BellRing Brands, Inc. Common Stock

Good day and welcome to the Bail Wing Brands first quarter fiscal year 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call is being recorded. I would like to turn the call over to Jennifer Meyer, Investor Relations for Bail Wing Brands. Please go ahead.

Good morning, and thank you for joining us today for Bellring Brand's first quarter fiscal 2025 earnings call. With me today are Darcy Davenport, our president and CEO, and Paul Rowe, 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 filing sections at bellring.com. In addition, the release and slides are also 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 and posted a supplemental presentation to our website. I'm pleased to share that fiscal 25 is off to a good start. The business accelerated as we layered in demand drivers and kicked off new campaigns on both brands. Our first quarter results were slightly ahead of our expectations on the top line, with more favorability on the bottom line. Both net sales and adjusted EBITDA grew approximately 25%, driven by Premier Protein. Our EBITDA margins benefited from favorable gross margins and the timing of marketing spend. As you saw in yesterday's press release, we raised our outlook for the year. We now expect net sales to grow between 13 and 17% over fiscal 24, and adjusted EBITDA to grow between 7 and 14%. Our strong first quarter performance, along with confidence in demand, drove our decision to raise our guidance. Before reviewing the category and brand updates, I want to share that our supplemental presentation and corresponding metrics now reflect expanded coverage of the convenient nutrition category, as well as our business. In the new database, The total convenient nutrition category is now reported as $19 billion, up from $13 billion, a sizable increase in tract coverage. The new database provides a more accurate picture of the category across channels and a better reflection of our strong market position. Now to category and brand updates. The convenient nutrition category grew 12% in Q1. As I mentioned last quarter, it is rapidly transforming into an everyday and sports nutrition category, with those segments driving most of the growth and making up 75% of sales. From a form perspective, ready-to-drink growth accelerated and continued to lead the category up 18%, driven by strong consumer demand. RTDs were the second fastest growing category in the entire store, only behind eggs, which had unique supply-demand dynamics. Mainstream everyday and sports nutrition RTD brands continue to bring new consumers into the category and were up 31%. Ready to Mix grew 8%, sustaining Q4's growth rate. Overall, we see the total convenient nutrition category momentum increase in Q1, and I look forward to an even stronger growth during the Q2 New Year, New You season. Turning to our brands, Premier Shake consumption growth accelerated this quarter at 23%. Growth was strong in all channels driven by distribution expansion, accelerating velocities, and incremental promotional activity. Expansion in form, including bottles and pack size, along with improved in-stocks, drove the distribution gains. Our seasonal flavor, Winter Mint Chocolate, has demonstrated high incrementality to the brand and was the number two RTD item at a major mass retailer this season. Consumption growth continued with January up 17%. Our brand metrics remained strong with Premier Protein reaching all-time highs in TDPs and household penetration. The brand continues to gain new consumers reaching 20% of household this quarter. In calendar year 24, Premier Protein grew household penetration 17%. a significant contributor to the overall RTD category growth. The brand's repeat and buy rate grew for the calendar year, demonstrating our category-leading consumer loyalty. Premier Protein, with RTD market share of 26%, maintained its position as the number one brand in the RTD segment as well as the number one brand in the broader convenient nutrition category. All of this is especially encouraging because in a high-growth category with low household penetration, we see plenty of room to continue to grow our brand and expand the overall category. Premier Protein Powder continued its strong trajectory with consumption of 24% in Q1, behind strong velocities and distribution gains. We remain encouraged by the growth potential of Premier Protein brand in this format. Its household penetration reached 2% this quarter, and during calendar year 24, Premier powder's household penetration grew 22%, the second highest of any competitor in the powder category. We continue to believe Premier will be a contributor to mainstreaming the powder category in the same way that Premier did in Ready to Drink. We're thrilled to share that our Premier Protein national marketing campaign hit screens late in December, just ahead of the new year and new year season. It is a high energy spot that captures how Premier Protein brings joy to the health journey Featuring the tagline, Sweeten the Journey, it shows that healthy eating doesn't have to be hard, but can actually be enjoyable and fun. It is our first nationwide campaign since 2021 and will reach TV, streaming, and social media audiences. Although early, the campaign is generating significant increases in search and traffic to our website is up 80% versus a year ago. From an innovation standpoint, we launched a new line of Premier Protein products, our Indulgent line, which are available in four decadent shake flavors and one powder flavor. These items are richer and creamier, targeting an incremental consumption occasion, while still delivering on the nutritionals that our consumers expect from the Premier brand. The items are building distribution, and although early, are off to a promising start. More innovation is planned throughout fiscal 25. In addition to exciting advertising and new products, we are updating our logo and redesigning our packaging for the first time in close to a decade. The refreshed design builds on our strong performing current design and brings a modern look that improves discoverability at the shelf. We expect the updated design will start to hit the shelves in the second half. Turning to diamond ties. The international business drove the global brand this quarter, more than offsetting domestic headwinds. Despite recent U.S. trends, the brand remains strong, holding the number two share position within sports nutrition powders, which represents about half of the overall powder category. While household penetration and overall distribution levels remain stable, we are starting to see some encouraging signs from our marketing campaign as well as our new products. Our marketing campaign with San Francisco running back Christian McCaffrey exceeded our benchmarks and drove strong lift to our brand metrics. As a result, we have expanded our core team of Dymatize athletes and influencers by partnering with tennis professional and Olympic medalist Tommy Paul, who is ranked number nine in the world. On the innovation front, we launched two new platforms this quarter. We know that Dymatize consumers purchase both free workouts and RTD products. So in December, we launched RTD shakes with fruity and cocoa pebbles flavors, as well as pre-workout powder called Energize, available in three flavors. Early results for both products are positive, and we continue to be bullish on the sports nutrition category opportunity. In closing, our Q1 results position us well for another above-algorithm year. Our organization has officially pivoted to demand driving. Strong macro tailwinds around protein are driving robust long-term growth in our category with ready-to-drink and powder segments in the early stages of growth. Premier Protein is already the number one convenient nutrition brand, and we are just starting to drive demand. Our innovation pipeline on both brands is rich, enabling us to bring excitement to consumers and our retail partners for years to come. Last, we have a scalable, regionally diverse supply chain able to support our long-term growth projections. Our confidence in long-term outlook for Bellerin remains high. We look forward to sharing our progress next quarter. I will now turn the call over to Paul.

