemental slide presentation that support these remarks are posted on our website in both the Investor Relations and the SEC filings section atbellring.com.

Speaker 1

In addition, the release and slides are available on the SEC's website. 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. 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. And finally, this call will discuss certain non GAAP measures.

Speaker 1

For a reconciliation of these non GAAP measures to the nearest GAAP measure, See our press release issued yesterday and 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 Q2 results and posted a supplemental presentation to our website. I'm pleased to share that our first half performance was strong with Q2 results above our expectations. The business is steadily accelerating and gaining momentum as we bring on new capacity and begin to drive demand. Net sales grew 22% over prior year and EBITDA and adjusted EBITDA was up 34%.

Speaker 2

We continue to see higher shake production, leading to higher in stocks, which is driving higher consumption at the shelf. You saw last night we raised our outlook for the year. We now expect net sales to grow between 17% and 21% over fiscal 2022 With adjusted EBITDA to grow 18% to 23%. Our better than expected first half performance along with strong consumption trends and continued Category momentum drove our decision to raise the top and bottom line. In addition, the updated guidance factors in lower than expected input costs in Q4.

Speaker 2

Let's start with shake production. We saw double digit production growth this quarter as we finished lapping the worst of our supply constraints. Our capacity expansion plans are on track with annual production expected to grow low double digits in fiscal 2023. Our bottle co manufacturer is performing above our expectations and our newest TETRA co man had a smooth start up in Q2. As a reminder, our 2 greenfield facilities were scheduled to come online in Q4.

Speaker 2

One of these co mans is slightly ahead of schedule. However, we are not expecting meaningful contribution from either of these new co mans until fiscal 2024. Our incremental capacity in 24 is expected to be north of 20%, setting us up for many years of robust shake growth. Now to our category and brand updates. The convenient nutrition category remains strong at 16% in Q2, Accelerating 2 points compared to prior quarter.

Speaker 2

Ready to drink was up 21% and ready to mix grew 24%. Both segments are growing despite price increases and continued capacity constraints across the RTD competitive set. Everyday and Sports Nutrition segments are driving category growth as more consumers seek functional food and beverages and pursue their fitness goals. New powder products, in particular, are boosting sports nutrition growth. Premier Protein shake consumption strength accelerated this quarter, up 22%.

Speaker 2

Growth was robust across all key channels With the highest growth in food and mass as those channels were the most impacted by our capacity constraints last year. The e commerce channel returned to growth this quarter as our bottle supply is now sufficient to meet demand. In April, overall shake consumption continued to grow, up 31%, demonstrating continued strength. Our brand metrics made great strides this quarter and reflect the strong momentum we are feeling in the business. Premier Protein market share ended the quarter at 19%, up 130 basis points versus year ago.

Speaker 2

And I'm proud to share that across track channels, the brand became not only the number one brand in the RTD segment, but also the number one brand in the convenient nutrition category. This is especially exciting given we still had I'm pleased with the progress Premier Protein made in household penetration this quarter, with the brand increasing 3% versus Q1 reaching 14.2 percent of households, the highest in the category. We expect to steadily grow households as we increase items on the shelf and restart marketing and promotion activities. Our repeat and buy rates are holding steady, demonstrating our consumer loyalty. Premier Protein Powders more than doubled this quarter with Consumption up an astounding 123 percent beyond our first ever national marketing campaign.

Speaker 2

It exceeded our expectations driving record breaking sales We continue to be excited about the growth potential for Premier Protein in this incremental form. Turning to Dymatize, the brand had a great quarter with consumption dollars up 38% across tracked and untracked channels. We saw double digit growth in nearly all channels driven by distribution gains, pricing and promotion. The brand's Strength continued into April with consumption at 32%. The one exception was Club where we went from 2 full time items in 2022 to one full time less expensive item this year.

