BellRing Brands, Inc.

Welcome to Bell Ring Brands First Quarter 2021 Earnings Conference Call and Webcast. Hosting the call today from Bell Ring Brands are Darcy Davenport, President and Chief Executive Officer, and Paul Rode, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 1.30 p.m. Eastern Time. The dial-in number is 800-585-8367. and the passcode is 1-877-6009. 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.

Good morning, and thank you for joining us today for Bellring Brands' first quarter fiscal 2021 earnings call. With me today are Darcy Davenport, our President and CEO, and Paul Rose, 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 supports these remarks are posted on our website in both the investor relations and the SEC filing sections at bellring.com. 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. For 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.

Thanks, Jennifer, and thank you all for joining us this morning. Last evening, we reported our first quarter results, as well as posted a supplemental presentation to our website. The presentation provides more insight into our business, consumption, and key metrics. I'm pleased to report that our fiscal 2021 is off to a good start, with net sales of $282 million and adjusted EBITDA of $61 million, slightly above our internal estimates. Net sales were up 16%, with Premier Protein and Dymatize both growing double digits. As you saw in our press release, we affirmed our sales and adjusted EBITDA guidance for the full year. The quarterly cadence is largely as expected, with some minor tweaks. First, we slightly overperformed both sales and adjusted EBITDA in the first quarter, mainly due to a shift in sales from the second quarter. Second, inflation ramped up in the middle of the first quarter. We have done a good job with our cost-out strategy and have been able to offset a portion of these headwinds. But given the expected surge in freight and additional milk protein inflation, we announced a modest price increase in our shake business starting in Q3. We will experience continued margin pressure in Q2 until the price increase is implemented, but we are confident in our full-year guidance. Now turning to our category, brand highlights, and growth strategies. The overall convenient nutrition category remains stable. Growth in liquids and powders accelerated this quarter and are running above pre-COVID growth rates. The adult and everyday nutrition segments are driving this growth as consumers are increasingly focused on their general health. Most of the increased penetration is coming from everyday nutrition, while growth in adult is primarily the same consumers buying more. Powders are also seeing some strong momentum, resulting from increased at-home consumption. Premier protein shake consumption grew meaningfully this quarter, up 28% across tracked and untracked channels. Growth was broad-based and accelerated in nearly all channels when compared to prior quarter and year ago. Healthy velocities, strong distribution gains, and incremental promotions drove this growth. Food and e-commerce channels led the way, up 69% and 121%, respectively. This strong momentum has continued in Q2, with our first four weeks showing 17% growth across tracked and untracked channels, with impressive gains in food, math, and e-commerce. We continue to make great progress against our growth strategies, Premier Protein's household penetration reached 7%, an increase of 19% over prior year. Our distribution continues to build, with brand TDPs up 17% sequentially, reflecting our Q1 shelf gain. In January, we kicked off our national marketing campaign, which includes TV, digital, and social media. We complemented our proven strategy of having real fans explain why they love our shakes, with spots focused on our key differentiator, Amazing Taste. In the first few weeks of the campaign, our results are encouraging, with search and website traffic exceeding the same period last year. Our new flavors and pack sizes are driving significant growth. Cafe Latte, now in its second year, and Cinnamon Roll, our newest flavor, are performing in the top 15% of the category we're sold. Our upsizing initiative is off to a great start, with our new 12 count driving almost three-quarters of our growth in the mass channel. Premier is also growing outside of shakes, with powders up 129% driven by distribution and velocity. Dymatize had another strong quarter, up 35% domestically. With growth across all key channels, distribution in FDM grew 38% since prior quarter, with strong product expansion in the mass channel. Our new ISO 100 products, Fruity and Cocoa Pebbles, continue to be standouts, driving velocity across all channels and securing significant new distribution. Our international sales were flat year over year. Premier shakes in Canada showed meaningful increases, but softness across the rest of the portfolio offset this growth. The impact of COVID on the global specialty channel continues to affect the Dymatize and Power Bar brands. However, we expect this to slowly recover later this year. I want to take a moment to discuss a business realignment we executed this quarter, which impacts both Dymatize and our international business. Over the last several years, there has become more overlap between Premier Protein and Dymatize in the U.S. As a result, we decided to combine the management of these two brands housed in Emeryville. As part of the realignment, we created a dedicated international team who will drive growth across all of our brands outside the US. Regrettably, these changes result in reductions across our workforce in Dallas and Germany. I believe this was a needed strategic step to position Bellring for the future. but these decisions are not made lightly, and I want to thank our employees for all the hard work and dedication over the past years. Overall, I remain confident in our 2021 outlook. Our supply chain performance is strong, and our ShakeCo man network is well-positioned to support our growth. Our new creative is now running, and our messaging is reaching more households. Our distribution gains are driving meaningful growth, and we are seeing strong brand blocks across most major retailers. Our new products are succeeding in market and our innovation pipeline is building, driving long-term value for the brand. I continue to be energized by our long runway for growth and now believe we have optimized our organizational structure to truly drive those growth strategies. I will now turn the call over to Paul.

