BellRing Brands(BRBR) - 2022 Q4 - Annual Report

Cautionary Statement on Forward-Looking Statements Cautionary Statement on Forward-Looking Statements This section outlines key risks and uncertainties that could cause actual results to differ from projections - The company's financial condition, results of operations, and cash flows may differ materially from forward-looking statements due to various risks and uncertainties[9] - Key risks include dependence on ready-to-drink (RTD) protein shakes, intense competition, and potential disruptions in the supply chain, including those caused by the COVID-19 pandemic[9] - Other significant risks involve reliance on a limited number of third-party manufacturers and suppliers, volatility in input costs, the ability to adapt to changing consumer preferences, and the impact of high leverage[9] - Risks related to the Spin-off from Post Holdings, Inc, such as potential tax liabilities and conflicting interests with Post, are also highlighted[9][11] Summary of Risk Factors Summary of Risk Factors This section provides a concise overview of material risks facing the company across its operations - A substantial amount of net sales comes from RTD protein shakes, making the business vulnerable to decreases in their sales[14] - The company operates in a highly competitive category, facing challenges from other brands and private labels[14] - Supply chain disruptions, including those from the COVID-19 pandemic and reliance on a limited number of third-party manufacturers and suppliers, pose significant risks[14] - Financial risks include substantial debt and high leverage, uncertain economic conditions (e g, high inflation), and potential downgrades of credit ratings[14] - Risks related to the Spin-off from Post Holdings, Inc include potential conflicts of interest and tax liabilities[14][17] PART I Item 1. Business The company is a leader in convenient nutrition, focusing on its Premier Protein and Dymatize brands - BellRing Brands, Inc was formed on October 20, 2021, and completed its Spin-off from Post Holdings, Inc on March 10, 2022, becoming a new public holding company[21][23] - The company is a leader in the global convenient nutrition category, with primary brands Premier Protein and Dymatize, offering RTD protein shakes, other RTD beverages, and powders[22] - Premier Protein accounted for 81.0% of net sales and Dymatize for 15.4% in FY2022, with RTD protein shakes and other RTD beverages making up 79.0% of net sales[31] - U S business represented 88.7% of net sales in FY2022, with Costco and Walmart (including Sam's Club) accounting for approximately 63.5% of total net sales[34] - The company primarily relies on third-party contract manufacturers in North America and the E U, with one manufacturer providing approximately 64.7% of Premier Protein RTD shake supply in FY2022[39] Net Sales and Net Earnings (FY2020-FY2022) | Metric | FY2020 (Millions $) | FY2022 (Millions $) | Change (FY2020-FY2022) | |:---|:---|:---|:---| | Net Sales | 988.3 | 1,371.5 | +383.2 | | Net Earnings | 100.1 | 116.0 | +15.9 | General BellRing Brands, Inc became a new public holding company and successor to Old BellRing in March 2022 - BellRing Brands, Inc was formed on October 20, 2021, as a wholly-owned subsidiary of Post Holdings, Inc to effect the separation of Old BellRing[21] - On March 10, 2022, BellRing Brands, Inc became a new public holding company and the successor registrant to Old BellRing, following the completion of the Spin-off transactions[21] Our Company The company is a leader in the global convenient nutrition category with strong organic growth - BellRing Brands is a leader in the global convenient nutrition category, providing nutritious products under Premier Protein and Dymatize brands[22] - Products include RTD protein shakes, other RTD beverages, and powders, distributed through diverse channels including club, FDM, eCommerce, specialty, and convenience[22] Net Sales and Net Earnings Growth (FY2020-FY2022) | Metric | FY2020 (Millions $) | FY2022 (Millions $) | Growth | |:---|:---|:---|:---| | Net Sales | 988.3 | 1,371.5 | +38.8% | | Net Earnings | 100.1 | 116.0 | +15.9% | The Spin-off The Spin-off from Post Holdings established BellRing as a new public parent company in March 2022 - On March 9, 2022, Post contributed its BellRing LLC units and $550.4 million in cash to BellRing in exchange for $840.0 million in 7.00% Senior Notes due 2030 and limited liability company interests[23] - On March 10, 2022, BellRing converted to a Delaware corporation, and Post distributed 80.1% (78.1 million shares) of BellRing Common Stock to its shareholders[23] - The Spin-off eliminated Old BellRing's dual-class voting structure and reduced Post's ownership to approximately 14.2% immediately after the Spin-off, further decreasing to 3.4% by September 30, 2022[23] Our History prior to the Spin-off Prior to its IPO and Spin-off, BellRing LLC held Post's active nutrition business with Post as the controlling owner - Before the Spin-off and IPO (October 2019), BellRing LLC comprised Post's active nutrition business, including Premier Nutrition, Dymatize, PowerBar, and Active Nutrition International[26] - Post acquired Premier Nutrition in 2013, Dymatize in 2014, and the PowerBar brand and Active Nutrition International in 2015[26] - Immediately prior to the Spin-off, Post owned 71.5% of the economic interests in BellRing LLC and 67% of the voting power of Old BellRing[26] Our Organizational Structure Post-Spin-off, BellRing Brands, Inc became the public parent company with significantly reduced ownership by Post - Following the Spin-off, BellRing Brands, Inc became the new public parent company, and Old BellRing became its wholly-owned subsidiary[27] - As of September 30, 2022, Old BellRing is the sole equity member of BellRing LLC[27] - Post's ownership of BellRing Common Stock decreased from approximately 14.2% immediately after the Spin-off to 3.4% by September 30, 2022, due to a share transfer[27] Our Industry The company operates in the growing global convenient nutrition category, primarily targeting the U S market - The company operates in the rapidly-growing global convenient nutrition category, with the U S as its primary market[28] - The U S convenient nutrition category is segmented into everyday nutrition, adult nutrition, sports nutrition, and weight management[28] - Premier Protein appeals to a broad range of consumer need states, while Dymatize primarily focuses on sports nutrition[28][30] Brand Overview Premier Protein and Dymatize are