Speaker 2

Consumption on the new SKU is performing well. Our strategy around expanding diamatized to mainstream channels is working. Market share and TDPs reached all time highs this quarter and household penetration continues to grow. We ended the quarter with 5.5 percent market share in tracked channels. Encouragingly, as Dymatize adds new households and distributions, Repeat and BI rates are holding steady.

Speaker 2

In closing, I'm encouraged by our first half progress. In almost every part of our business, Whether it is brand, format or channel, we are gaining momentum. Our category continues to show remarkable growth on strong macro trends tailwinds. Premier Protein reached the number one share of both tracked RTD and the entire convenient nutrition category for the first time. Premier's household penetration is back to growth.

Speaker 2

We are expanding shake capacity and are now only months away from a step change in our shake production run rate. We are reintroducing our full range of Premier Protein shake flavors and restarting marketing promotion. Premier Protein Powder and Dymatize Consumption are rapidly climbing, bringing mainstream consumers into the category. We have a deep innovation pipeline that will help fuel our future growth. Lastly, and I would argue, most importantly, our culture is thriving.

Speaker 2

For the 7th year in a row, we earned The Great Place to Work certification, our U. S. Employees voted and received and we received our highest average score ever, with 93% of our U. S. Organization said that it was a great place to work.

Speaker 2

We remain confident in our long term outlook And look forward to providing further updates next quarter. Thank you for your continued support. I will now turn the call over to Paul.

Speaker 3

Thanks, Darcy, and good morning, everyone. As Darcy highlighted, our 2nd quarter and first half performance was strong. Net sales for the quarter were $386,000,000 and adjusted EBITDA was $68,000,000 Net sales grew 22% over prior year and adjusted EBITDA increased 34% with adjusted EBITDA margin of 17.6%. Starting with brand performance, Premier Protein net sales grew 26%. Higher average net selling prices contributed 20% to overall growth.

Speaker 3

Volumes grew 6%, reflecting increased shake production compared to year ago and strong growth for Premier Powders. Shake net sales growth of 22% was in line with consumption growth in the quarter. Diamatized net sales grew 11% compared to a year ago, Benefiting from higher net pricing, organic growth and increased brand investments offset slightly by 1% lower volumes. As expected, volumes were negatively impacted by the lapping of our strategic discontinuation of certain dimatized products. In addition, club volumes declined as we lapped distribution changes and the impact of load in timing this year.

Speaker 3

The combination of these items was an approximate 23% headwind to the net sales growth rate in the quarter. Excluding these items, net sales growth tracks closer to consumption growth. Gross profit of $117,000,000 grew 35% with gross margins of 30.4%, up 280 basis points. Our pricing actions continue to offset significant inflation. The increase in gross margin was largely driven by lapping prior year supply chain inefficiencies and favorable freight rates.

Speaker 3

Excluding one time separation costs, SG and A expenses as a percentage of net sales increased 180 basis points. Our marketing spend accounted for the majority of this increase as we invested behind Premier Protein Powders and Dymatize. Before reviewing our outlook, I would like to A few comments on cash flow and liquidity. We generated $20,000,000 in cash flow from operations in the first half of the year. Net working capital increased in Q2, primarily driven by higher raw material inventory.

Speaker 3

We expect to generate much stronger cash flow in the second half as our working capital increase largely reverses, driven primarily by lower raw material and optimized diamondized inventory levels. We are already seeing some of the working capital time reverse in the month of April as we generated Approximately $23,000,000 of cash excluding financing activities. As of March 31, net debt was $954,000,000 and net leverage was 3 times. With our expected EBITDA growth and strong cash flow generation, we continue to anticipate net leverage to be lower than 2.5 times by the end of fiscal 2023. With respect to our share repurchases this quarter, we bought 900,000 shares at an average price of $29.74 per share.