Thanks, Darcy, and good morning, everyone. Net sales for the quarter were $282.4 million, up 15.7%. Adjusted EBITDA was $60.7 million, up 3.6%, and EBITDA margin was 21.5%. Premier protein net sales increased 17.4%, driven by RTE shakes. First quarter results benefited from distribution gains for both existing and new products and incremental promotional activity. Diametized net sales grew 16.2% this quarter, driven by distribution gains in club and mass and continued double-digit growth in e-commerce. International sales for diametized improved sequentially but remained weak on a year-over-year basis as a result of COVID. Net sales of all their products decreased 11.2%. Turning back to consolidated results, gross profit of $91.9 million increased 0.7% this quarter, with gross profit margin declining 490 basis points to 32.5%. The margin decline was largely as expected and related to higher input costs, primarily milk-based proteins and freight, as well as incremental promotional activity. SG&A expenses were $38.3 million, and as a percentage of net sales, declined 140 basis points to 13.6%. SG&A expenses in the current year included $4.6 million of restructuring and facility closure costs related to our business realignment that Darcy discussed earlier. These expenses were partially offset by $1.5 million of lower separation costs, both of which were treated as adjustments for non-GAAP measures. Excluding these items, SG&A was down approximately $1 million compared to prior year, and marketing spend was flat. Before reviewing our outlook, I would like to make a few comments on cash flow and liquidity. We had a strong first quarter for cash flow, generating $23 million from operations. At quarter end, we had $50.8 million of cash on hand and $150 million available under our revolver. As of December 31, net debt was $635 million and net leverage was 3.2 times. Turning to our outlook, we continue to expect fiscal 2021 net sales of $1.07 to $1.12 billion and adjusted EBITDA of $207 to $217 million. As Darcy previewed, our quarterly pacing is largely tracking with our expectations. However, first half gross margins will be further pressured by higher freight costs before rebounding in the second half when our RTD shake pricing takes effect. For the second quarter, recall that we will lap the prior year COVID pantry loading benefit for Premier Protein, which is a headwind to our net sales and EBITDA growth, but a tailwind for our third quarter. In addition, our promotional activity and advertising investments will peak in Q2 as expected. Overall, we remain confident in our four-year estimates and are pleased with the top-line performance and distribution wins for Premier Protein and Diamantize. With that, I would like to turn the call back over to the operator for questions.

Thank you. At this time, I would like to inform everyone, if you would like to ask a question, please press star, then the number 1 on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue, press the pound key. We ask that while you pose your question that you please pick up your handset to allow optimal sound quality. Our first question comes from the line of Ken Goldman of JPMorgan.

Hey, thank you. And I love the 11 minutes of prepared remarks is fantastic. So thank you for keeping it brief for everybody. I wanted to ask about the gross margin, which, of course, was down, you know, a significant amount this quarter for the third straight time. I get it, right? You're facing a spike in dairy and freight. You've been promoting some more in some channels. I'm just wondering, you know, because I think investors, and we certainly are guilty of this, have been modeling in much stronger gross margins. What can you tell us specifically, you know, is there any way you can quantify what your expectations are for that line for the next few quarters or just for the year, just in the name of, you know, sort of making sure that we don't get those negative surprises on that line item again? Yeah.

Sure, Kim. Good morning. I'll take that. Yeah, so coming into the year, we expected our gross margins to decline versus last year because of especially the first half was impacted more so by protein costs, and we expected to continue to make brand investments in promotional spending. So we expected gross margins to decline versus last year. What has changed, obviously, is freight costs have increased, and so that's putting more So while overall for the year we expect our margins to be down versus last year, we now expect that our second half should be above last year's gross margins because of the price increase offsetting some of these costs. So first half down, second half above last year. Keep in mind our historical margins have been roughly around 34% when they spiked in 2019. 34, but historically we've been about around there, so we expect to get closer to that as we take the price increase going into next year.

Great. That is very helpful. Thank you. And then my follow-up, I'm curious what you experienced in terms of any pushback from your customers to the price announcement. I would assume not much, just given how transparent higher dairy and freight costs are, and given how there's not much elasticity in the market right now. But I just wanted to get any color I could from you on that. Thanks.

Customers, as you guys know, customers never like a price increase, but they absolutely understand why we're doing it. As you explained, they're seeing the same inflation as we are. So they understand it and feel Remember, we took price two years ago, and everyone behaved very rationally. Customers reflected it at shelf. Elasticities were very close to our estimates, so we expect the same this time.

