The following discussion summarizes the significant factors affecting the
consolidated operating results, financial condition, liquidity and capital
resources of BellRing Brands, Inc. and its consolidated subsidiaries. This
discussion should be read in conjunction with our unaudited condensed
consolidated financial statements and notes thereto included herein, our audited
Annual Report on Form 10-K for the fiscal year ended September 30, 2019 and the
"Cautionary Statement on Forward-Looking Statements" section included below. The
terms "our," "we," "us," "Company" and "BellRing" as used herein refer to
BellRing Brands, Inc. and its consolidated subsidiaries.
                                    OVERVIEW
We are a consumer products holding company operating in the global convenient
nutrition category and a provider of ready-to-drink ("RTD") protein shakes,
other RTD beverages, powders, nutrition bars and nutritional supplements. Our
primary brands are Premier Protein, Dymatize and PowerBar.
                                       17

--------------------------------------------------------------------------------

Table of Contents



On October 21, 2019, BellRing Brands Inc. ("BellRing Inc.") closed its initial
public offering (the "IPO") of 39.4 million shares of its Class A common stock,
$0.01 par value per share (the "Class A Common Stock"), which number of shares
included the underwriters' exercise in full of their option to purchase up to an
additional 5.1 million shares of Class A Common Stock. The IPO was completed at
an offering price of $14.00 per share and BellRing Inc. received net proceeds
from the IPO of approximately $524.4 million, after deducting underwriting
discounts and commissions, all of which were contributed to BellRing Brands,
LLC, a Delaware limited liability company and BellRing Inc.'s subsidiary
("BellRing LLC"), in exchange for 39.4 million BellRing LLC
non-voting membership units (the "BellRing LLC units").
As a result of the IPO and certain other transactions completed in connection
with the IPO (the "formation transactions"), BellRing Inc. became the holder of
the historical active nutrition business of Post Holdings, Inc. ("Post"), which
until the completion of the IPO, had been comprised of Premier Nutrition
Company, LLC (the successor of Premier Nutrition Corporation), Dymatize
Enterprises, LLC, Supreme Protein, LLC, the PowerBar brand and Active Nutrition
International GmbH. As a holding company, BellRing Inc. has no material assets
other than its ownership of BellRing LLC units and its indirect interests in the
subsidiaries of BellRing LLC and has no independent means of generating revenue
or cash flow. For additional information on the IPO, see Note 1 within "Notes to
Condensed Consolidated Financial Statements."
The members of BellRing LLC are Post and BellRing Inc. BellRing Inc. holds the
voting membership unit of BellRing LLC (which represents the power to appoint
and remove the members of the Board of Managers of, and no economic interest in,
BellRing LLC). BellRing Inc. has the right to appoint the members of the
BellRing LLC Board of Managers, and therefore, controls BellRing LLC. The Board
of Managers is responsible for the oversight of BellRing LLC's operations and
overall performance and strategy, while the management of the day-to-day
operations of the business of BellRing LLC and the execution of business
strategy are the responsibility of the officers and employees of BellRing LLC
and its subsidiaries. Post, in its capacity as a member of BellRing LLC, does
not have the power to appoint any members of the Board of Managers or voting
rights with respect to BellRing LLC.
As of March 31, 2020, BellRing Inc. owned 28.8% of the outstanding BellRing LLC
units. The financial results of BellRing LLC and its subsidiaries were
consolidated with BellRing Inc., and effective as of October 21, 2019, 71.2% of
the consolidated net earnings of BellRing LLC were allocated to the redeemable
noncontrolling interest (the "NCI") to reflect the entitlement of Post to a
portion of the consolidated net earnings.
COVID-19
The COVID-19 pandemic has created global economic disruption and uncertainty,
including in our business. We are closely monitoring the impact of the COVID-19
pandemic and are taking necessary actions to ensure our ability to safeguard the
health of our employees, maintain the continuity of our supply chain to serve
customers and manage our financial performance and liquidity. Examples of
actions we have taken in response to the pandemic include enhancing facility
safety measures, working closely with public health officials to follow
additional health and safety guidelines and drawing an additional $65.0 million
of our revolving credit facility to further enhance liquidity.
Since the effects of the COVID-19 pandemic, including the actions of public
health and other governmental officials in response to the pandemic, began to
impact the category in which we operate, our products sold through the food,
drug and mass ("FDM"), club and eCommerce channels generally experienced an
increase in sales driven by consumer pantry loading during March. However, there
is no guarantee that such increase in sales will continue or be realized. Other
actions in response to the pandemic, such as store closures and domestic and
international governmental "stay at home" orders , have negatively impacted
sales for Dymatize and PowerBar products sold in specialty channels. For
additional discussion, refer to "Liquidity and Capital Resources" and
"Cautionary Statement on Forward-Looking Statements," within this section, as
well as "Risk Factors" in Part II of this report.
Lease Accounting
On October 1, 2019, we adopted Accounting Standards Update ("ASU") 2016-02,
"Leases (Topic 842)," and ASU 2018-11, "Leases (Topic 842): Targeted
Improvements." At adoption, we recognized right-of-use assets and lease
liabilities of $14.8 million and $16.0 million, respectively, on the balance
sheet at October 1, 2019. For additional information regarding the ASUs, refer
to Notes 2 and 12 within "Notes to Condensed Consolidated Financial Statements."
                                       18