Speaker 3

Last week, the Board approved a new $80,000,000 share repurchase authorization. Turning to our outlook. We raised our fiscal 'twenty three guidance for net sales to be $1,610,000,000 to $1,660,000,000 and adjusted EBITDA of $320,000,000 to 3 35,000,000 The updated guidance reflects our better than expected first half results, strong consumption trends and category growth momentum. Our outlook for EBITDA is tracking modestly higher, factoring in higher net sales as well as lower than expected input cost in Q4. For Q3 net sales, we expect mid- to high teens percentage growth compared to prior year with both Premier Protein and Dymatize growing double digits.

Speaker 3

Approximately 2 thirds of the overall growth is expected to come from pricing and the remainder from volume. We expect Q3 gross profit margins to modestly step up versus Q2 with further margin expansion in Q4. Likewise, we expect adjusted EBITDA margins to step up each quarter. Q3 adjusted EBITDA dollars are expected to be flat to prior year as sales growth is offset by higher advertising and other G and A expenses. Before wrapping up, I want to review our capital expenditures guidance.

Speaker 3

We now expect to spend approximately $6,000,000 this year as we invest in systems and process improvements to support our long term growth. In closing, we are pleased with our first half momentum. Our strong first half results gives us greater confidence in our full year outlook and long term growth prospects. I will now turn it over to the operator for questions.

Operator

Thank Our first question comes from the line of Jason English with Goldman Sachs.

Speaker 4

Hey folks. Thanks for spotting me in. I appreciate it. Can you give a little more context around the pace and magnitude of the reengagement you're talking about in terms of marketing and merchandising activity going forward? And on a related topic, because they all kind of tell us to margins, we're looking at the high protein whey cost and They've fallen precipitously in the recent months, and I think we're now tracking with substantial down like 36% year on year levels.

Operator

When would

Speaker 5

you expect that

Speaker 4

to flow through begin to flow through? And how much of that upside would you expect to reinvest back in the belly of the

Speaker 2

Well, I was just going to hit the marketing question. You can answer, the second one. Just from Jason, just from our demand driving activities, We you didn't ask about the new flavors, but we started shipping the new flavors at the end of this quarter, Didn't really hit consumption until April. From a marketing standpoint, we did have marketing, first of all, diamatize We'll be pretty steady Q2 to Q4. We had some marketing on Basically, the on Premier Protein Powders and then we'll start on The rest of the shake support in Q3 and Q4 and it's still pretty light through Q3 and Q4 as we We're basically just starting to communicate to our consumers again as we anticipate more demand driving in 2024.

Speaker 2

And then I'll hand it to Paul from a dollar standpoint and then your second question.

Speaker 3

Yes. So as far as marketing investments, so in Q2, we spent just over 3% of net sales. We expect the second half to be similar. So we are definitely investing behind the marketing, but it's consistent levels that we saw in Q2, as we look at next year, we'll revisit if that is increased. But from a fiscal 2023 perspective, we expect Spent around 3% or so of net sales on marketing.

Speaker 3

As far as protein, so we did as you saw, we brought our guidance up on EBITDA and called out in our prepared remarks that we do expect gross margins to improve in Q4 or to grow in Q4 sequentially from And that's largely because we are starting to see some benefits from protein costs, primarily on our powder business, not so much on shakes yet. That's We think that's more in fiscal 2024, but we do expect to start to see and then to your point in fiscal 2024, we expect to see more meaningful Protein reductions. However, we do have some other offsets. We do have inflation in some other areas of our supply chain. In Packagings, we've seen that step up and that starts to step up on our second half.

Speaker 3

But those are that's from a protein perspective, we do start to see some of it in Q4, but really it's more Fiscal 'twenty four unchanged.

Speaker 4

Okay. That's helpful. And as those lower costs flow through, is there a risk that pricing will flip negative as you reengage on promotions, merchandising and retail?

Speaker 3

Sarah, do you want the retail question?

Speaker 2

Yes. I think that We expect and it's pretty common in especially the powder side of the business that as commodities go up and down That you basically offset it with promotions. So when it goes down, you lean into promotion a little bit more. And so that's how you really manage the pricing of the commodities.