Our next question comes from the line of Andrew Lazar of Barclays.

Good morning, everybody.

Good morning.

Hi. First off, I guess, with regard to Premier, I know price mix was down about 4.5% as a result of some of the incremental promotional activity. I mean, that, as you mentioned, was part of the pressure on gross margins. I guess, could you discuss a little bit how you evaluate the trade-offs between incremental revenue generated versus the margin pressure? And I guess more of the optics, right, of what some might call perhaps lower quality growth or a reliance on promotion. And I guess put another way, What gives you the confidence that, you know, the incremental promotional spend, you know, is and continues to be an effective use of funds?

So our focus, as we have walked you guys through, is building household penetration. We continue to believe that that is the biggest driver of long-term value and growth for specifically premier proteins. We knew one of those strategies to increase household PIN is raising marketing and promotion this year to drive that. We know that once we get trial on this brand, because of our repeat rates that are over 50%, we will have a loyal consumer. So if you look at 21 promos, they are actually very similar to 20. except for we tested an incremental club promotion in Q1, which is what you're seeing in the numbers. But other than that, they're actually fairly consistent with some, as you guys know, we have our bigger push in Q2 and Q4, and then we added the Q1 promotion as well.

Great, okay, thank you for that. And then, Paul, as you mentioned, heading into the first quarter, it was expected that pretty much all of the EBITDA growth in fiscal 21 would occur in the second half. And obviously you had 3.5% growth that you realized in EBITDA in the first quarter. And obviously fiscal 2Q is anticipated to be down to, I guess, is 2Q anticipated to be down to basically offset this so that you still kind of have that same cadence of virtually all the EBITDA growth in the second half? And then similarly on sales, I mean, it was expected sales in the first half would be up high single digit. Obviously, first quarter was up far greater than that. If it was to hold to the first half guidance that you initially gave on sales, that would imply a deceleration in sales to maybe minus one to plus three in the second quarter. But given you have so much momentum, I don't know if that still holds. So anyway, I'm just trying to put this in perspective. what you did in the first quarter based on what your initial sort of first half guidance was, if you get my drift.

Yeah, I think I do. So our thinking on first half growth is still in line with our original expectation. I think Darcy touched on in her prepared remarks that we did see a little bit of a shift into Q1 versus Q2. So we just, you know, Whenever you're loading these large promotions, sometimes they load a bit differently than you expect. And so what we believe we've seen is a bit of a pull in Q1, a little harder than expected. So that obviously follows that in Q2. And then with the parade headwinds, obviously that puts some additional pressure on our second quarter as well. So we really think our first half is largely intact. It's just a little bit of a shift between the first and second quarter. No concerns about the sequential revenue top lines.

Great. Thanks so much to you both.

Thank you. Our next question comes from the line of Brian Holland of DA Davidson.

Yeah, thanks. Good morning. So I wanted to probe that or just imply Q2 growth a little bit further. It sounds like I guess that some of that pull in from Q2 is maybe related to that club promotion that you referenced. But I'm just curious if there's anything – I mean, obviously, there's something at the end of the quarter here when we start to lap the initial demand surge around COVID. I mean, is that just something where you feel like you don't have enough visibility on, so why not just stick with the same cadence through the first half and see how that laps? Or is there something else in one of these channels that we need to be mindful of? Because, again, you're accelerating in scanner through January. That ran concurrent with the promotion at Costco. So, no cannibalization there. So, it seems like a lot of momentum going into that second half of March. So, anything that we should be mindful of other than just the, you know, maybe just trying to be mindful of the COVID comp?

Certainly, as we're lapping last year, yeah, the COVID comp was a big tailwind for us in the second quarter of last year. I think we previously estimated that, you know, the high single-digit – for us last year that we're obviously lapping. So that does obviously weigh on your growth rates from last year to this year. Regarding the business momentum, we do feel like it's still strong. There's nothing that I've seen or we've seen that would suggest that there's any reasons for concern, but everything we've seen from a revenue side has been tracking to our expectation again with just a bit of a shift from Q1 into Q2.

Absolutely, Paul. Yeah, Paul, just to confirm that, you said high single-digit contribution from sort of the COVID demand surge in Q2, that's how much that contributed?

That's what it did contribute to last year, so that would be the headwind for this year. So that's the flip between Q2 and Q3, where it's a headwind in Q2 and a tailwind for Q3.

Understood. And then if I could just ask a big-picture question, you know, I think relative to three, six months ago, it feels like we'll be in Something similar to the dynamic that's in place today as it pertains to consumer mobility, which obviously has been beneficial to the category and your business in particular. But if we extrapolate that out further, there's forecasts out there that would suggest 2x the American workforce will be working from home in some form five years from now versus you know, pre-COVID. So, Darcy, I'm just wondering if you have done any work on that, any analysis, and if there's reason to kind of rethink the opportunity here, just given the relative convenience of shakes versus bars at home. And obviously, when we look at the penetration growth and the repeat rates on your business in particular, I'm just curious if you have any insight at this point on that.