--------------------------------------------------------------------------------

Table of Contents



                             RESULTS OF OPERATIONS
                                                                                 Three Months Ended March 31,                                                                                                                            Six Months Ended March 31,
                                                                                                         favorable/(unfavorable)                                                                                                     favorable/(unfavorable)
dollars in millions                            2020                   2019                  $ Change                                  % Change                  2020               2019              $ Change                            % Change
Net Sales                                 $    257.5              $   216.5          $             41.0                                        19  %        $   501.5          $   402.3          $      99.2                                                  25  %

Operating Profit                          $     35.1              $    40.8          $             (5.7)                                      (14) %        $    84.4          $    73.7          $      10.7                                                  15  %
Interest expense, net                           14.3                      -                       (14.3)                                     (100) %             25.9                  -                (25.9)                                               (100) %

Income tax expense                               2.2                    9.8                         7.6                                        78  %              8.1               17.6                  9.5                                                  54  %
Less: Net earnings attributable to NCI          14.4                   31.0                        16.6                                        54  %             40.2               56.1                 15.9                                                  28  %
Net Earnings Available to Class A Common
Stockholders                              $      4.2              $       -          $              4.2                                       100  %        $    10.2          $       -          $      10.2                                                 100  %


Net Sales
Net sales increased $41.0 million, or 19%, during the three months ended March
31, 2020, compared to the corresponding prior year period. Sales of Premier
Protein products were up $44.2 million, or 26%, with volume up 27%. Volume
increases were driven by higher RTD protein shake product volumes which
primarily related to increased consumer purchases in response to the COVID-19
pandemic, distribution gains, increased promotional activity and lapping
short-term capacity constraints in the second quarter of 2019. This positive
impact was partially offset by a decrease in average net selling prices in the
three months ended March 31, 2020 due to increased promotional spending. Sales
of Dymatize products were down $0.7 million, or 2%, with volume up 1%. Sales
decreased primarily due to an unfavorable sales mix resulting from an increase
in lower-priced powder volumes. Volumes increased primarily due to eCommerce
gains partially offset by lower FDM sales (lapping prior year promotional
activity) and international sales (resulting largely from temporary specialty
retail store closures in reaction to the COVID-19 pandemic). Sales
of PowerBar products were down $2.5 million, or 20%, with volume down 27%,
driven by lower international volumes associated with lapping a prior year
distribution center transition and planned product discontinuations of certain
products in North America. Sales of all other products were flat during the
three months ended March 31, 2020 compared to the corresponding prior year
period.
Net sales increased $99.2 million, or 25%, during the six months ended March 31,
2020, compared to the corresponding prior year period. Sales of Premier
Protein products were up $107.4 million, or 34%, with volume up 32%. Volume
increases were driven by higher RTD protein shake product volumes which
primarily related to distribution gains, lapping short-term capacity constraints
in the prior year period and increased consumer purchases in response to the
COVID-19 pandemic. Average net selling prices increased in the six months ended
March 31, 2020 resulting from targeted price increases that occurred in the
second quarter of fiscal 2019. Sales of Dymatize products were down $3.7
million, or 6%, with volume down 1%. Sales decreased primarily due to an
unfavorable sales mix resulting from an increase in lower-priced powder volumes.
Volumes decreased primarily due to lower FDM sales (lapping prior year
promotional activity) and lower international sales (resulting largely from
temporary specialty retail store closures in reaction to the COVID-19 pandemic),
partially offset by higher eCommerce volumes. Sales of PowerBar products were
down $3.7 million, or 16%, with volume down 27%, driven by planned product
discontinuations of certain products in North America and lower international
volumes associated with lapping a prior year distribution center transition.
Sales of all other products were down $0.8 million.
Operating Profit
Operating profit decreased $5.7 million, or 14%, during the three months ended
March 31, 2020, when compared to the prior year period. This decrease was
primarily driven by increased advertising and promotional spend of $9.9 million,
higher net product costs of $4.8 million, as unfavorable raw materials costs
were partially offset by lower manufacturing and freight costs, higher
employee-related expenses of $2.2 million and incremental public company costs
of $2.7 million (including higher stock-based compensation expense of $0.8
million). These negative impacts were partially offset by higher net sales, as
previously discussed, and lower costs related to the separation from Post of
$1.4 million.
Operating profit increased $10.7 million, or 15%, during the six months ended
March 31, 2020, when compared to the prior year period. This increase was
primarily driven by higher net sales, as previously discussed, partially offset
by higher net product costs of $6.5 million, as unfavorable raw materials costs
were partially offset by lower manufacturing and freight costs, increased
advertising and promotional spending of $11.7 million, higher employee-related
expenses of $5.0 million, incremental public company costs of $4.8 million
(including higher stock-based compensation expense of $1.7 million) and higher
warehousing costs of $2.3 million.
                                       19