Speaker 3

And Jason, on shakes, as we look at 2024, We expect it to be more of a normal promotional calendar versus a very light promotional calendar in 2023. So we do expect some modest headwinds from pricing there, but As protein costs come down.

Speaker 4

Yes, got it. Makes sense. Thank you.

Speaker 6

Thank you.

Speaker 1

Thanks, Jason.

Operator

Thank you. One moment for our next question please. And our next question comes from the line of Bryan Spillane with Bank of America.

Speaker 7

Thanks, operator. Good morning, everyone. I just had one just wanted to cover one area, which is, If we look at the performance for shakes in the quarter by channel, right, and the track channels outperforming on tracked, I'm assuming part of that is because club was getting more priority when you were capacity constrained. So A, is that true? And then B, as we kind of look out over the next couple of quarters, would we expect to have this sort of same relative Channel performance, meaning that the tracked outperforming the untracked channels?

Speaker 2

So you're right in that food and mass definitely got hit the hardest with our capacity constraints Last year, so we are lapping that now and that is why you're seeing tracked channels outperform untracked. We should and you're right, we should expect to continue to see that. I guess the other dynamic, Brian, is We're under distributed In food and mass, so we have a lot more upside from a distribution standpoint in food and mass. So I think as we start Shipping our flavors to Fudamax, the pause flavors as well as continue to launch new ones. There's more distribution upside.

Speaker 7

Okay. And then if

Speaker 3

If I could add one thing. The one thing I would add is that FDM is a more complicated channel and that has a lot more flavors and pack sizes, where club is it's a limited skewing environment. So you mentioned prioritization, But it is more complicated, which is why, it took us a little bit longer to get some of those flavors and pack sizes Fully back to Bright because it's just a little more it's a lot more excuse to manage.

Speaker 7

Okay. And then just one follow-up to that. Should we expect as you exit fiscal 2024 that you'll have kind of the assortment Where you want it, right? Now that you've got more capacity available, you'll have the flavors that you want, the pack types. Just at what point in the future do we expect that You're going to be playing with basically at full strength, right, in terms of assortment?

Speaker 2

Yes. By the end of I would say by the end of calendar 2024, we will have gone through a full cycle of resets And we will have our full existing portfolio on the shelf and then it will be about new items, Innovation, etcetera.

Speaker 8

Okay. Thank you.

Operator

Thank you. One moment for our next question please. And our next question comes from the line of Ken Goldman with JPMorgan.

Speaker 5

Hi, thank you. How do we think about your ability to maximize capacity in the new plants into next year. And I realize you're not prepared to give any formal guidance into next year. And of course, there'll be some kind of production ramp up period. But it feels to me looking at The Street's numbers, The Street is looking at under 12% sales growth for you next year, but you're going to have so many tailwinds from That supply chain expansion and what it allows you to do in terms of marketing and the reintroduction of products and so forth.

Speaker 5

So it feels like it would We kind of a uniquely strong growth year and the Street is not really modeling that. Again, I'm probably putting you on the spot in a way you can't answer right now, but I'm just trying to get a

Speaker 2

Ken, you are putting me on the spot. Just kidding.

Speaker 6

I know. Hi, Matt.

Speaker 2

So we have communicated that we expect production to be above 20%. However, remember that some of that production doesn't go you can't say that sales is going to be up 20% because Some of that is going to go into rebuilding our internal inventory. I think it's fair to say that we would expect Net sales to be high end of our algo, and are in that 10% to 12%. So I think the Street is pretty close. But you're right.

Speaker 2

I think that we do we definitely have some momentum in the business. We are experiencing week to week, Record weeks without promotion, without marketing and without our full portfolio. So, I think that we're excited to see The continued momentum as we bring on new capacity.