the company's primary brands, with RTD shakes driving most sales - Premier Protein and Dymatize are the primary brands, covering major product forms in convenient nutrition[31] FY2022 Net Sales by Brand and Product Form | Category | Percentage of Net Sales (FY2022) | |:---|:---| | By Brand: | | | Premier Protein | 81.0% | | Dymatize | 15.4% | | Other | 3.6% | | By Product Form: | | | RTD protein shakes & other RTD beverages | 79.0% | | Powders | 17.7% | | Nutrition bars | 2.6% | Premier Protein Premier Protein is the company's largest brand, offering mainstream lifestyle nutrition products - Premier Protein is the largest brand, offering RTD protein shakes, refreshing protein beverages, and protein powders[32] - Flagship RTD protein shakes contain 30 grams of protein, one gram of sugar, 160 calories, are gluten- and soy-free, low fat, and fortified with 24 vitamins and minerals[32] - The product profile appeals to consumers across age ranges in all four need states (everyday nutrition, adult nutrition, sports nutrition, and weight management)[32] Dymatize Dymatize is a leading sports nutrition brand targeting fitness enthusiasts with science-based products - Dymatize targets fitness enthusiasts with science-based sports nutrition products, mainly protein powders[33] - ISO.100, made with hydrolyzed 100% Whey Protein Isolate, is the brand's flagship product with global reach in over seventy countries[33] - Dymatize products are sold in specialty, FDM, club, and eCommerce retail channels[33] Our Customers The company's customer base is concentrated in the U S, with Costco and Walmart as its largest clients - Customers include club stores, FDM, online retailers, specialty retailers, and convenience stores, with products sold in over seventy countries[34] FY2022 Net Sales by Geography and Major Customers | Category | Percentage of Net Sales (FY2022) | |:---|:---| | U.S. Business | 88.7% | | International Business | 11.3% | | Costco & Walmart (including Sam's Club) | 63.5% | Sales, Marketing and Distribution The company utilizes a multi-channel sales and marketing approach with third-party distribution - Sales channels include a direct sales force and broker networks in the U S, and a mix of direct sales and third-party distributors in international markets[35] - Marketing strategies are multi-faceted and consumer-driven, tailored to each brand's target audience, utilizing social media, digital media, television, and influencer programs[35][37] - Distribution relies on third-party common carriers, and product demand is affected by changing consumer behaviors, the COVID-19 pandemic, and broader economic conditions, including inflation[37] Research and Development The company focuses on continuous product innovation through internal and external R&D resources - The company focuses on improving and expanding product offerings through new flavors, ingredients, packaging, and process development technologies[38] - R&D efforts are supported by internal market research, consumer insights, and innovation teams, as well as external design firms, product development companies, and consultants[38] Supply Chain The company's supply chain relies on diverse suppliers and is primarily outsourced to third-party manufacturers - Raw materials, including milk-based, whey-based, and soy-based proteins, and packaging, are sourced from local, regional, and international suppliers, with prices subject to wide fluctuations due to external factors like pandemics and inflation[39] - Manufacturing is primarily conducted by third-party contract manufacturers in North America and the E U, with one owned plant in Voerde, Germany, for nutrition bars and gels[39] - Approximately 64.7% of Premier Protein RTD shake supply in FY2022 came from a single third-party contract manufacturer, with whom the company is renegotiating an agreement expiring December 31, 2022[39][41] - The company continuously plans for incremental capacity and qualifies new manufacturing partners to support business growth, distributing products through third-party common carriers and warehouses[39][41] Competition The company operates in a highly competitive market, focusing on marketing, innovation, and efficiency - The convenient nutrition category is highly competitive, with numerous competitors including other brands, private labels, and nutritional food and beverage players[42] - Competition factors include product quality, taste, functional benefits, nutritional value, convenience, brand loyalty, packaging, price, and promotional activities[42] - The company's competitive strategies involve strong marketing, effective customer relationship management, product innovation, an efficient supply chain, and competitive pricing[42] Seasonality The company's sales and margins fluctuate seasonally, with the first fiscal quarter typically being the lowest - Sales and EBIT margins fluctuate seasonally due to consumer spending patterns and retailer promotional activity[43] - The first fiscal quarter is typically low for net sales due to holiday season consumption slowdown[43] - Sales are generally higher in the rest of the fiscal year due to stronger consumer demand and promotional activities[43] Trademarks and Intellectual Property The company protects its brands and innovations through trademarks, patents, and other legal measures - The company owns or licenses key trademarks including BellRing®, Premier Protein®, Dymatize®, ISO.100®, PowerBar®, and Joint Juice®[44] - Trademarks are protected through registration in the U S, Germany, and other countries where brands are sold[44] - Protection of intellectual property also includes patents, copyrights, proprietary trade secrets, technology, know-how, and non-disclosure agreements[44] Governmental Regulation and Environmental Matters The company is subject to extensive regulations covering food safety, advertising, and environmental compliance - The company is subject to extensive federal, state, local, and international regulations, including food safety, advertising, labeling, privacy, and environmental laws[46] - Products are regulated as food or dietary supplements by agencies such as the FDA, USDA, and similar international bodies, requiring compliance with stringent production and marketing standards[46] - Operations are also subject to data privacy laws (e g, GDPR, California Privacy Rights Act) and anti-corruption regulations, with ongoing expenditures to ensure environmental compliance[46] Human Capital The company focuses on talent acquisition, development, and engagement for its