BellRing Brands(BRBR) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for BellRing Brands, Inc. for the periods ended March 31, 2020, including statements of operations, comprehensive income, balance sheets, cash flows, and stockholders' equity, along with detailed notes on accounting policies and financial items following the company's IPO in October 2019 Condensed Consolidated Statements of Operations For the three months ended March 31, 2020, net sales grew to $257.5 million from $216.5 million year-over-year, but operating profit decreased to $35.1 million from $40.8 million due to higher costs, while for the six-month period, net sales increased to $501.5 million from $402.3 million, and operating profit rose to $84.4 million from $73.7 million, with net earnings available to Class A stockholders of $4.2 million for the quarter and $10.2 million for the six-month period Consolidated Statements of Operations Highlights (in millions) | Metric | Three Months Ended Mar 31, 2020 | Three Months Ended Mar 31, 2019 | Six Months Ended Mar 31, 2020 | Six Months Ended Mar 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $257.5 | $216.5 | $501.5 | $402.3 | | Gross Profit | $88.2 | $79.0 | $179.5 | $144.6 | | Operating Profit | $35.1 | $40.8 | $84.4 | $73.7 | | Net Earnings Available to Class A Stockholders | $4.2 | $— | $10.2 | $— | Earnings Per Share of Class A Common Stock | Metric | Three Months Ended Mar 31, 2020 | Six Months Ended Mar 31, 2020 | | :--- | :--- | :--- | | Basic EPS | $0.11 | $0.26 | | Diluted EPS | $0.11 | $0.26 | Condensed Consolidated Balance Sheets As of March 31, 2020, total assets increased to $725.6 million from $594.5 million at September 30, 2019, driven by a significant increase in cash and cash equivalents to $76.7 million, while total liabilities surged to $926.9 million from $108.1 million, primarily due to $791.4 million in long-term debt, resulting in a total stockholders' deficit of $1,863.2 million after recording a redeemable noncontrolling interest of $1,661.9 million Balance Sheet Comparison (in millions) | Account | March 31, 2020 | September 30, 2019 | | :--- | :--- | :--- | | Total Current Assets | $349.5 | $219.5 | | Total Assets | $725.6 | $594.5 | | Total Current Liabilities | $128.0 | $92.7 | | Long-term debt | $756.4 | $— | | Total Liabilities | $926.9 | $108.1 | | Redeemable noncontrolling interest | $1,661.9 | $— | | Total Stockholders' Equity (Deficit) | $(1,863.2) | $486.4 | Condensed Consolidated Statements of Cash Flows For the six months ended March 31, 2020, the company experienced a net cash outflow from operating activities of $5.1 million, a reversal from a $1.6 million inflow in the prior year period, with stable net cash used in investing activities at $1.2 million, while financing activities provided a significant net cash inflow of $77.6 million, driven by IPO proceeds and debt issuance used to repay a bridge loan, resulting in a net increase in cash and cash equivalents of $71.2 million Cash Flow Summary for Six Months Ended March 31 (in millions) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(5.1) | $1.6 | | Net Cash Used in Investing Activities | $(1.2) | $(1.4) | | Net Cash Provided by (Used in) Financing Activities | $77.6 | $(8.0) | | Net Increase (Decrease) in Cash | $71.2 | $(8.0) | Notes to Condensed Consolidated Financial Statements The notes detail the company's background, IPO, and formation transactions, establishing a new corporate structure where BellRing Inc. is a holding company for BellRing LLC, with Post Holdings retaining a 71.2% economic interest, and include key details such as revenue breakdown by product, related-party transactions with Post, accounting for the new redeemable noncontrolling interest, incurrence of significant debt, and adoption of the new lease accounting standard (ASC 842) - On October 21, 2019, BellRing Inc. closed its IPO, receiving net proceeds of approximately $524.4 million. BellRing LLC became the holder of Post's active nutrition business. Post holds a 71.2% economic interest in BellRing LLC, which is treated as a redeemable noncontrolling interest[27][28][30] Net Sales by Product for Six Months Ended March 31 (in millions) | Product | 2020 | 2019 | | :--- | :--- | :--- | | Shakes and other beverages | $411.2 | $302.3 | | Powders | $59.6 | $62.1 | | Nutrition bars | $26.9 | $32.8 | | Other | $3.8 | $5.1 | | Total Net Sales | $501.5 | $402.3 | - In connection with the IPO, BellRing LLC entered into a new Credit Agreement for a $700.0 million Term B loan facility and a $200.0 million Revolving Credit Facility. As of March 31, 2020, total long-term debt on the balance sheet was $756.4 million[79][77] - The company is involved in ongoing litigation regarding advertising claims for its Joint Juice® products. As of March 31, 2020, the company had an accrued liability of $8.5 million related to this matter[82][84] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, highlighting a 25% increase in net sales for the first six months of fiscal 2020, driven by strong volume growth in Premier Protein RTD shakes, partially offset by declines in Dymatize and PowerBar sales, with operating profit increasing despite higher advertising, employee-related, and public company costs, and addresses significant changes in liquidity and capital resources due to the IPO and new debt facilities, along with the initial impacts of the COVID-19 pandemic Results of Operations For the six months ended