Speaker 5

Thank you. And then my follow-up is, You talked about how in powders, you won't take you'll have to promote back to sort of offset Any kind of cost deflation, but not every producer can promote at the same time. There's limited shelf space for that. Is it reasonable to think that you're not going to just to follow-up on a previous question, you're not necessarily going to take your price, your net price down all the way all the time, Just kind of head in that direction. I just wanted to get a sense of how people are or how you were thinking about that from a net perspective versus inflation or deflation?

Speaker 2

Our general plan, I mean, Dymatize and now Premier Powder is a low household penetration Brand and so we really want to invest in yes, we talked about promotion, but we want to invest in brand building. We think there's a ton of opportunity to get new consumers to try these products and continue that kind of mainstreaming and that's going to be done mainly through brand marketing. So we think there's a big opportunity as commodities come down to invest in the brands And see it in top line and continue to bring new households into the category.

Speaker 6

Thank you.

Operator

Thank you. One moment for our next question please. Our next question comes from the line of Matt Smith with Stifel.

Speaker 9

Hi, good morning.

Speaker 2

Good morning.

Speaker 9

We've heard this morning about your restarting of promotional and marketing activity Later this year, and I'm curious if inventory levels for retailers need to build in your Q4 ahead of planned events In the beginning of year 2024, should we expect shipments to outpace consumption in the back half as retailers Build back the additional flavors and perhaps build inventory ahead of distribution games and promotional events?

Speaker 3

Yes, I'll take that one. So from a shipments versus consumption, we do expect shipments to slightly outpace consumption, but not dramatically. And you mentioned the flavor relaunches. Those come in, it's not a big bang, it's more as retailers reset shelves and so those go in over time. So it's not one big bang.

Speaker 3

From From a promotional perspective, we do have some light promotion on shakes in the Q4, but we really expect them to load in really in the same quarter and then We don't be consumed in the same quarter. So net net, slight shipments above consumption in the second half as we do reload flavors, but it should be dramatically higher.

Speaker 9

Okay. And then just quickly as a follow-up, club events have been a significant volume driver in the past. Do you have visibility and Confidence into your capacity that you have the ability to restart promotional events in the club channel beginning in your fiscal 2024?

Speaker 2

Yes. We factored in the volume that we expect to sell through with Club events and overall events promotional events within food and mass, and that's all within our forecast That we are adding capacity for.

Speaker 9

Thank you for that. I'll pass it on.

Speaker 6

Thanks.

Operator

Thank you. One moment please for our next question. And our next question comes from the line of Andrew Lazar with Barclays.

Speaker 5

Great. Thanks a lot. Good morning, everybody.

Speaker 2

Good morning, Andrew.

Speaker 5

I think the newer greenfield or dedicated Copac facilities are being built on sort of larger footprints that I think allow for incremental lines to be added much more quickly than what was possible with some of The previous maybe more space constrained co pack facilities. So I guess I'm curious, how many lines are being put into the new facilities? And I guess really what I'm getting at is, has that changed maybe recently, I. E. Increased or optioned from more lines than you initially expected, Just given the, obviously the momentum and consumption trends in the business.

Speaker 2

Yes. So currently In the 2 new facilities, you're exactly right. So the footprint, they're only so I'll use The Post facility first. There's room for 10 lines. They're starting with 4.

Speaker 2

That has always that has been the Case since the beginning, I mean they haven't produced a shake yet. So, starting with 4. And then the timeline is about, So think of for a to have to build a new facility To find the land, etcetera, that timeline is around somewhere between 2 3 years. But now that we have our partners That have more space to grow, the timeline is about somewhere about 18 to 20 months with If you need to get like the full processor and fillers, so we're already really talking about Adding in we're talking 25% and 26% volume now with our partners. The second facility is similar.

Speaker 2

So they added 4 lines. That was the same as what we planned in the future, but we're already talking about

Speaker 5

Thanks for that. And then, with household penetration continuing to increase, I think you mentioned that the Repeat rate has remained pretty steady. I guess, would we normally expect, not necessarily in Convenience Nutrition specifically, but We normally expect repeat rates to start to drop as you bring on more households that maybe are more casual users or less loyal users. And if that's right, We haven't as we have not seen that for Premier, if I have that right.