global workforce of 380 employees - As of November 1, 2022, the company had approximately 380 employees (230 in U S, 135 in Germany, 15 in other countries)[47] - The company prioritizes a safe, rewarding, and respectful workplace, adhering to its Code of Conduct[47] - Talent acquisition includes diversity training for recruiters and expanded outreach to diverse candidate pools[50] - Development opportunities include monthly leadership trainings and in-depth workshops for managers[50] - Engagement is fostered through regular surveys, employee-led groups, and wellness activities, while retention is supported by competitive compensation and benefits[50] - Diversity, Equity, Inclusion, and Belonging (DEIB) initiatives include tracking performance and providing interactive anti-harassment and diversity training[51] Environmental, Social and Governance The company is committed to ESG principles, with oversight from the Audit Committee and dedicated steering committees - The company is committed to incorporating ESG principles into its business strategies and organizational culture[52] - The Audit Committee provides direction for ESG initiatives, and an Executive Sustainability Steering Committee guides goals and strategies[52] - A Sustainability Operations Committee implements programs and tracks progress, with annual Impact Reports published online[52] Additional Information SEC filings and corporate governance documents are publicly available on the company's website - SEC reports (10-K, 10-Q, 8-K) are available free of charge on the company's website (www.bellring.com)[53](index=53&type=chunk) - Corporate Governance Guidelines, Code of Conduct, and Board committee charters are also available on the website and to stockholders upon request[53] Information about our Executive Officers This section provides biographical information for the company's key executive leadership team - Robert V Vitale serves as Executive Chairman and Co-Principal Executive Officer, also holding leadership roles at Post Holdings, Inc[54][56] - Darcy H Davenport is President, CEO, and Co-Principal Executive Officer, with a history of leadership within Premier Nutrition and Post's active nutrition business[56] - Key executive officers include Douglas J Cornille (Chief Growth Officer), Marc S Mollere (SVP and General Manager of International), Paul A Rode (CFO), Craig L Rosenthal (SVP, General Counsel and Secretary), and Robin Singh (SVP, Operations)[56][57][58] Item 1A. Risk Factors The company faces material risks related to operations, finance, its relationship with Post, and regulations - A substantial portion of net sales (79.0% in FY2022) comes from RTD protein shakes, making the company highly dependent on this product category[61] - The convenient nutrition category is highly competitive, with many competitors having greater financial and marketing resources[62] - Supply chain disruptions, including those from the COVID-19 pandemic, reliance on a limited number of third-party contract manufacturers (one for 64.7% of Premier Protein RTD shakes), and volatility in raw material and freight costs, pose significant operational risks[63][66][68] - The company has substantial debt ($939.0 million as of September 30, 2022) and high leverage, which could limit financing options and liquidity[89] - Risks related to the relationship with Post Holdings, Inc include potential conflicts of interest due to overlapping directors and management, and restrictions to preserve the tax-free status of the Spin-off[99][103] - Legal and regulatory risks include compliance with food safety, advertising, and data privacy laws, as well as potential litigation (e g, Joint Juice lawsuits) and environmental regulations[107][110][111] Industry and Operating Risks The company faces risks from product concentration, intense competition, and supply chain vulnerabilities - A substantial amount of net sales (79.0% in FY2022) is derived from RTD protein shakes, making the business highly dependent on this product category[61] - The convenient nutrition category is highly competitive, with numerous competitors, including private labels, and some possessing substantially more resources[62] - Supply chain disruptions, including those from the COVID-19 pandemic, labor shortages, and reliance on a limited number of third-party contract manufacturers (one for 64.7% of Premier Protein RTD shakes), pose significant operational challenges[63][66] - The company must continuously identify and respond to changing consumer and customer preferences, including dietary trends, consumption patterns, and demand for sustainable packaging[72] - Maintaining favorable brand perceptions is critical, as negative publicity or loss of consumer confidence could adversely impact the business[73] - Loss of, or significant reduction in purchases by, major customers (Costco and Walmart accounted for 63.5% of FY2022 net sales) could materially affect revenues[77] - International operations expose the company to risks such as foreign exchange fluctuations, unfavorable regulatory changes, and geopolitical uncertainties[79][81] Financial and Economic Risks The company's substantial debt, high leverage, and exposure to economic uncertainty pose significant financial risks - The company has substantial debt, totaling $939.0 million as of September 30, 2022, which could limit additional financing and increase vulnerability to adverse economic conditions[89] - Debt agreements contain covenants, including a total net leverage ratio not to exceed 6.00:1.00, with non-compliance potentially leading to accelerated debt maturity[90][92] - Uncertain or unfavorable economic conditions, including high inflation and recessions, could limit consumer demand, increase costs, and negatively impact profit margins[92] - Increases in interest rates could raise servicing costs for variable-rate debt, affecting profitability and cash flows[94] - A downgrade of credit ratings could increase borrowing costs and impair access to capital markets[94] - Impairment in the carrying value of goodwill or other intangible assets could negatively impact financial condition and results of operations[94] Unsuccessful implementation of business strategies to reduce costs, or unintended consequences of the implementation of such strategies, may adversely affect our business, financial condition, results of operations and cash flows Failed cost-reduction strategies could negatively impact financial performance - Many costs (freight, raw materials, energy) are outside the company's control, necessitating