Thanks, Darcy, and good morning, everyone. As Darcy highlighted, we had a good start to fiscal 2025. Net sales for the quarter were $533 million, and adjusted EBITDA was $125 million. Net sales grew 24% over prior year, and adjusted EBITDA increased 25%. Adjusted EBITDA margins were 23.5%, meaningfully exceeding our expectations. Starting with brand performance, Premier Protein net sales grew 26% behind strong volume growth for RTD shakes and powders. Distribution gains, incremental promotions, and organic growth drove the sales increase, as well as a benefit from our price increase on shakes taken in Q4. Shipment dollar growth slightly outpaced consumption dollar growth. Diametized net sales increased 13% this quarter on 12% higher volume. Similar to recent quarters, strength in international business continued with double-digit sales growth. This was partly offset by domestic headwinds. Gross profit of $200 million grew 35%, with an increase in gross profit margin of 310 basis points to 37.5%. Our pricing actions offset modest input cost inflation in the quarter. We expect the rate of inflation to increase throughout the year. Compared to our expectations, first quarter gross margins benefited from $5 million of non-recurring cost favorability and $1.5 million of unrealized mark-to-market gains under commodity hedges, which combined drove margins higher by approximately 120 basis points. SG&A expenses were $80 million, an increase of 270 basis points as a percentage of net sales, with higher spend for advertising and promotion and warehousing the main drivers. Advertising promotion spend was 2.8% of net sales, up from 1.4% in last year's first quarter as we kicked off new campaigns for both Premier Protein and Dymatize. However, we shifted roughly $4 million of marketing spend from the first quarter to later in the year. This, along with favorable gross margins, contributed to adjusted EBITDA margins coming in above our expectations. Operating profit of $115 million increased $42 million compared to prior year, and was positively impacted by lapping $17 million of accelerated amortization last year. Before reviewing our outlook, I'd like to make a few comments on cash flow and liquidity. We generated $3 million in cash flow from operations in the first quarter. As anticipated, our working capital increased as we added shake supply to our inventory. Moving forward, we believe our inventory levels are largely normalized, and accordingly, our adjusted EBITDA to cash flow conversion will improve for the remainder of the year. We continue to expect our cash flow in fiscal 25 to be in line with fiscal 24 and weighted to the back half of the year. As of December 31, net debt was 790 million and net leverage was 1.7 times. With our EBITDA growth and strong cash flow generation, we anticipate net leverage will remain below two times throughout fiscal 25. With respect to our share repurchases this quarter, we bought 143,000 shares at an average price of $77.12 per share, or $11 million in total. In January, we repurchased about 550,000 shares at an average price of $72.79 per share, or $40 million. As of January 31, our remaining share repurchase authorization is $124 million. Turning to our outlook, we raised our fiscal 25 guidance for net sales to be $2.26 to $2.34 billion and adjusted EBITDA of $470 to $500 million. Our guidance implies strong top line growth of 13% to 17% and adjusted EBITDA growth of 7% to 14% with healthy adjusted EBITDA margins of 21.1% at the midpoint. As Darcy mentioned, our better than expected first quarter performance drove our decision to raise our outlook. Before reviewing our second quarter outlook, I want to give some perspective on our cadence throughout the year. Overall, our quarterly sales phasing hasn't changed significantly from our November guide. Recall, we expect sales growth to be weighted to the first half of the year as the second half lapsed trade inventory loads in 24, which we estimate to be a mid-single-digit headwind to our second half growth. Regarding adjusted EBITDA, we have made some modest changes to our quarterly phasing. Recall I mentioned we shifted marketing spend from the first quarter to the second half. Additionally, protein costs in the first half are trending slightly more favorable than expected and more unfavorable in the second half. The combination of these items in the stronger than expected first quarter has shifted EBITDA growth toward the first half. In addition, our guidance continues to include second half costs related to packaging redesign. As a result, we expect second half EBITDA margins to be modestly lower than the first half, with the full year above our long-term algorithm at 21%. Moving to our second quarter forecast, we expect mid- to high-teens net sales growth, with Premier Protein the main driver. Dime Ties and all others expect to be flat to down year-over-year. We expect consumption dollar growth to be meaningfully exceed shipment dollar growth for Premier Shakes, which is typical in the second quarter. We expect second quarter adjusted EBITDA margins to decline modestly compared to a year ago, with significantly higher marketing spend more than offsetting higher gross margins. In closing, we are pleased with our strong start to fiscal 25. Our Q1 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.