Speaker 2

Yes, absolutely. So As you expand both distribution and household pen, it is very common to see Repeat and buy rates fall. And that's because you're yes, you have your loyal base that are usually the higher Consuming consumers. And then when you add, they kind of dip their toe in. So and yes, really encouraging on actually both of our brands, Premier Protein and Dymatize that as we're adding distribution and household penetration that we're holding very steady from a buy rate And a repeat rate, and it just shows how loyal our consumers are.

Speaker 5

Thank you.

Speaker 2

Thanks.

Operator

Thank you. One moment please for our next question. And our next question comes from the line of Pamela Kaufman with Morgan Stanley.

Speaker 10

Hi, good morning.

Speaker 8

Good morning.

Speaker 10

Good morning. Can you talk about the improvement in your performance in the e commerce Channel and your strategy there for Premier, I think your comparisons for e commerce get easier over the coming quarters. So should we expect to see accelerating growth there?

Speaker 2

Yes. E commerce consumption absolutely improved This quarter, if you remember, we had a slower ramp up for our bottles co manufacturer, which is The format that we sell into e commerce, and we now we are past that. Our bottle co manufacturer is consistently producing. We have inventory. Last quarter, we had issues with our retailer, our Major ecom retailer having enough inventory to really drive demand, they are we are now seeing that that is getting better and we're Seeing that in consumption, so you saw an improvement this quarter in ecom consumption.

Speaker 2

And yes, we should continue to see Improvement kind of quarter after quarter.

Speaker 10

Great. Thanks. And then you mentioned that you expect Lower input costs now in Q4. So can you just comment on what your outlook is for gross margins for the back half of the year?

Speaker 3

Sure. Yes. So from a gross margin perspective, we would expect the second half to be at or slightly below the first half, Keeping in mind that in Q4, we do have some live promotion that obviously has offset. And we are seeing some other inflationary costs, like I mentioned, in And then packaging and some of our other supply chain, but Q3 should be up modestly from Q2 and then Q4 should be up again from Q3, but second half Largely in line with the first half, maybe down slightly.

Speaker 10

Thank you.

Operator

Thank you. One moment please for our next question. Your next question comes from the line of Robert Dickerson With Jefferies.

Speaker 11

Great. Thanks so much. Darcy, just kind of general question, so I have, Longer term outlook, I think the target for gross margin, 32%, 34% and then EBIT's 18% to 20%, at least in the first half now and then kind of what's guided on EBITDA for the year, you're kind of there, Right. And I realize there could be some incremental spending on promotions, maybe ramp Good day. But at the same time, you have like a nice production capacity tailwind.

Speaker 11

So just kind of trying to get a general perspective, How you're thinking about the current business performance on the margin side relative to those longer term targets given you're kind of doing pretty well as is and you've still been somewhat capacity constrained.

Speaker 3

Archie, you want me to start or you do?

Speaker 2

Yes. Why don't you start with margins?

Speaker 3

Yes. So you're correct that really last year we were at the high end of our EBITDA margin algorithm and we're kind of in that same spot in 2023. Now keep in mind though, the last 2 years, We have been we've intentionally pulled back on marketing and promotion. So obviously, as we go into 'twenty four, those will ramp back up at higher levels Then we've seen over the last couple of years, but we've also weathered obviously protein cost at historical highs. So as we get into next year, Really, our thinking is that we're going to we want to keep investing in the top line and so that should be in more promotion and likely more marketing Perhaps gross margins ramping up a bit from this year, but net net getting back to an EBITDA margin that's still I think we're likely in the high side of the high Half of the algorithm, so 19% plus, but that's still where we're targeting at the moment.