cost reduction through operating efficiency[96] - Failure to implement cost-reduction projects on time or within budget, or unintended consequences like business disruptions, could adversely impact financial results[96] Actual operating results may differ significantly from our guidance and our forward-looking statements Financial guidance is speculative and actual results may vary significantly due to external uncertainties - Company guidance and forward-looking statements are speculative and subject to business, economic, and competitive uncertainties[97] - Actual results may differ significantly from forecasts, and investors should not place undue reliance on them[97] Risks Related to Our Relationship with Post The relationship with Post carries risks of conflicting interests and tax liabilities related to the Spin-off - Post's interests may conflict with BellRing's and its other stockholders' interests, potentially leading to unfavorable resolutions in disputes[99] - Overlapping directors and management with Post may create conflicts of interest or the appearance thereof[99] - The company is restricted from certain actions (e g, issuing equity, repurchasing stock) for two years post-Spin-off to preserve its tax-free status, which could be significant[103] - BellRing may be responsible for U S federal tax liabilities related to the Spin-off if it fails to qualify as tax-free, including indemnifying Post for certain tax liabilities[104][106] Legal and Regulatory Risks The company is exposed to risks from extensive regulations, potential litigation, and environmental laws - The business is subject to extensive federal, state, local, and foreign laws and regulations concerning food safety, advertising, labeling, data privacy, and environmental matters[107] - Non-compliance with regulations could lead to civil remedies (fines, recalls) or criminal sanctions, materially affecting business and financial performance[107] - Certain products regulated as dietary supplements face a higher level of regulatory scrutiny, increasing operational costs and potential for sales delays[109] - The company is party to various lawsuits and claims, including class action lawsuits related to its Joint Juice product, which could impair its reputation or incur significant costs[110] - Environmental laws and regulations can impose significant costs and liabilities, including for pollutant discharge and waste disposal[111] Risks Related to Ownership of Our Common Stock Stock ownership risks include price volatility, no planned dividends, and anti-takeover provisions - The market price and trading volume of common stock may be volatile due to various factors, including company performance, industry conditions, and general economic trends[112][115] - The company has no current plans to pay cash dividends, meaning stockholders must rely on stock price appreciation for future gains[116] - Provisions in the certificate of incorporation and bylaws, such as a staggered board and 'blank-check' preferred stock, may discourage or prevent strategic transactions or takeovers[117] - The certificate of incorporation designates the Court of Chancery of Delaware as the exclusive forum for certain actions, potentially limiting stockholders' ability to choose a judicial forum[117] General Risks General risks include changes in tax laws, human capital challenges, and internal control requirements - Changes in tax laws or disagreements with tax authorities on tax positions may adversely affect the company's financial performance[120] - The company's ability to operate successfully depends on recruiting, hiring, retaining, and developing key personnel and a qualified workforce[120] - Temporary workforce disruptions (e g, illness like COVID-19) or increases in labor-related costs could negatively impact profitability[120] - Failure to satisfy Section 404 of the Sarbanes-Oxley Act regarding internal control over financial reporting could weaken investor confidence[121] - Stockholder actions or proposals could lead to substantial costs, divert management's attention, and adversely affect the business[122] Item 1B. Unresolved Staff Comments This section states that there are no unresolved staff comments from the SEC Item 2. Properties The company utilizes a mix of owned, leased, and third-party facilities for its operations - Principal executive offices are provided by Post in St Louis, Missouri[124] - The company leases administrative offices and a research and development facility in the U S and Europe, and leases warehouse space through third-party logistics firms[124] - One manufacturing plant is owned in Voerde, Germany, for nutrition bars and gels[124] - Facilities are considered suitable, adequate, and of sufficient capacity for current operations, with planned expansion of third-party manufacturing[124] Item 3. Legal Proceedings Information on legal proceedings is incorporated by reference from the Consolidated Financial Statements - Legal proceedings information is incorporated from Note 15 of the Consolidated Financial Statements[125] - The company discloses environmental proceedings with monetary sanctions of $1.0 million or more; none were pending or resolved in the three months ended September 30, 2022[125] Item 4. Mine Safety Disclosures This item is not applicable to the company PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section details the company's stock trading, dividend policy, and share repurchase activities - BellRing Common Stock trades on the NYSE under the symbol 'BRBR', with approximately 4,259 stockholders of record as of November 14, 2022[129] - The company has no current plans to pay cash dividends on its common stock[130] - A $50.0 million share repurchase authorization was approved on May 23, 2022, expiring May 23, 2024[134] Issuer Purchases of Equity Securities (Q4 FY2022) | Period | Total Shares Purchased | Average Price Paid per Share ($) | Shares Purchased Under Programs | Remaining Authorization ($) | |:---|:---|:---|:---|:---| | July 1, 2022 - July 31, 2022 | 35,674 | 22.90 | 35,674 | 46,823,871 | | August 1, 2022 - August 31, 2022 | 840,000 | 23.16 | 840,000 | 27,367,808 | | September 1, 2022 - September 30, 2022 | 88,823 | 23.63 | 88,823 | 25,268,721 | | Total | 964,497 | 23.20 | 964,497 | 25,268,721 | Cumulative Total Return (October 2019 - September 2022) | Date | BellRing Brands, Inc. ($) | S&P 1500 Packaged Foods & Meats Index ($) | |:---|:---|:---| | 10/17/2019 | 100.00 | 100.00 | | 9/30/2022 | 139.27 | 118.20 | Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial performance, highlighting sales growth amid supply chain and inflation challenges - The Spin-off from Post Holdings, Inc was completed on March 10, 2022, resulting in BellRing becoming a new public parent company and the elimination of the dual-class voting structure[143] - The convenient nutrition category continues to grow, driven by active lifestyles, protein awareness, and demand for on-the-go products, but faces challenges from competition, changing consumer preferences, supply chain issues, and inflation[146] - The COVID-19 pandemic continues to cause global economic disruption, impacting the supply chain with lower production, capacity delays, and increased input and freight inflation, leading to low inventory and missed sales[149][151] - Cash provided by operating activities decreased by $205.1 million in FY2022 compared to FY2021, primarily due to increased inventory, timing of receivables/payables, higher tax payments, and increased interest payments[171] - The company has $939.0 million in total debt as of September 30, 2022, including $840.0 million in 7.00% Senior Notes and $99.0 million outstanding under its Revolving Credit Facility[281] Key Financial Highlights (FY2020-FY2022) | Metric | FY2022 ($ millions) | FY2021 ($ millions) | FY2020 ($ millions) | FY22 vs FY21 Change ($) | FY22 vs FY21 Change (%) | |:---|:---|:---|:---|:---|:---| | Net Sales | 1,371.5 | 1,247.1 | 988.3 | 124.4 | 10% | | Operating Profit | 212.4 | 168.0 | 164.0 | 44.4 | 26% | | Net Earnings Available to Common Stockholders | 82.3 | 27.6 | 23.5 | 54.7 | 198% | OVERVIEW BellRing completed its Spin-off from Post in March 2022, becoming a new public holding company - BellRing Brands, Inc completed its Spin-off from Post Holdings, Inc on March 10, 2022, becoming a new public holding company[143] - The Spin-off involved Post contributing BellRing LLC units and $550.4 million cash, receiving $840.0 million in 7.00% Senior Notes, and distributing 80.1% of BellRing's common stock to Post shareholders[143] - Post's ownership in BellRing Common Stock decreased to 3.4% by September 30, 2022, and the dual-class voting structure was eliminated[143] - BellRing operates in the global convenient nutrition category, providing protein-based consumer goods under Premier Protein and Dymatize brands[145] Industry & Company Trends The convenient nutrition category is growing but faces challenges from competition, inflation, and supply chain issues - The convenient nutrition category is expected to grow due to active lifestyles, protein benefits, and demand for on-the-go products[146] - Challenges include intense competition, changing consumer preferences, supply chain disruptions (labor shortages, equipment delays), and increasing inflationary pressures on costs[146] Seasonality The company's sales and margins fluctuate seasonally, with the first fiscal quarter typically being the lowest - Sales and operating profit margins fluctuate seasonally due to consumer spending patterns and retailer promotional activity[147] - The first fiscal quarter is seasonally low due to holiday consumption slowdown, with higher sales in subsequent quarters from stronger demand and promotions[147] COVID-19 Pandemic The pandemic continues to disrupt the supply chain, causing inflation, production strain, and missed sales - The COVID-19 pandemic continues to cause global economic disruption and uncertainty, impacting the company's business[148] - Input and freight inflation, along with input and labor availability, are pressuring the supply chain, leading to lower than anticipated production and delays in capacity expansion[149] - Low shake inventory volumes, missed sales, and product allocation are expected to persist throughout fiscal 2023[151] - The company has implemented pricing actions on nearly all products to mitigate the impact of widespread and significant raw material, packaging, and freight inflation[151] Items Affecting Comparability Comparability across fiscal years is affected by amortization, restructuring, and separation-related expenses - Accelerated amortization expense of $29.9 million in FY2021 due to the discontinuance of the Supreme Protein brand impacted comparability[152] - Restructuring and facility closure costs were $0.3 million in FY2022 and $5.6 million in FY2021[152] - Separation-related expenses from the Post Spin-off were $14.5 million in FY2022, $0.2 million in FY2021, and $1.9 million in FY2020[152] - An $8.0 million expense for legal matters was incurred in FY2022[152] RESULTS OF OPERATIONS Net sales and operating profit increased in FY2022, driven by higher prices and lower advertising costs Consolidated Operating Results (FY2020-FY2022) | Metric | FY2022 ($ millions) | FY2021 ($ millions) | FY2020 ($ millions) | FY22 vs FY21 Change ($) | FY22 vs FY21 Change (%) | |:---|:---|:---|:---|:---|:---| | Net Sales | 1,371.5 | 1,247.1 | 988.3 | 124.4 | 10% | | Operating Profit | 212.4 | 168.0 | 164.0 | 44.4 | 26% | | Interest expense, net | 49.2 | 43.2 | 54.7 | (6.0) | (14)% | | Loss on extinguishment and refinancing of debt, net | 17.6 | 1.6 | — | (16.0) | (1,000)% | | Income tax expense | 29.6 | 8.8 | 9.2 | (20.8) | (236)% | | Net Earnings Available to Common Stockholders | 82.3 | 27.6 | 23.5 | 54.7 | 198% | Net Sales Net sales increased 10% in FY2022, driven by higher selling prices despite lower volumes - Net sales increased by $124.4 million (10%) in FY2022, driven by higher average net selling prices for Premier Protein (up 7%) and Dymatize (up 35%)[155] - Volume decreases of 8% for Premier Protein and 5% for Dymatize in FY2022 were due to supply constraints, reduced demand-driving activity, and price elasticity[155] - Net sales increased by $258.8 million (26%) in FY2021, with Premier Protein volume up 24% and Dymatize volume up 29%, driven by distribution gains and category momentum[157] Operating Profit Operating profit rose 26% in FY2022 due to higher sales and reduced advertising, offsetting increased product costs - Operating profit increased by $44.4 million (26%) in FY2022, driven by higher net sales, $16.5 million reduction in advertising costs, and lower restructuring costs[158] - Offsetting factors in FY2022 included $140.5 million higher net product costs and $8.0 million higher legal expenses[158] - In FY2021, operating profit increased by $4.0 million (2%), but was negatively impacted by $29.9 million of accelerated amortization for the Supreme Protein brand and $38.9 million higher net product costs[159] Interest Expense, Net Interest expense increased in FY2022 due