Yeah, we're incredibly – excited about our momentum as a business, because not only, yes, we have the negative of the mobility, but we have the positive of, I mean, I walked through the category, and liquids and powders are, in the last 13 weeks, are double the growth of the overall category. So we're seeing the tailwinds of just general health and the sentiment of consumers and of really being worried about their general health and what they can do personally to improve that. So we've got that tailwind. And I think that's long-term. I think, you know, obviously it got accelerated with the pandemic, but I think that will stay front and center for a while. And so then you take that and then you layer on top the increase of mobility and that we are a convenience product. I think, you know, we look forward and see a lot of encouraging signs.

Appreciate the color. Thanks a lot.

Our next question comes from the line of Chris Grohe of Seafolk.

Hi. Good morning.

Good morning.

Good morning. I just had a question for you, if I could, first on, just to understand, maybe I can better understand, the fact that this quarter had a promotional load-in. And as I look at the charts and the data, I guess I was a little stumped still on how, you know, with consumption being up so strongly for Premier, up 27.5%, and obviously revenues and volume for that business being up less than that, just how that dynamic worked, and maybe more importantly, How much should come out of Q2 as a result of that load-in that occurred in the first quarter?

Yeah, so I'll take the latter part of your question there. So our thinking is that we've seen maybe a 1% to 2% pull forward from Q2 into Q1. So it's not big, but it does impact, obviously, the growth rates to a bit. So that would be that part of your question. I mean, our first quarter is typically a very heavy shipments-to-consumption quarter. because all of the January promotions that are going on, a lot of them do load for us in the first quarter. So there's a chart in our supplemental that actually shows that dynamic, and it's fairly consistent with last year. It was up a bit maybe from last year, which is part of that pull forward we're talking about, but it's not meaningfully different from last year's polling.

Yeah, I think what I would add is that in untracked, we had some ship-in volume in Q4 that we saw the consumption in Q1, which is the delta between the consumption and the shipments as well.

Okay. Thank you for that. I'm going to have to follow up on that, but I understand what you're saying. Just a quick second question would be, just to get a sense of how much the inflation outlook has changed for the year. And then can you give any color around the degree of the price increase you're taking? And maybe that'll help dimensionalize the increase in costs.

Darcy, let me take the inflation piece. Sure. Yes, from an inflation perspective, the change from our original estimate, which is primarily freight, is that it'll be a 75 to 100 basis point drag on the year. So that's the magnitude of the freight impact, which is ramped up really kind of late in our first quarter.

And then from a pricing standpoint, just for competitive reasons, I don't think we're going to – I'm not going to go into the exact price increase, but it's modest and similar to what we took two years ago.

Okay. And then just to be clear on that, Paul, that inflation, that's 7,500 basis point drag on the gross margin. Is that the way you were quantifying that?

That is exactly right.

Okay. Thanks so much for your time.

Thank you.

Our next question comes from the line of Tim Pears of Stevens Inc.

Good morning, and congrats on the next quarter. So how should we expect you to approach marketing spend this year? I know you plan to advertise on TV for an additional three months this year, but if you achieve your household penetrations kind of like ahead of time, would you be more inclined to drive margins by pulling back on marketing spend in the back half, or do you kind of plan to stick to that goal and pursue additional households this year?

Yeah, we plan to continue with our plan from an advertising standpoint. You know, big picture is we believe we are underpenetrated. And so we know our marketing is working. We're seeing, you know, early results. First of all, it worked last year to drive household penetration. We made some changes just to optimize it this year. And in, you know, early first three weeks, we see that it is more effective than even last year. So we believe it is the right way to build long-term value for the business, and we think there's a lot of upside. So we're absolutely continuing this. on the path to spend to acquire new households.

Okay, thank you. And Premier Protein household penetration was up about 18% year over year, but your consumption exceeded that. So can you just talk a little bit about what you're seeing from the buying rate among existing consumers and what's driving that higher?

Yeah, so about 80 – let's see if I'm going to get to your question – About 80% of our growth is coming from outside the category, and it's a combination of new households and buy rates. Two of our, from a strategy standpoint, our goal this year was twofold, household penetration and buy rate. And so from a household penetration standpoint, we are increasing our marketing and our promotion as well as, and then from a buy rate and coming out with new products, new flavors, et cetera. And then from a buy rate standpoint, we have our upsize initiative. So those combinations is where you're seeing kind of, you see the increase of household pen, but then you see the buy rate as well.