Thank you. If you would like to ask a question, please press star 11. If your question hasn't answered and you'd like to remove yourself from the queue, please press star 11 again. Our first question comes from David Palmer with Evercore ISI. Your line is open.

Thanks. Good morning. I wanted to ask you about your growth, how you're growing this year, you think, in ways that are different than maybe last year, and maybe the opportunities going forward. You know, if you go through this transcript, you can get – a lot of stuff, a lot of things are going on. You mentioned the indulgent types, the new pack types, PET versus the aseptic boxes. We saw some strong growth in e-commerce. So I'm just wondering how you would characterize the growth levers this year and what's coming in stronger or more importantly, and then maybe how this will play out even beyond 25.

It's a great question. So first of all, I mean, this year is fundamentally different from last year. I mean, we have ample capacity where we really can drive the business. I mean, I mentioned in my prepared remarks that the entire organization is now focused on demand driving. Where you really see that is This is the first time that we have started national advertising. We have not had national advertising on our main business, our Shake business since 2021. So that's a big difference. And honestly, that is the one driver that can lift all channels. So incredibly important. The second piece is just around distribution. we expanded distribution and innovation, I would say. So in past, you know, last year versus this year, we're really driving distribution and innovation. Whereas last year, we were still having out-of-stocks on the shelf, especially in the food accounts. And then I would say the third big one is promotion in food. So last year we did not, we kind of eased in promotion last year and we started in the club channel and then expanded from there. We now have promotion across and we started layering in promotion and display in the food channel. And I always like to repeat this because I think our business is different from many other businesses, is it is less about the sense off for promotion. So it's not about deep discounting. All we want, we display is what moves our business. And so we kind of do as little as we can from a sense off standpoint to get those displays in aisle. And we're really starting January, February, March is the big season for us where the most new consumers enter into the category. And so it's nice to see our big displays out there like they have been in past years. So I would say those are kind of the three big areas that are different this year than last year. So hopefully that answers your question.

Thanks. a separate follow up on Dymatize International really was super strong this quarter, we would estimate maybe up 40%. You know, how do you how do you see Dymatize playing out this year? As a brand? Was that international strength? Sort of a one off of this quarter? You know, any thoughts about Dymatize in 25? Thanks.