Speaker 3

But there is opportunity, as you mentioned, that perhaps we can Sustained towards the higher side of that.

Speaker 11

All right. Thank you. That's it.

Speaker 6

Thank you. Thank

Operator

you. One moment for our next question. Our next question comes from the line of Matt McGinley with Needham and Company.

Speaker 8

Thank you. I have a

Speaker 6

quick follow-up on the EBITDA guide. Your guidance implies that the margins in the back half will be down, I think, 150 bps to 200 bps year over year. You noted, I think, twice that the gross margins will be Sequentially in the 3rd and the 4th. But overall, do you expect that year over year pressure to be mostly realized in gross margin or in G and A in the back half?

Speaker 3

And it's more in G and A. We as we ramp up our A and P spend, compared to last year, that's the primary driver versus last year in the second half.

Speaker 6

That makes sense. And the second question is on with the decline in working capital investment around inventory that you noted, I think you should have Pretty good back half in terms of cash flow generation. What's the priority for capital return in the back half? Is it paying down the revolver balances or repurchasing stock? And does the strong stock performance and multiple expansion that you've had this year change your priority or in terms of how you think about returning capital?

Operator

Yes. As we

Speaker 8

look at the second half,

Speaker 3

we will prioritize debt pay down, we'll pay down the revolver as you mentioned. But we continue to look at the long term growth prospects of this business we still feel are very strong and so we will continue to be opportunistic On share repurchases as we get into the second half, but first part would be debt pay down and then second share buybacks.

Speaker 5

Thank you very much.

Speaker 9

Thank you.

Operator

Thank you. One moment please. And our next question comes from the line of Bill Chappell with Truist.

Speaker 12

Hey, good morning. This is Steven Langa on for Bill Chappell. Thank you for taking our question.

Speaker 10

Good morning.

Speaker 12

This will just be a quick one. I guess you called out some of the investments in systems to support the long term growth Around CapEx expectations, I guess, how have those expectations changed over the past few months? Is there kind of anything you could call out there?

Speaker 3

No. We've been assessing looking at our processes, looking at our And so we went through an assessment process that identified some things we want to implement and change. It's not ERP, but Some of the subsystems and support infrastructure of the business. And so as that became clear that what we were planning to do there, then We realize that some of that would be capital expenditure and so that's what's really driving the increase. But we look at this, we have a very fast growing business We want to make sure that we have the infrastructure and processes to support that growth not only now, but for the next few years.

Speaker 3

And so we're investing now to make sure that that is the case.

Speaker 12

Great. Thank you guys so much.

Operator

One moment please for our next question. Our next question comes from the line of Jim Salera with Stephens.

Speaker 6

Hi, guys. Thanks for taking my question. Darcy, you mentioned that you guys are under distributed in FDM. What would it take, is that just a function of kind of the capacity constraints and not having all the SKUs that they want? What would it take to kind of get on par or back to a level that's kind of relatively the same to the other channels at the end?

Speaker 2

Yes. So we believe that in I mean, so yes, it's short answer is it's A byproduct of our capacity constraints, but also just when you look at the potential, I mean, we should have If you look at some of our competitors, we have about even market share with one of our major competitors And they have doubled the space we have. So we know that the Premier Protein and I'm specifically talking Premier Protein Shakes. But we know we're under distributed. We know that we drive new households into the category.

Speaker 2

And so now getting those getting the capacity and then getting those products back on the shelf, I think it goes back to a prior question about when does that happen. And I think that, we're getting some really encouraging news from The resets that the retailer calls that we're having and feedback on the Shelf dynamics and what's changing in the shelf sets on resets and retailers are really leaning in and Excited about the fact that we have capacity coming on, and they're definitely leaning into Premier Protein and Dymatize, which is exciting.

Speaker 6

Okay. And as a follow-up, if we zoom out, you guys are obviously the leader in kind of that RTD shake category. What does it take to drive overall category awareness? I mean, you have kind of a core consumer That utilizes the product on a normal basis. But what does it take to pull in additional consumers that might not be familiar with Kind of a use occasion, or just a category more broadly speaking?