Okay, thank you. I'll pass it along. Thank you.

Thanks.

Good morning.

Good morning.

I just want to go back to just the freight issue and just trying to understand. I imagine you have some freight contracts where you don't see the immediate hit as freight costs rise. And so I guess trying to understand since it is, you said it creeped up late in the first quarter and it's immediately hitting in the second quarter. And what... ways to prevent that from as they if they creep up again in the second quarter that you haven't priced enough for that as we go into the third quarter. Just trying to understand kind of what visibility you have on on your freight rates and what kind of in order to price this doesn't happen again and again as we move through the year and things starting to open up.

Sure, yeah. We do have obviously some visibility into our freight costs through our through our providers. But it really did move up quite a bit. I think you've seen that, obviously, inflation with other companies as well, with COVID causing some shortages with drivers. But the really long-term thinking is that that will continue on for a period of time. But to your point, there obviously is always risk that it goes up and there's opportunity should it come down. But we feel like we've looked at the rest of the year and looked at it at this elevated level. you know, the impact to our business for the rest of the year.

So, I mean, just your thought is freight rates have peaked or you're, you know, or you've priced for the potential peak. Is that fair?

The expectation is yes.

Okay. And then just follow up, any color on channels? I mean, is it safe to say club versus non-club performed at a similar rate or it did seem like you had more promotions and obviously more new product introductions in the club channel, any color there would be helpful. Thanks.

Yeah, so – oh, sorry. No, go ahead. I was just going to clarify if you meant Premier or Total Bell Ring or both.

Yeah, I meant Premier. Premier, sorry.

Yeah, so Premier, Untracked's still for the quarter. Overall, our consumption was up 27.5%. It was led by Untracked, so Untracked's still – was tracking ahead and driving the growth over track, so up about 43%, and tracked being up 15%. And we're having really solid, we continue to have really solid growth in e-commerce. We did have a promotion in e-commerce, which drove some of that, which, again, was expected. And then we're seeing solid growth in Untracked Club, But I will say I think some of the areas that I'm most excited about is our progress in food, specifically food and math, and getting more products on the shelf and really getting that brand block, which is something that we haven't had before, and we're seeing it in market.

Great. Thank you.

Thanks.

Our next question comes from the line of Jason English of Goldman Sachs.

Hey, good morning, folks.

Good morning, Jason.

I guess I've got two quick questions. Well, maybe not quick, but the first one is, how much of the growth in diamond ties is coming from these pebbles extensions? And should we be looking at these as almost like a license in and out? Or do you think there's reason to believe they could actually have durability?

So I don't have the exact number for pebbles, but I'll separate out the domestic growth from a distribution and velocity standpoint. So about 60% of the growth was coming from distribution and about 40% from velocity. A lot of that velocity is coming from pebbles and the excitement there. So – and it's really coming across channels. We absolutely think it has durability. And I think that you'll start seeing – I think the excitement around – you know, I think I've explained the consumer insight to this piece. It's not just about borrowed equity. It is steeped in solid consumer insight that basically says that the dimetized consumer – you know, is starved of carbs. And so basically hasn't eaten sugary cereals, but in a long time and love it. And so because our product delivers so well on the, you know, fruity and cocoa bubble experience, it really is kind of scratching that itch. And so that is, that is a consumer insight that can be really built upon.

Interesting. Second question. You've got a great organic growth story here, and I'm not asking you to muddy the waters, but I do recall when you guys were initially spinning out and standing this business up on a standalone basis, part of the rationale was to be able to have a high multiple business that could acquire other high multiple businesses, other growth assets. Where is M&A on your agenda today, and have you seen any opportunities perhaps open up during COVID?

Yeah, I think you highlighted and described it well. We do believe, and we've communicated this, is that we are excited. You know, the organic growth of specifically Premier, but, you know, also Dymatize is our number one priority. We still think there's a ton of upside, and that really is our focus. And just to jump on, you know, historically we've talked more about Premier as being the driver of that, which it will be. But I think the recent momentum on Dymatize really gets us excited about that growth story as well. So that puts us in a situation where M&A is absolutely one of our growth strategies, but it becomes more of a nice-to-have as opposed to a need-to-have, which allows us to – you know, pick and choose and wait for the right opportunity as opposed to being forced to buy something because we're trying to hold up a growth rate.

Makes sense. Thanks a lot. I'll pass it on.

Thanks. Our next question comes from the line of Rob Dickerson of Jefferies.