We expect the Dymatize international business to continue to be strong throughout the year and drive the overall business. In the U.S., so remember international business for Dymatize is about 40% of the global brand. So, and I, you know, the U.S. business is pressured. We have, you know, a few years ago, we took a lot of pricing. The category took a lot of pricing because of whey protein prices really accelerating. Well, we're seeing those commodity prices continue to accelerate. So the P&L is pressured. I mean, globally, but the consumer in the U.S. is much more pressured. So I think that as we look at the global brand, international will stay strong throughout the year. And we're looking at basically like single-digit growth for the global brand.

Thank you.

Thank you. Our next question comes from Andrew Lazar with Barclays. Your line is open.

Great. Thanks so much. Good morning. Darcy, last quarter, You talked about the learnings from several of the tests that you did of your advertising campaign behind Premier. You know, that is now in full swing on a national basis. I know this is the first one in many years, so I'm trying to get a sense of what sort of response, knowing it's still early, that you're seeing to the campaign, you know, based on whatever metrics that you use to sort of assess the lift or the payback.

So it just launched at the end of December. last week of December, so it's very, very new. But the early, you know, what we look at right now, because it's too soon to really see, you know, lifts in market, but we look at website traffic, we look at online search, and those look really strong. So we're getting consumers' attention, and they're acting. And they're actually searching premier protein. So that's exactly what we want to see I think that you know, this was a this was a well researched Campaign so I think I told you guys last quarter that we did we performed three test markets We also did a fair amount of creative testing. We wanted to make sure we we got it, right and because it was the first time that we have launched national media in several years. So all the test markets met or exceeded the lift expectations. We found a few areas from a creative standpoint that we could tweak and improve the spots. So we were able to do that. And we're really pleased with the early performance.

Thank you for that. I think last quarter you mentioned sort of starting to have more top-to-top discussions with key customers now that you have sort of ample capacity and some more innovations to talk about that sort of warrant, right, talking about more incremental shelf space in the store. Would you expect this to lead to sort of material gains along these lines of this fiscal year, or are those things and those sorts of decisions by retailers really sort of a longer burn sort of process?

Thanks so much. I would say yes and yes. First of all, I think that one of our main growth drivers is just around getting our fair share of this shelf. We're about a 25% market share player, the number one in the category, so we should absolutely have a quarter of this shelf, if not more, because we're driving most of the new consumers into the category. So that is happening. We have capacity, and you're starting to see some really strong increases in TDPs. You can track it in our supplemental presentation. So that is happening. But then also these top-to-tops, those conversations are more around the future of the convenient nutrition category and how, I mean, there is, It's a new category, you know, 30-ish years old, and it's rapidly changing. And so if you go to, you know, the shelf set in a food account looks very different from a mass account and looks very different from a club account. And so there's a lot of opportunity to... to bring in consumer insights, to help consumers around make sense of all the products and how they use the products and who they're for, because right now it's very confusing. So those conversations, not only expanding the convenient nutrition category, expanding sports nutrition and everyday portion of the category, which is now three quarters of it, So those kind of conversation and those bigger changes take time. But in the meantime, we're also expanding, just getting our fair share of the shelf.

And just last, what would you put your share of shelf at versus your market share right now?

It is, so I don't have the exact number, but it's about half is where it should be.

Thanks so much.

Thanks.

Thank you. Our next question comes from Ken Goldman with J.P. Morgan. Your line is open.

Hi. Good morning. And thank you for the help in sort of framing the rest of the year in terms of cadence. I was wondering if I could ask a follow-up to that, which is how would you like us to think about premier, mainly ready-to-drink consumption in tract channels? any sort of ups or downs or unusual trends we should think about just as we, you know, look ahead at the biweekly releases going forward.

And Ken, you're mostly talking about Q2?

You know, yes and no, yes, but I'll say yes and yes, just like you did. You know, a little bit of both, whatever you can offer would be great.

Okay, so January, I said, was up 17%. We expect... Overall Q2, to be in the mid-20s, so we should be seeing, you know, acceleration as we go into Feb and March. And that is really driven, and again, now I'm using Moolo Plus, so we have a broader look at track channels, so that includes both Amazon and Costco. But yeah, so we should be seeing an acceleration into Q2, and then we should see strong consumption throughout the year.