to higher debt principal and interest rates from new Senior Notes - Interest expense, net, increased by $6.0 million in FY2022 due to higher outstanding debt principal and a higher weighted-average interest rate (6.2% vs 5.3% in FY2021)[160] - The increase in interest rate was driven by the issuance of 7.00% Senior Notes in FY2022, partially offset by $3.8 million in net hedging gains[160] - In FY2021, interest expense decreased by $11.5 million due to lower principal amounts and a reduced weighted-average interest rate (5.3% vs 6.3% in FY2020) from debt refinancing[161] Loss on Extinguishment and Refinancing of Debt, Net The company recognized a $17.6 million loss in FY2022 from the termination of its Old Credit Agreement - A $17.6 million loss was recognized in FY2022 due to the termination of the Old Credit Agreement, including write-offs of unamortized discounts, debt extinguishment fees, net hedging losses, and debt issuance costs[162] - In FY2021, a $1.6 million loss was recognized from refinancing fees incurred with the Term B Facility refinancing[162] Income Tax Expense The effective tax rate rose to 20.3% in FY2022 due to changes in tax allocation post-Spin-off - The increase in the effective income tax rate in FY2022 was primarily due to the change in tax expense allocation related to the Spin-off, with the company now reporting 100% of BellRing LLC's income for U S federal, state, and local income tax purposes[165] Income Tax Expense and Effective Tax Rate (FY2020-FY2022) | Metric | FY2022 ($ millions) | FY2021 ($ millions) | FY2020 ($ millions) | |:---|:---|:---|:---| | Income Tax Expense | 29.6 | 8.8 | 9.2 | | Effective Income Tax Rate | 20.3% | 7.1% | 8.4% | LIQUIDITY AND CAPITAL RESOURCES The company restructured its debt in FY2022, but operating cash flow decreased due to inventory increases - On March 10, 2022, the company issued $840.0 million in 7.00% Senior Notes and entered into a $250.0 million Revolving Credit Facility, replacing the Old Credit Agreement[167] - The company repaid $519.8 million on the Term B Facility and terminated the Old Credit Agreement, incurring $11.9 million in debt issuance costs and other fees[167][175] - Cash provided by operating activities decreased by $205.1 million in FY2022, primarily due to increased inventory, timing of receivables/payables, and higher tax and interest payments[171] - The company expects cash on hand, cash flows from operations, and future credit facilities to be sufficient for working capital, R&D, debt repayments, and share repurchases, with modest capital expenditures[169] Select Cash Flow Data (FY2020-FY2022) | Cash Flow Category | FY2022 ($ millions) | FY2021 ($ millions) | FY2020 ($ millions) | |:---|:---|:---|:---| | Operating activities | 21.0 | 226.1 | 97.2 | | Investing activities | (1.8) | (1.6) | (2.1) | | Financing activities | (135.0) | (120.9) | (52.6) | | Net (decrease) increase in cash and cash equivalents | (116.8) | 103.9 | 43.2 | Operating Activities Operating cash flow decreased significantly in FY2022 due to inventory build-up and higher payments - Cash provided by operating activities decreased by $205.1 million in FY2022, driven by increased inventory, timing of receivables/payables, and higher tax and interest payments[171] - Inventory increases in FY2022 were due to input cost inflation, rebuilding powder inventory, and increased raw material levels[171] - In FY2021, operating cash flows increased by $128.9 million, primarily due to favorable timing of trade payables and decreased inventory, along with $13.1 million lower interest payments[173] Investing Activities Cash used in investing activities remained stable, reflecting consistent capital expenditures - Cash used in investing activities increased by $0.2 million in FY2022 due to higher capital expenditures[174] - Cash used in investing activities decreased by $0.5 million in FY2021 due to lower capital expenditures[174] Financing Activities Financing activities in FY2022 were driven by debt repayments, merger consideration, and stock repurchases - Cash used in financing activities was $135.0 million in FY2022, including $609.9 million debt repayment, $115.5 million merger consideration, and $42.8 million stock repurchases[175] - FY2022 financing activities were partially offset by $550.4 million cash from Post and $164.0 million borrowed under the Revolving Credit Facility[175] - In FY2021, $120.9 million was used for debt repayments ($63.8 million on Term B, $50.0 million on Old Revolving Credit Facility) and $24.6 million in tax distributions to Post[176] - In FY2020, $52.6 million was used, with proceeds from debt ($686.0 million) and IPO ($524.4 million) primarily used to repay a $1,225.0 million bridge loan[177] Debt Covenants The company was in compliance with its total net leverage ratio covenant as of September 30, 2022 - The Credit Agreement requires maintaining a total net leverage ratio not exceeding 6.00:1.00, measured quarterly[178][180] - The company was in compliance with the financial covenant as of September 30, 2022, and does not believe non-compliance is reasonably likely[180] - The Credit Agreement allows for potential incremental revolving and term facilities and other secured or unsecured debt, subject to conditions and limitations[180] COMMODITY TRENDS The company faces commodity price risks and expects inflationary pressures to continue into FY2023 - The company is exposed to price fluctuations from ingredients (milk-based, whey-based, soy-based proteins, sweeteners, vitamin/mineral blends), packaging materials, transportation, and energy[182] - Cost increases are managed through purchase commitments and price adjustments to customers, but competitive reasons may limit full offset[182] - Inflationary pressures were experienced in FY2022 and are expected to continue into FY2023, potentially impacting profitability if not mitigated by price increases or cost savings[182] CURRENCY Foreign currency exchange rate fluctuations had an immaterial impact on financial results in FY2022 - Foreign operations, with sales and costs denominated in Euro, expose the company to currency exchange rate fluctuations[184] - Fluctuations in exchange rates negatively affected net sales by less than 1% in FY2022 and had an immaterial impact on operating profit or net earnings[184] CRITICAL ACCOUNTING ESTIMATES Key accounting estimates involve significant judgment for revenue recognition and income tax calculations - Critical accounting estimates involve significant judgment, estimates, and assumptions, with actual