Great. Thank you so much. Darcy, you know, yesterday – larger food company who doesn't really focus specifically, you know, on protein shakes, bars, powders, stated that, you know, it seemed like your discussions with retailers and kind of, you know, what we've seen on the shelf, let's say in the past, you know, six months, would suggest that maybe there's been a little bit more, you know, shelf allocated to kind of shakes and powders, right, just given kind of the consumption a shift, maybe there's, you know, a less attraction for the time being, at least just to the more all-to-go bars. And then they stated, though, that also through those conversations with the retailers that they would think that some of that would reverse back out, right? So maybe there's almost like a temporary mix adjustment, obviously, to cater to where demand is. So I just thought I'd ask, you know, kind of if that's what you're seeing, too, if you agree with that, kind of what your perspective is, and you know, really would there be so much shift? Because it seems like your shift, you know, has been driven by good product and distribution gain, increased GDP, not all the COVID kind of was already planned. But then there's kind of the other commentary that is the overlay of kind of what's happening within the broader category if we think about the mix between powders and shakes vis-a-vis bars. Does that make sense?

It does make sense. I agree with – the fact that we're seeing some shift of shelf space from bars to RTs and powders. I have not heard that that is a temporary change. I guess I look at it as, you know, Retailers keep – I mean, very simply, retailers keep items that are growing and are growing their category. And so, you know, as I just said, you know, 80% of our growth is coming from outside of the category. We actually have very little growth that is coming from shifting among the category. So – and we're one of the highest velocity products in the category. So – I haven't heard it, and honestly, it doesn't worry me from a Premier standpoint, or a Dimeshai standpoint, for that matter.

Okay, great. And I guess just quickly, you know, obviously the focus right now is building the core, right? There's a long runway of growth still on the current product offerings or categories, as you just stated. You know, there's the new premier serial, right? This guy we've seen the innovation already come out. We discussed earlier on the post call. You know, are you, you know, thinking already kind of like where can we take premier, right? We have kind of the plan in place in terms of distribution, you know, strategy. And with the right offerings, we just need to execute. So maybe there's a little bit more bandwidth there. in terms of kind of where you could take the category into other adjacencies, or for now, is it just block and tackle on the core? Thanks, that's it.

It's both. So absolutely, the core, we still have a ton of upside within our categories, but innovation is a big driver for us. We've been investing both within R&D as well as within marketing, and focusing on where this brand can go, I think cereal was a good test for us. We could see if the brand could travel outside to other categories and other heavily trafficked aisles. And I think the early results are really positive. And so we look at that. We've always thought that a growth – You know, future growth was we've talked about center of store, and I think that this goes well for that transition. Now it's just about what is the best strategy to go to center of store.

Got it. All right, thank you.

Thanks.

Our next question comes from the line of Ken Zaslow of Bank of Montreal.

Hey, good morning, everyone. Good morning.

Good morning.

Morning. Two questions. One is, when you think about your shelf space gains, can you talk about how much shelf space you've gained and how much do you think that's permanent and maybe, you know, that's my first question.

So, I'm forgetting the exact numbers in my prepared remarks, but we gained substantial shelf space both on Premier and on Dymatize this last quarter. We're pretty consistently gaining PDPs. PDPs are the – we communicated that we're undershelved, really. Our market share would – from a kind of market share versus share of shelf, we are still undershelved, so we still have room to grow. But this Q1 was a really big move. We gained substantial – I think I mentioned this in the last call. We doubled our shelf size in a mass retailer. Coming up in the spring is the resets for some major food accounts. We will continue to see big, you know, distribution expansions within those accounts, further, you know, expanding our brand block. So, and then Dymatize, you know, we gained, I think, 38% TDPs. in FDM, which is a big push for us, and that was mainly due to a mass account, and we're already seeing the velocities, you know, strong enough to hold that space and expand. So, same thing on Dymatize, where we see these boot accounts, which we're expecting to see some increase of Dymatize as well.

My second question is, when I think about expanding the Premier brand, what consumer insight did you see that would want Premier to get into the cereal category, a category which I don't know if I could remember, but the probability of success of a new brand in cereal can't be more than 1%, right? It's a very low – so what consumer insight do you have that would give you the confidence that extending Premier into cereal versus, I don't know, other would be the right foray for you to get into the center of the store? Just a thought there. Thanks.

Well, the first thing is that we know that Premier, as a brand, is consumed 60% of the time at breakfast. So we also know that breakfast is an occasion for where consumers don't usually get enough protein. They have bagels and donuts and muffins. And we know, as the old saying goes, it's the most important meal of the day. So that is, I think, the insight. Now, the second piece is just a practical application, which I would just say is we also happen to have a sister company who makes cereal. So it was a fairly easy test. to see if our brand could travel. So I think it's very much steeped in solid consumer insights, but also there's a practical element.

Thank you very much. Thanks.

Our next question comes from the line of Kamal Gajrawala of Credit Suisse.