Got it. Thank you. And then as we think about the ready to mix category in the U.S., I think there was some hope that there might be a little bit of a rollback situation, for lack of a better phrase, in January with a large customer across a number of different manufacturers. I was just curious, A, is that correct that we were expecting that? And B, did that happen as planned? And I guess C, what are you looking for in terms of overall category pricing there in light of some of the challenges at the higher end of the premium portion of the category as well as higher input costs going forward.

Okay. Ken, can you, so you said that we were expecting a rollback.

I'll simplify that, Darcy.

Yeah.

I was under the impression, no, I'll simplify it. I thought there might be, and maybe I misheard this last quarter, there might be a hope that there might be a little bit of, you know, incremental promotions at a particular customer in January across Ready to Mix. But really, broadly, I'm just trying to get a sense of, you know, what you're viewing or what you're expecting from pricing in that category, especially for the premium side, you know, in light of some of the challenges and in light of, you know, at the same time, some higher weight costs, if that makes sense.

Yeah, it makes perfect sense. We're watching it very closely because, yes, like you said, weight pricing is increasing and it's expected to continue to increase. Right now, promotion across the category is pretty stable. So we're not seeing a decrease in promotion to offset the increase in whey protein yet. I think that likely, we still believe that we're going to see it. We haven't seen any pricing yet. So I think that we believe We just have to see it later in the year because that's where you really start seeing the increases in whey protein. But we haven't seen it yet. We haven't seen a dramatic shift in promotion plus or minus.

Got it. Thank you.

Thank you. Our next question comes from Thomas Palmer with Citi. Your line is open.

Hey, thanks for the questions. First, I just wanted to make sure I understood the timing of cost inflation and kind of what's driving it. You talked about mid-single digit. Is that still the expectation? And then what's driving that uptick as we move into the back half? Is it really just looking at way or kind of, you know, other items to call out?

Thanks. Yeah, our overall expectation hasn't changed. It's mid-single digits. And really, in my prepared remarks, the shifting – some of the shift of protein is – For the full year, it's really neutral, but it's just a little bit more favorable first half, a little less favorable second half, unfavorable in the second half. So it's not that different. As far as what's driving, there's a little bit on whey protein, there's a little bit on milk protein. So again, we're talking about relatively small amounts, but a little bit of an uptick. And it's just market-driven. Whey protein continues to remain fairly tight supply-demand dynamics, so the costs there remain elevated. And then on milk proteins, which are the primary input for our shakes, it's just been a steady increase. The market for non-fat, dry milk has been bouncing up and down a bit. We're still not fully covered in the latter parts of the year, so we're obviously being cautious in watching that market. But again, we're talking about pretty small changes net. It's really no different than our expectation of mid-single digits for the full year.

Great. Thanks for that. And then on Dymatize, you noted earlier in the call how pricing had run out quite a bit a couple years ago, and I think last year was given some cost tailwinds, rather promotional for the group as a whole. Maybe an update on the promotional intensity you're seeing now that costs are really starting to escalate, and are you seeing any outright price increases or at least a pullback in that promotional activity by the group? Thanks.

Yeah, we are not. So we haven't seen pricing yet. There are some rumors out there, but we haven't seen anything at the shelf from a price increase standpoint. And there hasn't been a dramatic change of promotion. So pretty steady promotional levels. So we expect that there is going to be a change later in the year as these higher protein costs start flowing through the PNLs, but we haven't seen it yet.

Understood. Thank you.

Thank you. Our next question comes from Kamil Garjawala with Jefferies. Your line is open.

Hey, everyone. Good morning and congratulations. You're liberated from all the capacity constraints over recent years. There's a lot going on in what you've laid out. I guess the big sort of question is what's the right pace of doing all these things between the marketing and the repackaging and the innovation? There's sometimes a risk of going too fast, especially because this is really your first year of having the ability to be a lot more demand-focused. So how do you know you're sort of going at the right speed and not too fast?