March 31, 2020, net sales grew by $99.2 million (25%) year-over-year, primarily due to a 34% increase in Premier Protein sales from higher volumes, offsetting declines in Dymatize and PowerBar products, while operating profit rose by $10.7 million (15%), as higher sales outweighed increased costs, including $11.7 million more in advertising, higher raw material costs, and new public company expenses, with the effective tax rate decreasing significantly due to the new corporate structure post-IPO Six Months Ended March 31, 2020 vs 2019 (in millions) | Metric | 2020 | 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $501.5 | $402.3 | $99.2 | 25% | | Operating Profit | $84.4 | $73.7 | $10.7 | 15% | - Premier Protein sales grew $107.4 million (34%) in the six-month period, driven by a 32% volume increase in RTD shakes due to distribution gains, lapping prior year capacity constraints, and COVID-19 pantry loading[98] - Operating profit growth was tempered by higher net product costs ($6.5M), increased advertising ($11.7M), higher employee expenses ($5.0M), and incremental public company costs ($4.8M)[99] Liquidity and Capital Resources The company's liquidity profile was transformed by its October 2019 IPO, which generated $524.4M in net proceeds, and the establishment of a new credit agreement with a $700M term loan and a $200M revolver, with these funds used to repay a $1,225.0M bridge loan assumed from Post, while cash used in operations was $5.1 million for the six-month period, a decrease from the prior year, mainly due to higher interest payments on the new debt, and the company increased its cash position by drawing an additional $65.0 million from its revolving credit facility to enhance financial flexibility amid COVID-19 uncertainty - The company executed its IPO for $524.4M in net proceeds and entered a new Credit Agreement ($700M Term B Facility, $200M Revolver) to repay a $1,225.0M Bridge Loan[104] - Cash from financing activities was a net inflow of $77.6 million for the six months ended March 31, 2020, compared to an $8.0 million outflow in the prior year, reflecting the major recapitalization[110] - In response to COVID-19, the company drew an additional $65.0 million from its revolving credit facility during the quarter to enhance liquidity[93][106] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from commodity price risk for raw materials, foreign currency risk (euro), and interest rate risk on its variable-rate debt, and to manage interest rate risk on its new debt facilities, the company entered into interest rate swaps with a notional value of $350.0 million, with the report noting that the COVID-19 pandemic has created significant volatility and uncertainty, potentially heightening these risks - The company is exposed to commodity price risk for raw materials, foreign currency risk (euro), and interest rate risk on its variable-rate debt[122][124][125] - As of March 31, 2020, the company had $811.3 million in outstanding variable-rate debt ($691.3M Term B Facility and $120.0M Revolver)[125] - To mitigate interest rate risk, the company held interest rate swaps with a notional value of $350.0 million as of March 31, 2020[126] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2020, with no significant changes in the company's internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[127] - No significant changes were made to the company's internal control over financial reporting during the quarter ended March 31, 2020[127] PART II. OTHER INFORMATION Legal Proceedings The company provides an update on the ongoing 'Joint Juice Litigation,' which involves multiple class-action complaints alleging false advertising for its glucosamine and chondroitin dietary supplements, with one case dismissed and on appeal, while ten other state-based class actions remain pending, and the company continues to defend these cases vigorously and does not believe their resolution will have a material adverse effect on its financials - The company is defending multiple class-action lawsuits related to advertising claims for its Joint Juice® products[128] - The company does not expect the resolution of these cases to have a material adverse effect on its financial condition, results of operations, or cash flows[130] Risk Factors This section highlights that the COVID-19 pandemic is identified as a significant risk factor, expected to negatively impact the global economy, capital markets, and the company's financial and operational performance, with specific pandemic-related risks including interruptions in the supply chain and manufacturing, closures of customer retail locations, and potential labor shortages, and the pandemic is noted to have heightened many of the other risks previously disclosed in the company's Form 10-K - The COVID-19 pandemic is identified as a significant risk factor, expected to negatively impact the global economy, capital markets, and the company's financial and operational performance[131] - Specific pandemic-related risks include interruptions in the supply chain and manufacturing, closures of customer retail locations, and potential labor shortages[131] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, a credit agreement amendment, and certifications by the company's officers as required by the Sarbanes-Oxley Act - Lists exhibits filed with the Form 10-Q, including the First Amendment to the Credit Agreement and various officer certifications[134]