results potentially differing from these estimates[186] - Revenue recognition involves estimating variable consideration for trade promotions, rebates, and discounts, which are reviewed and updated quarterly[186][188] - Income tax estimates include assessing deferred tax assets for realizability and recognizing tax benefits from uncertain tax positions based on a 'more likely than not' threshold[188] RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS The company adopted several new accounting standards in FY2022 with no material impact - The company early adopted ASU No 2021-08 (Business Combinations) and ASU No 2020-06 (Convertible Instruments) on October 1, 2021, with no material impact[236] - Topic 848 (Reference Rate Reform) was adopted on October 1, 2021, and is not expected to have a material impact[236] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from commodity prices, foreign currency, and interest rates - The company is exposed to commodity price risks (raw materials), foreign currency risks (Euro), and interest rate risks (variable-rate debt)[191][192][193][194] - The COVID-19 pandemic has not had a significant impact on the company's market risk exposure[191] - Commodity price risks are managed by locking in prices through purchase commitments and attempting to offset cost increases by raising prices to customers[192] - As of September 30, 2022, a hypothetical 10% decrease in interest rates would have increased the fair value of fixed-rate debt by approximately $17 million[196] - The company did not hold any interest rate swaps as of September 30, 2022[197] Commodity Price Risk The company manages commodity price risk through purchase commitments and customer price adjustments - The company is exposed to commodity price risks from raw material purchases[192] - Risks are managed by locking in prices through purchase commitments and attempting to offset cost increases by raising prices to customers[192] Foreign Currency Risk The company's European operations expose it to foreign currency risk, primarily from the Euro - The company is exposed to foreign currency risk from its Active Nutrition International GmbH operations, whose functional currency is the Euro[193] - Fluctuations in exchange rates can impact future cash flows and earnings[193] Interest Rate Risk The company has both fixed and variable-rate debt, exposing it to interest rate fluctuations - As of September 30, 2022, the company had $840.0 million in 7.00% Senior Notes (fixed rate) and $99.0 million outstanding under its Revolving Credit Facility (variable rate)[194] - A hypothetical 10% decrease in interest rates would have increased the fair value of the fixed-rate debt by approximately $17 million as of September 30, 2022[196] - Changes in interest rates impact fixed rate debt by affecting fair value, and variable rate debt by affecting interest expense and cash flows[196] Interest rate swaps The company held no interest rate swaps as of September 30, 2022 - As of September 30, 2021, the company had interest rate swaps with a notional value of $350.0 million[197] - The company did not hold any interest rate swaps as of September 30, 2022[197] Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements and supplementary data for FY2020-FY2022 - The section includes the Report of Independent Registered Public Accounting Firm, affirming fair presentation of financial statements and effective internal control over financial reporting[203][204] - Consolidated financial statements cover Statements of Operations, Comprehensive Income, Balance Sheets, Cash Flows, and Stockholders' Deficit for FY2020-FY2022[199] - Notes to Consolidated Financial Statements provide detailed information on accounting policies, the Spin-off, revenue, related party transactions, noncontrolling interest, income taxes, earnings per share, and debt[221] Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP issued unqualified opinions on the company's financial statements and internal controls - PricewaterhouseCoopers LLP issued unqualified opinions on the consolidated financial statements and the effectiveness of internal control over financial reporting as of September 30, 2022[203] - The audit confirmed fair presentation of financial position, results of operations, and cash flows in conformity with GAAP[203] - A critical audit matter was identified regarding the allowance for trade promotions, due to the significant audit effort required for management's estimates[207] Consolidated Statements of Operations Net sales and operating profit grew steadily from FY2020 to FY2022, with a significant increase in net earnings Consolidated Statements of Operations (FY2020-FY2022) | Metric | FY2022 ($ millions) | FY2021 ($ millions) | FY2020 ($ millions) | |:---|:---|:---|:---| | Net Sales | 1,371.5 | 1,247.1 | 988.3 | | Cost of goods sold | 949.7 | 860.9 | 650.3 | | Gross Profit | 421.8 | 386.2 | 338.0 | | Selling, general and administrative expenses | 189.7 | 167.1 | 151.8 | | Amortization of intangible assets | 19.7 | 51.2 | 22.2 | | Operating Profit | 212.4 | 168.0 | 164.0 | | Interest expense, net | 49.2 | 43.2 | 54.7 | | Loss on extinguishment and refinancing of debt, net | 17.6 | 1.6 | — | | Earnings before Income Taxes | 145.6 | 123.2 | 109.3 | | Income tax expense | 29.6 | 8.8 | 9.2 | | Net Earnings Including Redeemable Noncontrolling Interest | 116.0 | 114.4 | 100.1 | | Less: Net earnings attributable to redeemable noncontrolling interest | 33.7 | 86.8 | 76.6 | | Net Earnings Available to Common Stockholders | 82.3 | 27.6 | 23.5 | | Basic EPS | 0.88 | 0.70 | 0.60 | | Diluted EPS | 0.88 | 0.70 | 0.60 | Consolidated Statements of Comprehensive Income Comprehensive income available to common stockholders increased significantly from FY2020 to FY2022 Consolidated Statements of Comprehensive Income (FY2020-FY2022) | Metric | FY2022 ($ millions) | FY2021 ($ millions) | FY2020 ($ millions) | |:---|:---|:---|:---| | Net Earnings Including Redeemable Noncontrolling Interest | 116.0 | 114.4 | 100.1 | | Total Other Comprehensive Income (Loss) Including Redeemable Noncontrolling Interest | 3.8 | 1.9 | (7.4) | | Less: Comprehensive income attributable to redeemable noncontrolling interest | 38.3 | 88.2 | 70.6 | | Total Comprehensive Income Available to Common Stockholders | 81.5 | 28.1 | 22.1 | Consolidated Balance Sheets Total assets increased slightly in FY2022, while total liabilities rose significantly due to higher long-term debt Consolidated Balance Sheets (FY2021-FY2022) | Asset/Liability/Equity | FY2022 ($ millions) | FY2021 ($ millions) | |:---|:---|:---| | Cash and cash equivalents | 35.8 | 152.6 | | Receivables, net | 173.3 | 103.9 | | Inventories | 199.8 | 117.9 | | Total Current Assets | 421.3 | 388.1 | | Property, net | 8.0 | 8.9 | | Goodwill | 65.9 | 65.9 | | Intangible assets, net | 203.3 | 223.1 | | Total Assets | 707.2 | 696.5 | | Current portion of long-term debt | — | 116.3 | | Accounts payable | 93.8 | 91.9 | | Other current liabilities | 49.7 | 43.1 | | Total Current Liabilities | 143.5 | 251.3 | | Long-term debt | 929.5 | 481.2 | | Total Liabilities | 1,083.4 | 762.0 | | Redeemable noncontrolling interest | — | 2,997.3 | | Total Stockholders' Deficit | (376.2) | (3,062.8) | Consolidated Statements of Cash Flows Operating cash flow decreased significantly in FY2022, leading to an overall decrease in cash and cash equivalents - Supplemental noncash information shows $840.0 million in debt issued to Post Holdings, Inc in connection with the Spin-off in FY2022[216] Consolidated Statements of Cash Flows (FY2020-FY2022) | Cash Flow Category | FY2022 ($ millions) | FY2021 ($ millions) | FY2020 ($ millions) | |:---|:---|:---|:---| | Net Cash Provided by Operating Activities | 21.0 | 226.1 | 97.2 | | Net Cash Used in Investing Activities | (1.8) | (1.6) | (2.1) | | Net Cash Used in Financing Activities | (135.0) | (120.9) | (52.6) | | Net (Decrease) Increase in Cash and Cash Equivalents | (116.8) | 103.9 | 43.2 | | Cash and Cash Equivalents, End of Year | 35.8 | 152.6 | 48.7 | Consolidated Statements of Stockholders' Deficit The stockholders' deficit improved substantially in FY2022 due to the reclassification of noncontrolling interest post-Spin-off - The impact of the Spin-off significantly improved the Accumulated Deficit by $2,252.6 million in FY2022[219] Consolidated Statements of Stockholders' Deficit (FY2020-FY2022) | Metric | FY2022 ($ millions) | FY2021 ($ millions) | FY2020 ($ millions) | |:---|:---|:---|:---| | Preferred Stock | — | — | — | | Common Stock | 1.4 | 0.4 | 0.4 | | Additional Paid-in Capital | 7.0 | — | — | | Accumulated Deficit | (355.6) | (3,059.7) | (2,179.0) | | Accumulated Other Comprehensive Loss | (4.3) | (3.5) | (2.1) | | Treasury Stock | (24.7) | — | — | | Total Stockholders' Deficit | (376.2) | (3,062.8) | (2,182.6) | | Common Stock, shares (millions) | 135.3 | 39.5 | 39.4 | Notes to Consolidated Financial Statements The notes provide detailed explanations of accounting policies and financial statement components - Note 1 details the Spin-off from Post Holdings, Inc, including the contribution of assets, stock distribution, and changes in ownership structure[222] - Note 2 outlines significant accounting policies, including principles of consolidation, use of estimates, revenue recognition, and asset valuation[225] - Note 4 provides a breakdown of net sales by product (shakes, powders, bars) and geography, highlighting major customer concentrations[239] - Note 5 describes related party transactions with Post, including MSA fees, stock-based compensation, and tax agreements[240] - Note 6 explains the redeemable noncontrolling interest, its changes, and its reduction to zero post-Spin-off[247] - Note 7 details income tax expense, effective tax rates, and deferred tax assets/liabilities, noting the impact of the Spin-off on tax allocation[252] - Note 14 provides comprehensive information on long-term debt, including the 7.00% Senior Notes, Revolving Credit Facility, and the termination of the Old Credit Agreement[281] - Note 15 outlines commitments and contingencies, including the ongoing Joint Juice litigation and a voluntary product recall[290][292] - Note 16 details stock-based compensation plans for both Post and BellRing employees, including stock options, restricted stock units, and performance restricted stock units[293][304] NOTE 1 — BACKGROUND This note details the company's formation, IPO, and subsequent Spin-off from Post Holdings in March 2022 - Old BellRing's IPO in October 2019 led to BellRing LLC becoming the holding company for Post's active nutrition business[222] - The Spin-off from Post Holdings, Inc was completed on March 10, 2022, with Post distributing 80.1% of BellRing's common stock to its shareholders[222] - Post's ownership in BellRing Common Stock decreased to 3.4% by September 30, 2022, and the dual-class voting structure was eliminated[222] - BellRing incurred separation-related expenses of $14.5 million in FY2022[222] NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines key accounting policies, including consolidation, estimates, revenue recognition, and asset valuation - Consolidated financial statements reflect the active nutrition business of Post prior to IPO, then BellRing LLC with noncontrolling interest (NCI) post-IPO, and finally BellRing and its subsidiaries post-Spin-off[225] - Significant accounting estimates include allowance for trade promotions and income taxes[225] - Goodwill impairment is assessed annually (qualitative or quantitative test), with no impairment recorded in FY2020-FY2022[227] - Amortization expense for definite-lived intangible assets was $19.7 million in FY2022, $51.2 million in FY2021 (including $29.9 million accelerated for Supreme Protein brand discontinuance), and $22.2 million in FY2020[230] - Revenue is recognized when control of goods is transferred to customers, with variable consideration (trade promotions, rebates) treated as a reduction of revenue[233] - Post-Spin-off, the company reports 100% of BellRing LLC's income for U S federal, state, and local income tax purposes, a change from 28.8% prior to the Spin-off[235] NOTE 3 — RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS The company adopted several new accounting standards in FY2022 with no material impact - Early adopted ASU No 2021-08 (Business Combinations) and ASU No 2020-06 (Convertible Instruments) on October 1, 2021, with no material impact[236] - Adopted Topic 848 (Reference Rate Reform) on October 1, 2021, with no material impact expected[236] NOTE 4 — REVENUE Net sales are primarily driven by shakes and beverages in the U S market, with high customer concentration - U S external revenues represented 88.7% of total net sales in FY2022, with international sales at 11.3%[239] - Canada was the largest concentration of foreign sales in FY2022 (35.4% of total foreign sales)[239] - Two customers (Costco and Walmart/affiliates) accounted for approximately 63.5% of total net sales in FY2022[239] Net Sales by Product (FY2020-FY2022) | Product Category | FY2022 ($ millions) | FY2021 ($ millions) | FY2020