I love that question. So we have been, if you think about the last year, you know, starting end of 23 into 24 and now 25, I would say we have been – pressing the accelerator kind of consistently. So we first layered in promotions in some channels. We did some light, kind of light innovation more around flavors just to give consumers and retailers some flavor excitement. Then this year was now we are launching both, you know, innovation as well as doing advertising. But we're still not, we've talked about, you know, wanting to get to, you know, four to five percent of spend on marketing. We're not there yet. we are slowly accelerating for the exact reason that you are talking about, which is we don't want to get into a supply-constrained situation, and we don't need to. We want to try to figure out the right level of support for our business to consistently drive it year over year. It's a fine line, but so far I think we've been doing it well and we'll continue to keep that in mind. Just your question around packaging, we have been working on packaging for a while and I'm really excited about the new graphics. It's an evolution, not a revolution, but it is going in the right direction. It'll improve all of our testing. It's going to improve discoverability. It's a more modern look. And we really haven't, we've done small changes to our packaging because it works well. But we haven't done kind of a logo redesign and package redesign in about a decade. So it's pretty exciting. And that should roll in toward the end of the year, basically like the second half.

That's good context. Thank you.

Thanks.

Thank you. Our next question comes from Jim Solera with Stevens. Your line is open.

Hey, Darcia. Hey, Paul. Thanks for taking our questions. Darcia, I wanted to go back to something you mentioned earlier, which is that Premier is really driving most of the new entrants into the category. If you look at the scan data, it really seems like Premier and maybe one other brand are the ones that continue to gain share. Can you just give us some insights into why some of the other legacy brands aren't seeing the same level of engagement from these new consumers, given that the category as a whole is kind of seeing a lot of new people engaging with it?

Yeah, the growth is coming from mainstream, so basically the everyday nutrition and sports nutrition segments. And it's really the kind of modern brand. I think if you separate the category into how we look at it, which is adult nutrition, sports nutrition, everyday nutrition, and weight management, you really start seeing a dynamic where It used to be that adult and weight really was most of the category. It's where the category began. And now you see those parts of the businesses really declining or just stagnant. And you see the sports nutrition and everyday just kind of exponentially growing. I think it is because those part of the categories are more, they're more positive, they're more proactive health messages as opposed to the adult and the weight side of things are more about deprivation. And so I think that that is, I think it's a changing consumer view of the entire category going much more into the positive wellness side as opposed to what you want to change about your body. So I think that is part of it.

Great. And then if I think about Premier in particular, is there a way to split up the volume gains between frequency among existing households. So it's whether it's, I used to have it once a week and now I have it three times a week versus just new households coming brand that haven't tried the product before.

Um, I don't know if I have that. We probably need to follow up with that. I don't have that off. I don't want to give you the, uh, uh, the wrong number. All I would say is that, um, we're seeing, and it shows in our supplemental presentation, where you see that not only are we increasing households, but we're also increasing buy rate and repeat rate. So it's rare that you see a business that is growing households as well as growing distribution, innovating, et cetera, but at the same time time increasing buy rate and repeat rate. So it's definitely, so I don't have the breakdown. I would say they're both contributing to our growth.

Okay, great. Appreciate it, Taylor. I'll hop back in your queue.

Thank you. Our next question comes from John Baumgardner with Mizuho Securities. Your line is open.

Good morning.

Thanks for the question.

Good morning.

Darcy, on the Shake side, it sounds as though you're gaining confidence that the depth of deal on promo for the consumer doesn't need to be as deep as it's historically been. And I'm curious the extent to which that then enables you to recalibrate your budget and transfer more funding into slotting or other areas that open new opportunities for where in the store you can be displayed or increase the frequency of quality promo. Is there maybe a longer-term benefit to be had here?

Yeah, I think that for us, the goal is display. And so we do not think that we need to go as deep as perhaps we did a few years ago. However, what I will say is that this doesn't have to do with just what we want. And so it is always a negotiation with our retail partners about what their, you know, what their rules are about, you know, the required depth to get display. So I, you know, if it was up to us, we would only do, you know, we would have very little TPR. If any, we would just do display because we know that that's where you get the eyeballs, you get the trial. We bring people into the franchise and then our 50% repeat fuels it. But again, there are more stakeholders that we need to work with and they have different rules.

Okay, thanks for that. And then on the ready to mix side, coming back to this absence of more prominent price increases thus far, Do you get the sense at all that the volume success of shakes is maybe forcing the powder segment to hold prices more so than usual and sort of accept some margin pressure to reinforce relative value there? I mean, I guess I'm curious if maybe there's more of a fundamental change in how powder is pricing, especially if there's some expectation or optimism for lower costs later this year.

Paul, do you want to talk a little bit about where we think pricing is going to go?