--------------------------------------------------------------------------------

Table of Contents



Interest Expense, Net
Interest expense, net was $14.3 million and $25.9 million during the three and
six months ended March 31, 2020, respectively, compared to zero during each of
the three and six months ended March 31, 2019. The increases in interest expense
each period were due to the issuance of debt in the first quarter of fiscal
2020. We had no debt outstanding in fiscal 2019. See Note 15 for additional
information on our debt.
Income Taxes
Our effective income tax rate was 10.6% and 13.8% during the three and six
months ended March 31, 2020, respectively, and 24.0% and 23.9% during the three
and six months ended March 31, 2019, respectively. The decrease in the effective
income tax rate compared to each of the prior year periods was primarily due to
us taking into account for U.S. federal income tax purposes our 28.8%
distributive share of the items of income, gain, loss and deduction of BellRing
LLC in the periods subsequent to the IPO as a result of the formation
transactions. Prior to the IPO and formation transactions, we reported 100% of
the income, gain, loss and deduction of BellRing LLC. In accordance with
Accounting Standards Codification ("ASC") Topic 740, "Income Taxes," we recorded
income tax expense for interim periods using the estimated annual effective
income tax rate for the full fiscal year adjusted for the impact of discrete
items occurring during the interim periods.
                        LIQUIDITY AND CAPITAL RESOURCES
On October 21, 2019, BellRing Inc. closed its IPO of 39.4 million shares of
Class A Common Stock, which number of shares included the underwriters' exercise
in full of their option to purchase up to an additional 5.1 million shares of
Class A Common Stock, at an offering price of $14.00 per share. BellRing Inc.
received net proceeds from the IPO of $524.4 million, after deducting
underwriting discounts and commissions.
On October 11, 2019, in connection with the IPO and the formation transactions,
Post entered into a $1,225.0 million Bridge Facility Agreement (the "Bridge Loan
Facility") and borrowed $1,225.0 million under the Bridge Loan Facility (the
"Bridge Loan"). Certain of Post's domestic subsidiaries (other than BellRing
Inc. but including BellRing LLC and its domestic subsidiaries) guaranteed the
Bridge Loan. On October 21, 2019, BellRing LLC entered into a Borrower
Assignment and Assumption Agreement with Post and the administrative agent under
the Bridge Loan Facility, under which (i) BellRing LLC became the borrower under
the Bridge Loan and assumed all interest of $2.2 million thereunder, and Post
and its subsidiary guarantors (other than BellRing LLC or its domestic
subsidiaries) were released from all material obligations under the Bridge Loan,
(ii) the domestic subsidiaries of BellRing LLC continued to guarantee the Bridge
Loan, and (iii) BellRing LLC's obligations under the Bridge Loan became secured
by a first priority security interest in substantially all of BellRing LLC's
assets and substantially all of the assets of its subsidiary guarantors (other
than real estate). BellRing LLC did not receive any of the proceeds of the
Bridge Loan.
On October 21, 2019, BellRing LLC entered into a credit agreement ("Credit
Agreement") which provides for a term B loan facility in an aggregate principal
amount of $700.0 million (the "Term B Facility"), and a revolving credit
facility in an aggregate principal amount of $200.0 million (the "Revolving