Hi, everybody. Good morning, or I guess good afternoon. Can you talk a little bit about e-commerce, e-commerce capabilities, and maybe a bit about how much it grew, but also just how it's evolving, what sort of capital you might be putting in or investments you're making to expand that side of your business?

Yeah, e-commerce is a big focus for us. So just to give you a sense of kind of history and where we are, In 19, e-commerce represented 6% of our business. It now is at 10% of our business. We think that it could be, you know, 10% to 15%. So we've invested – it's also what's interesting about e-commerce, what we've learned is it is a great trial driver for us. So we're actually seeing – our household penetration grow and us gain trial through e-commerce. And then sometimes actually then because our e-commerce product is a little bit more expensive than in other channels, oftentimes we'll see consumers enter in an e-commerce and then repeat in other channels. And just from a capability standpoint, We are expanding, you know, marketing dollars. We're actually looking at pursuing e-commerce only innovation. We've increased head count. And we have a general management kind of approach to e-commerce where we have kind of sales, marketing, and operations working together because it is a different way to go to markets.

Interesting. Thank you. And then on the topic of, you know, the primary mission has been about increasing household penetration and your successes, of course, now being, you know, replicated to the best of their ability by others. But we're also going into a time where pricing is necessary. Maybe promotion mitigation is necessary while competition is also increasing. So how are you thinking about just the dynamic between those two? Is it a little bit of a, are we in the growth curve of the industry where it's a bit of a real estate grab, or is this something that you feel like it's okay to cool the jets for a period of time and deal with the input costs and worry about some of this other stuff later?

Well, so last – it's a great question. So last quarter, you know, I – you know, we came out and said that we – would rather not take price. We wanted to drive top line. We felt like we would, we were comfortable with the assumptions, the cost inflation assumptions that we had incorporated in our forecast to not take price. However, we also said that if those assumptions proved to, be too low and the, you know, facts come up and they are higher than that, we would adjust our course. And that's what happened. You know, freight is obviously increasing as well as we saw some increase of dairy protein. So we decided to take price at the back half. We evaluated other areas like marketing, et cetera, We just felt like given our household penetration and given our experience and our long-term goals of talking to more consumers and our marketing is working, we didn't want to pull that back. So I still believe that even though we're taking price, we still will increase household penetration, and we're going to be watching that closely.

Thank you.

Our next question comes from the line of John Baumgartner of Wells Fargo.

Good morning. Thanks for the question.

Good morning.

Maybe first off, Darcy, back on the promotion front for Premier, in terms of total activity for 2021, how are you sort of balancing the degree of activity between straight price discounts for consumers relative to investments for in-store displays or any sort of push levers for the trade? And how does that balance differ relative to the past few years as the brand now grows penetration?

Yeah. Our philosophy, and not really, I wouldn't, maybe it's not our philosophy. So from a promotion standpoint, a few years ago, we used to only get TPRs from a trade perspective. Now, because we have tested, our brand is big enough, we've proved to retailers that actually we bring in more households when we're on display and we have quality merch. We are only doing quality merch. And that has made all the difference in the world from an effectiveness standpoint. So we once, you know, hopefully you guys have seen this, but in the new year, new you, I mean, we had displays in most retailers and large displays, sometimes multi-product displays. And that is really important for us because we bring so many people from outside the category that we need to get out of the aisle to get people's eyeballs. And then once we do, we hold them, we get the repeat, and we grow the category for the long term. So I think that – let me see if I answered your question about promotion and the split.

Yeah, absolutely. Right on. And I guess the follow-up, just to come back to Dynatize, given that your comments this morning seem, I guess, pretty bullish as the new ISO products go from the drawing board to the market. When you think about Premier exponentially surprising to the upside from the time it was acquired, I guess, back in 2013 – How do you see the parallel evolving for Dymatize? I mean, just given what you're sort of learning real time about the brand and consumers, is there any reason why it couldn't evolve into a $500 million business over time? I mean, are the ambitions sort of changing or growing to any extent there? Thank you.

Yeah, we are very pleased with the momentum of Dymatize. I think what is encouraging is how it is taking in the mass You know, not that long ago, this brand was a specialty-only product. And so to have – and the team has done a fantastic job of kind of repositioning it and changing and moving the channel to make it much more balanced. It's succeeding in e-commerce and, again, now math. I – you know, if I fast-forward, you know, five years – I still believe, you know, Premier is going to be our big brand. I expect us to have more brands than just Premier and Dymatize. But Premier will be the biggest brand just because it is the most mainstream brand. And I've talked about how we actually kind of source volume or appeal to all of the different consumers. But Dymatize has a very solid place right for athletes. in sports nutrition. It has a very clear consumer. And so, yeah, I believe that it can be a much bigger brand, you know, double the size that it is now, eventually.

Well, I'm trying to spread the word at Gold's Gym, so I'm trying to do my part for what it's worth. Thank you. Thank you.