From a protein cost perspective on whey, I think what we're seeing is that costs have remained elevated and we expect those to really go through our fiscal year. I would not say that we've necessarily seen on whey powders relief yet. I think it's still a tight supply-demand dynamic on whey powders. We expect that really to continue through our fiscal year, which I would say in general I think our perspective is it's hanging on longer than we expected, so it may go beyond this fiscal year, but obviously that's still to be determined as we get further along. But, yeah, I'd say our view is that it seems to be sticking a little longer than expected.

But there definitely is a different dynamic because, you know, milk protein concentrate is what the protein that we use in our shakes, and then whey protein is what is in the powder business. And there's definitely a difference cost dynamic in both. They're both increasing, but milk protein concentrate is kind of just more steady where you don't have, the whey protein is a bit more volatile and has increased very dramatically over time. So I think, yeah, there's just a different P&L reality in both sides of the business.

Okay. Thanks, Darcy. Thanks, Paul.

Thank you. Our next question comes from Brian Holland with DA Davidson. Your line is open.

Thanks. Good morning. I was just curious, Darcy, if you could sort of discern for us between on some of these distribution gains, how much of that is capacity constraints easing? uh ver you know versus kind of like new product launches that you've talked about i guess it seems like you have a long tail of white space that you've referenced um over the past year plus um with respect to you know uh getting your products uh new forms single serve other channels etc so i'm just curious you know as we think about the long-term opportunity for how big this brand how big this category can be how broadly it could be distributed Where we are in that and the distribution gains that we're seeing, you know, specific to this quarter, how much of that is really just kind of core blocking and tackling as capacity constraints ease versus actually tapping into the long-term white space?

Okay, so from an out-of-stock, let's just start with kind of the block and tackling out-of-stocks that we're lapping. We'll probably... We'll have lapped most of the out of stocks by Q, I think they ended kind of Q2, trailed into Q3. By Q4 of last year, we had mostly full shelves. So if you think of that, so if you think of percentage of our growth, I think we would say kind of single digit part of our growth, maybe a quarter of our growth is coming from that. In the first half, so that's just kind of like now when you think about the long-term opportunity of distribution It I would bucket it into two sides I mentioned to Andrew that that I that we were if you if you assume that Your share of shelf should equal your market share We we basically should double our space. It varies dramatically from account to account, but at a macro level, we should about double our space given where our market share is. That's one piece. That's just share of shelf. But then when you think of when you're in a high growth category, fastest growing within one of the fastest growing within the store the entire category should increase in space and so I think that's where it gets really interesting and where the the continued so once we kind of fix the shelf meaning that we get our fair share then we start talking about the overall increase in the category space and those are those top-to-top discussions and the ones that should win there obviously are the ones that are driving the new consumers into the shelf and there aren't that many of those brands and we're one of them thanks that's very helpful and then maybe just on that last point

Capacity constraints are easing, you know, presumably not just for you, but for the category. We've seen little green shoots, you know, some tinier brands, certain private label SKUs, having some nice growth here off of, you know, obviously low bases. Just curious how you're seeing the competitive landscape evolve around you. as maybe more capacity becomes available. And certainly, you know, to your earlier point about the category being the second strongest behind eggs right now from a growth standpoint, clearly that brings eyeballs from a competitor standpoint. So just curious what you're hearing and seeing with respect to competitive activity, innovation, et cetera, around the moat that you've built here with Premier Protein and Ready to Drink.

Yeah, from a competitive standpoint, I would say there aren't a ton of major changes since the last several quarters. You know, the mainstream sports nutrition brands are winning, and they're the ones bringing in new consumers into the category, gaining distribution both in aisle and out of aisle, which has been – You know, again, the key, because it's a low household penetration category, so people need to see the product. And, you know, the smaller brands are honestly, I mean, yes, you always see some new plant products kind of come and go. But really ones that make a difference and are making an impact and gaining a lot of shelf space, there just aren't that many within ready-to-drink. Very different within ready-to-mix. Ready-to-mix, you see upstarts all the time. And I think that's the big difference between ready-to-drink and ready-to-mix in bars. Ready-to-mix in bars are much easier to formulate. You can get, you know, you can... You can basically formulate it in kind of a kitchen, a commercial kitchen, where the ready to drink category is just highly complex. It's hard to formulate. It takes two plus years to formulate these products. You have to make them in a facility that is kind of wall-to-wall stainless steel, aseptic, very expensive. Usually you have to commit to long-term volumes to get the space. So it's just a much different, yeah, competitive moat, I would say, than in the other parts of the category.