Credit Facility"). During the three months ended December 31, 2019, BellRing LLC
borrowed the full amount under the Term B Facility and $120.0 million under the
Revolving Credit Facility and used the proceeds, together with the net proceeds
of the IPO that were contributed to it by BellRing Inc., (i) to repay in full
the $1,225.0 million of borrowings under the Bridge Loan and all interest
thereunder and related costs and expenses, (ii) to pay directly, or reimburse
Post for, as applicable, all fees and expenses incurred by BellRing LLC or Post
in connection with the IPO and the formation transactions, (iii) to reimburse
Post for the amount of cash on BellRing LLC's balance sheet immediately prior to
the completion of the IPO and (iv) for general corporate and working capital
purposes, as well as to repay $40.0 million of borrowings under the Revolving
Credit Facility.
BellRing LLC has $80.0 million of available borrowing capacity under the secured
Revolving Credit Facility as of March 31, 2020, and letters of credit are
available under the Revolving Credit Facility in an aggregate amount of up to
$20.0 million. During the second quarter of fiscal 2020, BellRing LLC borrowed
$65.0 million and repaid $25.0 million under the Revolving Credit Facility.
For additional information on the IPO, the formation transactions and the Credit
Agreement, see Notes 1 and 15 within "Notes to Condensed Consolidated Financial
Statements."
We expect to generate positive cash flows from operations and believe our cash
on hand, cash flows from operations and possible future credit facilities will
be sufficient to satisfy our future working capital requirements, research and
development activities and other financing requirements for the foreseeable
future. Our asset-light business model requires modest capital expenditures,
with annual capital expenditures over the last three fiscal years averaging less
than 1% of net sales. No significant capital expenditures are planned for the
remainder of fiscal 2020. Our ability to generate positive cash flows from
operations is dependent on general economic conditions, competitive pressures
and other business risk factors. As a result of uncertainties in
                                       20

--------------------------------------------------------------------------------

Table of Contents



the near-term outlook for our business caused by the COVID-19 pandemic, we have
taken steps to limit spending on travel and other operating expenses, and we
continue to focus on cash flow generation and have borrowed under BellRing LLC's
Revolving Credit Facility in order to increase our cash position and financial
flexibility. If we are unable to generate sufficient cash flows from operations,
or otherwise to comply with the terms of BellRing LLC's credit facilities, we
may be required to seek additional financing alternatives.
The following table shows select cash flow data, which is discussed below.
                                                                   Six Months Ended
                                                                      March 31,
dollars in millions                                               2020          2019
Cash (used in) provided by:
Operating activities                                           $   (5.1)      $  1.6
Investing activities                                               (1.2)        (1.4)
Financing activities                                               77.6         (8.0)