Our next question comes from the line of David Palmer of Evercore ISI.

Thanks. Good morning. This is a bit of a follow-up to Rob's question about retailers giving more merchandising and shelf at the expense of bars. Obviously, that's a retailer decision. I guess there's consumer ones behind that. I guess there's a thought that this is a convenience play, that bars are on-the-go type products and Maybe the shakes are not as much, and this is a temporary thing, and as mobility returns, it gets better for bars. That could be one narrative. But I suspect that's simplistic, and there are other consumer needs, demands that are at play here. Because ready-to-drink beverage is pretty convenient, too. So could you just talk about that, what you're seeing in terms of the interplay, and is it really one cannibalizing the other in your view?

they really have different occasions. So, I mean, if you think of shakes are, for the most part, you know, 60% consumed in the morning. They're more likely to be used as a healthy meal replacement. Bars are much more snacking-oriented and they're much more on-the-go. I think what There are a lot of consumer trends and macro trends that are fueling the RTD and the liquid side of things as well as the powder side of things that are tailwinds to bars but not quite as much. And those are all around general health, immunity. If you think of, so, you know, most RTDs have a vitamin and mineral blend. Those are very important to consumers. And so that, you know, when you're talking about people are trying to increase their immunity, et cetera, that becomes a more, as we go more into kind of proactive health, those naturally fall within RTDs. And I think you're going to start seeing a bigger divide between RTDs and powders and and bars, which have made their way much more into snacking.

Got it. Thank you. And just a question on marketing and the message, both how you market and what messages you're going to play on. And I'm wondering about the buzz creation type of stuff and how much of it is what you're trying to do in social media. I wonder, for example, did you have something to do with the the users combining Premier Protein with Starbucks coffees, that protein coffee buzz that we saw out there over the last quarter or so, and, you know, what you're doing from a digital messaging standpoint, you know, the things you're pushing on from a message standpoint. Thanks.

Yeah, we love the profi. So what is – So, I don't know, exciting about Premier is our consumers create the content. We don't ask them to. They just do it because there is so much excitement and love for this brand. What we do is once they create it, we fuel it, and we then kind of jump on it and give it more legs. Changes to strategies from an advertising standpoint, it's more tweaking than anything else. is we have TV, we have digital and social media. We are adding more dollars and more time to the budget. We're talking to more people, so we are adding consumers with different types of messages. The beauty of, obviously, digital and social is that you can change the message slightly depending on who the audience is. We updated creative. I said this in my prepared remarks. It's all been about our devoted fans really telling other people authentically why they consume the product. But now we're complementing those with what we're calling, we call the first ones testimonials. We call the second ones taste-imonials, which is really all about taste and hitting that how, you know, amazing our consumers believe the taste is and showing it in visuals. And then we're also supporting some of our new products with national media, which we've never done before. So those are some of the changes within our strategy and kind of how we amplify the buzz that already happens from our consumers.

Thank you.

Thanks. Our next question comes from the line of Brian Spillane of Bank of America. Thank you.

Hey, good morning. Just two quick ones for me. One is I know you talk a lot about kind of where the first quarter landed versus expectations and cadence for the year, but I think I might have missed, or I'm not sure, I might have missed this, but just where is consumption tracked relative to what your expectations were, and especially around Premier and, you know, given just the elevation and activity you've had? merchandising activity you've had. Has that run ahead of what your expectations were?

Consumption is pretty consistent with our expectation. I would say with one small change is we did, and I think I mentioned this maybe in some of the follow-ups of the last quarter, is we did see a small increase in in November in some club stores when some of the additional lockdowns happened in several of the states, almost like a mini panic buy. What was interesting about it is it appears to not, so people bought more, but then they consumed more in the quarter, so it didn't affect our We didn't see the decrease that we saw in last March. So that was the only thing that was surprising from a consumption standpoint. It's just a little bit of a panic buy in November.

Okay, great. Thanks. And then just related to the price increase, should we factor in anything for customers maybe buying ahead of that price increase? Sure. you know, when it's effective. So I guess trying to understand just whether or not there will be any other disconnects between shipments and consumptions, just consumption related to the price increase.

Yeah, we don't – you know, that's going to happen. That will happen somewhat. We do monitor that, and if people – if retailers put in, you know, three times the orders than normal, we will – we will act on that and try to bring it down. So I wouldn't necessarily model in a massive increase. I think that we have control over that. We did not have that happen two years ago, and so I think we have a process in place to address that.

Oh, terrific. Okay, thank you. Thank you.

Ladies and gentlemen, we have reached the allotted time for questions and answers. We thank you for participating in Bell Ring Brand's first quarter 2021 earnings conference call and webcast. You may now disconnect your lines and have a wonderful day.