Thank you.

Our next question comes from Matt Smith with Stiefel. Your line is open.

Hi, good morning. Darcy and Paul, you called out the shift in marketing spend from one Q to the second half. Can you talk about what drove that change in timing? I know there's a focus on returning marketing and advertising back towards historical levels, but I'm curious how locked in marketing spend is in the second half.

I can start, Paul, and then you can add. to whatever I missed. So the decision really was around, we were supposed to start marketing in kind of the middle of December. We pushed it back a few weeks and mainly just we were making some adjustments to the creative and it took a little longer so we pushed it until we started on in the kind of last week of December right before New Year, New You. So that is kind of the reason why it pushed. Paul, you want to?

Yeah, so obviously we talked about the shift out of Q1, and really we shifted some from Q1 to Q2, which then shifted some to the second half. So the net impact is about a $4 million shift to the second half. But the level of spend for us is still the same as it was when we gave guidance last in November. So nothing's dramatically changed on our marketing spend. We still feel like we have the the right level in our guide and our plan. So no big changes there other than just the timing.

Thanks, Paul. And Darcy, as a follow-up, the innovation launch indulgence, how does the expansion play out from here? I think it was launched in some limited customers. Do you expect that to start to expand in this fiscal year? And is that shelf space incremental to Premier's current shelf space where you've already launched it?

Yes and yes. So yes, we started, we launched it in Q1 with one mass customer, and then we started in e-comm, and then we are planning to expand from there. So you'll start seeing it pop up in different accounts throughout the year, and yes, it's incremental.

Thanks, Darcy and Paula.

Thank you.

Thank you. Our next question comes from Robert Moscow with TD Cowan. Your line is open. Our next question comes from Robert Moscow with TD Cowan. Your line is open.

Sorry about that. Darcy, I was hoping for an update on a couple of things. One is, have you Given any extra thought to expanding into the convenience store channel, your convenience nutrition drink, I think it should be in the convenience channel. And then secondly, on GLPs, any new data on how the growth of GLPs is helping your business?

Convenience channel is still a future opportunity. It represents about 10%. of the overall category, so relatively small. I agree, we should be there, we will be there, but right now there are other opportunities that are bigger. One of the, and we've had a fair amount of conversations in the past about just DSD specifically, and we've been doing some work on our side to evaluate that, For now, I think what we're doing is we're kind of testing a hybrid strategy, which we like to call like ship via warehouse, merchandise like a DSD within our channels. And so we're seeing how far that can get us without going all the way to DSD. But convenience, yes, future opportunity, but not immediate. So that's the first one. Second one is GLP-1s. Yeah, so we track it very closely, as you might expect, and I would say the headlines tracking much, so the penetration of GLP-1s based on our research is much faster and bigger than what I think the original base case that Morgan Stanley put together. And I would say the one change, it definitely benefits our products, both ready to drink and ready to mix, but a little bit more on the ready to drink side. We estimated that it represents about a quarter of our growth. That is still the case. The only change that we saw in the past quarter on from our research is a few more people Lapsing so in essence the penetration the household pen so to speak is pretty stable, it's not growing anymore and and What we're seeing is they're kind of as many people entering or starting with GLPs as coming off. And the reason is because they've basically hit their target weight. And so they're sort of, it's plateauing a bit. We'll watch that carefully in the next coming, you know, the few coming quarters. But we still see it's a big, you know, a nice tailwind for the categories.

That's interesting. So, when you say that it represents 25% of your growth, if penetration rates do stabilize here, what would happen to that 25% number? Does that mean that it goes to zero or how do I connect those two?

No, I think that it continues. So, because Of the people that start GLPs, I mean, not everybody is on using RTDs. So, I think that it'll continue to grow. Also, it's one quarter, it's stabilized. I mean, I think this is really, it's new, so we got to keep watching it. But I think what's encouraging is that, you know, people use RTDs when they're on the drugs. but then they also use them after, so when they come off of it. And so to keep the benefit. So I just think that it's still, ultimately, we still have a low household penetration category. Our product is still 20% household pen. So we have a, this is just one of many growth drivers that we see on our business as well as the category.

Got it. Thank you.

Thank you. This concludes our question and answer session. Thank you for your participation. You may now disconnect. Everyone, have a great day.