Effect of exchange rate changes on cash and cash equivalents (0.1)

(0.2)


Net increase (decrease) in cash and cash equivalents           $   71.2

$ (8.0)




Operating Activities
Cash used in operating activities for the six months ended March 31, 2020 was
$5.1 million compared to cash provided by operating activities of $1.6 million
in the prior year period. The decrease was primarily driven by higher interest
payments of $23.4 million due to the increase in the principal balance of our
outstanding debt and incremental income tax payments of $3.3 million. These
increased cash outflows were partially offset by higher operating profit and
favorable working capital changes of $6.4 million, primarily due to the build up
of inventory in the prior year period related to short-term supply constraints
partially offset by fluctuations in the timing of sales and collections of trade
receivables.
Investing Activities
Cash used in investing activities for the six months ended March 31, 2020
decreased $0.2 million compared to the prior year period, resulting from a
decrease in capital expenditures.
Financing Activities
Cash provided by financing activities for the six months ended March 31, 2020
was $77.6 million compared to cash used in financing activities of $8.0 million
in the prior year period. In the six months ended March 31, 2020, BellRing LLC
received proceeds of $686.0 million, net of discount, related to the issuance of
the Term B Facility and drew an aggregate of $185.0 million on the Revolving
Credit Facility. In addition, BellRing Inc. received $524.4 million from the
issuance of its Class A Common Stock in conjunction with the IPO. BellRing LLC
had net cash transfers of $9.5 million to Post which included cash deposits
prior to the IPO and a tax distribution to Post pursuant to BellRing LLC's
amended and restated limited liability company agreement. BellRing LLC also
repaid the $1,225.0 million outstanding principal balance of the Bridge Loan
assumed from Post, repaid $65.0 million of outstanding borrowings on the
Revolving Credit Facility and repaid $8.7 million on the principal balance of
the Term B Facility. In connection with the issuance of BellRing LLC's long-term
debt, BellRing LLC paid $9.6 million in debt issuance costs and deferred
financing fees. In the six months ended March 31, 2019, financing activities
primarily related to cash transfers to and from Post, including cash deposits to
Post and cash borrowings received from Post used to fund operations or capital
expenditures and allocations of Post's corporate expenses.
Debt Covenants
Under the terms of the Credit Agreement, BellRing LLC is required to comply with
a financial covenant requiring BellRing LLC to maintain a total net leverage
ratio (as defined in the Credit Agreement) not to exceed 6.00 to 1.00, measured
as of the last day of each fiscal quarter. BellRing LLC was in compliance with
its financial covenant as of March 31, 2020, and we do not believe
non-compliance is reasonably likely in the foreseeable future.
The Credit Agreement provides for incremental revolving and term facilities, and
also permits other secured or unsecured debt, if, among other conditions,
certain financial ratios are met, as defined and specified in the Credit
Agreement.
                                       21

--------------------------------------------------------------------------------

Table of Contents


                   CRITICAL ACCOUNTING POLICIES AND ESTIMATES
On October 1, 2019, we adopted ASU 2016-02, "Leases (Topic 842)," and ASU
2018-11, "Leases (Topic 842): Targeted Improvements." For additional
information, refer to Notes 2 and 12 within "Notes to Condensed Consolidated
Financial Statements."
Our critical accounting policies and estimates are more fully described in our
Annual Report on Form 10-K for the year ended September 30, 2019, as filed with
the Securities and Exchange Commission ("SEC") on November 22, 2019. Except as
noted above, there have been no significant changes to our critical accounting
policies and estimates since September 30, 2019.
                      RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 2 within "Notes to Condensed Consolidated Financial Statements" for a discussion regarding recently issued accounting standards.


               CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Forward-looking statements, within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), are made throughout this report, including
statements regarding the effect of the COVID-19 pandemic on our business and our
continuing response to the COVID-19 pandemic. These forward-looking statements
are sometimes identified from the use of forward-looking words such as
"believe," "should," "could," "potential," "continue," "expect," "project,"
"estimate," "predict," "anticipate," "aim," "intend," "plan," "forecast,"
"target," "is likely," "will," "can," "may," or "would" or the negative of these
terms or similar expressions elsewhere in this report. Our results of
operations, financial condition and cash flows may differ materially from those
in the forward-looking statements. Such statements are based on management's
current views and assumptions and involve risks and uncertainties that could
affect expected results. Those risks and uncertainties include, but are not
limited to, the following:
•the impact of the COVID-19 pandemic, including negative impacts on the global
economy and capital markets, our ability and the ability of our third party
manufacturers to manufacture and deliver our products, our supply chain and our
operations generally;
•disruptions or inefficiencies in the supply chain, including as a result of our
reliance on third party suppliers or manufacturers for the manufacturing of many
of our products, pandemics, changes in weather conditions, natural disasters,
agricultural diseases and pests and other events beyond our control;
•significant volatility in the costs or availability of certain commodities
(including raw materials and packaging used to manufacture our products), higher
freight costs or higher energy costs;
•changes in economic conditions, disruptions in the United States and global
capital and credit markets, changes in interest rates and fluctuations in
foreign currency exchange rates;
•our ability to attract key employees, loss of key employees, employee
absenteeism, labor strikes, work stoppages or unionization efforts;
•our high leverage, our ability to obtain additional financing (including both
secured and unsecured debt) and our ability to service our outstanding debt
(including covenants that restrict the operation of our business);
•our dependence on sales from our RTD protein shakes;
•our dependence on a limited number of third party contract manufacturers and
suppliers for the manufacturing of most of our products, including one
manufacturer for the substantial majority of our RTD protein shakes;
•our operation in a category with strong competition;
•our reliance on a limited number of third party suppliers to provide certain
ingredients and packaging;
•consolidation in our distribution channels;
•our ability to anticipate and respond to changes in consumer and customer
preferences and trends and to introduce new products;
•our ability to maintain favorable perceptions of our brands;
•our ability to expand existing market penetration and enter into new markets;
•allegations that our products cause injury or illness, product recalls and
withdrawals and product liability claims and
                                       22

--------------------------------------------------------------------------------

Table of Contents



other litigation;
•legal and regulatory factors, such as compliance with existing laws and
regulations and changes to and new laws and regulations affecting our business,
including current and future laws and regulations regarding food safety and
advertising;
•our ability to manage our growth and to identify, complete and integrate any
acquisitions or other strategic transactions;
•fluctuations in our business due to changes in our promotional activities and
seasonality;
•risks associated with our international business;
•risks related to our ongoing relationship with Post, including Post's control
over us and ability to control the direction of our business, conflicts of
interest or disputes that may arise between Post and us and our obligations
under various agreements with Post, including under the tax receivable
agreement;
•the loss of, a significant reduction of purchases by or the bankruptcy of a
major customer;
•the ultimate impact litigation or other regulatory matters may have on us;
•the accuracy of our market data and attributes and related information;
•economic downturns that limit customer and consumer demand for our products;
•our ability to protect our intellectual property and other assets;
•costs, business disruptions and reputational damage associated with information
technology failures, cybersecurity incidents and/or information security
breaches;
•risks associated with our public company status, including our ability to
operate as a separate public company following the IPO and the additional
expenses we will incur to create the corporate infrastructure to operate as a
public company;
•changes in estimates in critical accounting judgments;
•impairment in the carrying value of goodwill or other intangibles;
•significant differences in our actual operating results from any guidance we
may give regarding our performance;
•our ability to satisfy the requirements of Section 404 of the Sarbanes-Oxley
Act of 2002; and
•other risks and uncertainties included under "Risk Factors" in this report and
in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019,
filed with the SEC on November 22, 2019.
You should not rely upon forward-looking statements as predictions of future
events. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee that the future
results, levels of activity, performance or events and circumstances reflected
in the forward-looking statements will be achieved or occur. Moreover, we
undertake no obligation to update publicly any forward-looking statements for
any reason after the date of this report to conform these statements to actual
results or to changes in our expectations.

© Edgar Online, source Glimpses