Speaker 2

Yes. It is basic stuff. It is getting back to I mean, so if you go back into in 2021 fiscal 2021 when the last time that we were Really marketing, promoting and driving demand through new items, etcetera. We increased We helped we are bringing in new consumers into the category. We added about between 1 in 2 points of household penetration for our brand as well as the category.

Speaker 2

And so, we have a playbook On what how to kind of talk to those consumers that are outside of the category that are kind of open to ready to drink shakes and powders. And so it is Linear TV, it's TV, it's digital, it's that kind of the 3 The marketing view of making sure we have shopper marketing, as well as promotion and display. So we have kind of a playbook that works for us, and now it's just about getting back to executing that playbook.

Speaker 6

Okay, great. Thanks guys. I'll pass it

Speaker 2

on. Thanks.

Operator

Thank you. One moment please for our next question. And our next question comes from the line of John Baumgartner with Mizuho.

Speaker 8

Good morning. Thanks for the question.

Speaker 2

Good morning, John.

Speaker 8

Darcy, I wanted to ask about Dynatize. The momentum in e commerce has been pretty strong The last couple of years, but I've been surprised more recently at the pace of distribution growth in grocery and mass. For a brand that's Traditionally had an audience that's more specialized. What are you seeing or what's evolving that's giving you confidence, diametize, has appeal in these outlets? I don't know if it's just white space Phil, but if not, it would seem to suggest a much longer runway for growth.

Speaker 2

Yes. I think this is one of the most exciting things about DYMTIZE. And really kind of the make or break of it, it was either going to be a really steady niche product Within the specialty side of the business or it was going to be a bigger, more mainstream Sports nutrition brand that had relevance across not only specialty And e commerce, but also FDM, and it is definitely proved to be the latter. And I think The support of that was its success in specifically mass. One major mass retailer, where we got distribution Just about I guess it was about 2, 3 years ago, it was successful.

Speaker 2

And I think that was the first time that was kind of Proof point that this brand, which is a super premium sports nutrition powder brand For athletes in the know, it could sell in mass. And so since then, I think, We're continuing to expand distribution. I mean, you can see it in some of our supplemental charts. It's still low, But we're seeing really strong takeaway in well, really strong distribution TDP growth within food And Matt, and we continue and we expect to continue to see that.

Speaker 8

Okay. Thanks for that. And then just a follow-up.

Operator

Mr. Baumgartner, could you please press star one one again your line seems to have dropped. One moment please. Hello? Your line is back open.

Speaker 8

Okay. Thank you. And then just to follow-up, Darcy, I asked last Quarter about the change in data providers to numerator and it was a bit more time under your belt now. Can we sort of revisit that in terms of Just grasp some of the nuances, any learnings or surprises that you can kind of integrate into the plan going forward? Thank you.

Speaker 2

Yes, for sure. So we've Continue to yes, if you remember last quarter, it was brand new. We now have about 3 to 4 months under our belt and It's great. I think that our we're definitely able to kind of dig into the consumer understanding more. We're Understanding purchasing patterns, media habits, and it's helping us in, I would say, 2 specific One is just improved day to day management.

Speaker 2

We're able to forecast more effectively because we understand The interactions with competitors as well as, kind of where our growth trajectory is just from a like lifts, etcetera. But I think more importantly and more and I think what excites me is just around our future thinking and planning more around brand strategy, media Media and Communications Planning, as we get into planning for 2024 and beyond, that's where I think the deep consumer insights that we're Gleaning from that data is really helping us.

Speaker 8

Thank you, Jackie.

Speaker 2

Thanks.

Operator

Thank you. And ladies and gentlemen, this does conclude today's conference call. Thank you for participating and you may now disconnect.

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Earnings Conference Call
BellRing Brands Q2 2023
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