BELLRING BRANDS, INC. The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources ofBellRing 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 financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2020 , as amended, and the "Cautionary Statement on Forward-Looking Statements" section included below. The terms "our," "we," "us," "Company" and "BellRing" as used herein refer toBellRing 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. We have a single operating and reportable segment, with our principal products being protein-based consumer goods. Our primary brands are Premier Protein andDymatize . OnOctober 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") and contributed the net proceeds from the IPO toBellRing Brands, LLC , aDelaware limited liability company andBellRing Inc.'s subsidiary ("BellRing LLC "), in exchange for 39.4 millionBellRing 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 LLC became the holder of the active nutrition business of Post Holdings, Inc. ("Post").BellRing Inc. , as a holding company, has no material assets other than its ownership ofBellRing LLC units and its indirect interests in the subsidiaries ofBellRing 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 ofBellRing LLC are Post andBellRing Inc. BellRing Inc. holds the voting membership unit ofBellRing LLC (which represents the power to appoint and remove the members of theBoard of Managers of, and no economic interest in,BellRing LLC ).BellRing Inc. has the right to appoint the members of the BellRing LLCBoard of Managers , and therefore, controlsBellRing LLC .The Board of Managers is responsible for the oversight ofBellRing LLC's operations and overall performance and strategy, while the management of the day-to-day operations of the business ofBellRing LLC and the execution of business strategy are the responsibility of the officers and employees ofBellRing LLC and its subsidiaries. Post, in its capacity as a member ofBellRing LLC , does not have the power to appoint any members of theBoard of Managers or voting rights with respect toBellRing LLC . COVID-19 We continue to closely monitor the impact of the COVID-19 pandemic on our business and remain focused on ensuring the health and safety of our employees, and serving customers and consumers. Our primary categories returned to growth rates in line with their pre-pandemic levels during the fourth quarter of fiscal 2020 and have remained strong in subsequent periods. 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 Item 1A of Part II of this report. Restructuring Charges InOctober 2020 , we announced our plan to strategically realign our business, resulting in the closing of ourDallas, Texas office and the downsizing of ourMunich, Germany location. These actions were substantially completed as ofJune 30, 2021 . For additional information on restructuring costs, refer to Note 4 within "Notes to Condensed Consolidated Financial Statements." 17
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RESULTS OF OPERATIONS
Three Months Ended June 30 , Nine Months Ended June 30 ,
favorable/(unfavorable) favorable/(unfavorable)
dollars in millions 2021 2020 $ Change % Change 2021 2020 $ Change % Change
Net Sales $ 342.6 $ 204.2 $ 138.4 68 % $ 907.1 $ 705.7 $ 201.4 29 %
Operating Profit $ 51.5 $ 30.6 $ 20.9 68 % $ 114.9 $ 115.0 $ (0.1) - %
Interest expense, net 9.5 15.3 5.8 38 % 33.6 41.2 7.6 18 %
Loss on refinancing of debt 0.1 - (0.1) (100) % 1.6 - (1.6) (100) %
Income tax expense 3.4 1.1 (2.3) (209) % 5.8 9.2 3.4 37 %
Less: Net earnings attributable
to NCI 29.0 10.9 (18.1) (166) % 56.0 51.1 (4.9) (10) %
Net Earnings Available to Class A
Common Stockholders $ 9.5 $ 3.3 $ 6.2 188 % $ 17.9 $ 13.5 $ 4.4 33 %
Net Sales
Net sales increased $138.4 million , or 68%, during the three months ended June
30, 2021 compared to the corresponding prior year period, driven by increased
volume and the lapping of prior year negative impacts of the COVID-19
pandemic. Sales of Premier Protein products were up $111.8 million , or 65%, with
volume up 60%. Volume increases were driven by higher RTD protein shake product
volumes in the club, food, drug and mass ("FDM") and eCommerce channels. Average
net selling prices increased in the three months ended June 30, 2021 due to
targeted price increases, partially offset by increased promotional spending.
Sales of Dymatize products were up $21.6 million , or 99%, with volume up 77%.
Average net selling prices increased in the three months ended June 30, 2021 due
to favorable product mix and decreased promotional spending. Sales of all other
products were up $5.0 million .
Net sales increased $201.4 million , or 29%, during the nine months ended June
30, 2021 , compared to the corresponding prior year period. Sales of Premier
Protein products were up $164.9 million , or 28%, with volume up 28%. Volume
increases were driven by higher RTD protein shake product volumes in the FDM,
club and eCommerce channels. Sales of Dymatize products were up $34.0 million ,
or 44%, with volume up 25%. Average net selling prices increased in the nine
months ended June 30, 2021 due to favorable product mix. Sales of all other
products were up $2.5 million .
Operating Profit
Operating profit increased $20.9 million , or 68%, during the three months ended
June 30, 2021 , when compared to the prior year period. This increase was
primarily driven by higher net sales, as previously discussed, partially offset
by accelerated amortization expense of $11.8 million related to the
discontinuance of the Supreme Protein brand, higher net product costs of $10.5
million due to unfavorable freight, manufacturing and raw material costs,
increased advertising and promotional spending of $3.4 million and higher
employee-related costs.
Operating profit decreased $0.1 million , or less than 1%, during the nine months
ended June 30, 2021 , when compared to the prior year period. This decrease was
primarily driven by accelerated amortization expense of $29.9 million related to
the discontinuance of the Supreme Protein brand, higher net product costs of
$20.7 million due to unfavorable freight and raw material costs, restructuring
and facility closure costs, including accelerated depreciation, of $5.6 million ,
increased advertising and promotional spending of $5.9 million and higher
employee-related costs. These negative impacts were substantially offset by
higher net sales, as previously discussed, and lower costs related to the
separation from Post of $1.9 million .
Interest Expense, Net
Interest expense, net decreased $5.8 million during the three months ended June
30, 2021 compared to the prior year period. This decrease was primarily due to
lower aggregate principal amounts outstanding under BellRing LLC's term B loan
facility (the "Term B Facility") and under BellRing LLC's revolving credit
facility (the "Revolving Credit Facility") and lower net hedging losses
recognized on interest rate swaps of $1.4 million during the three months ended
June 30, 2021 compared to the prior year period. In addition, the
weighted-average interest rate on the aggregate principal amounts outstanding on
the Term B Facility and under the Revolving Credit Facility decreased to 4.8%
for the three months ended June 30, 2021 from 5.9% for the three months ended
June 30, 2020 , driven by lower variable interest rates and the refinancing of
the Term B Facility during the second quarter of fiscal 2021.
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Interest expense, net decreased$7.6 million during the nine months endedJune 30, 2021 compared to the prior year period. This decrease was primarily due to lower aggregate principal amounts outstanding under the Term B Facility and under the Revolving Credit Facility during the nine months endedJune 30, 2021 compared to the prior year period. In addition, the weighted-average interest rate on the aggregate principal amounts outstanding under the Term B Facility and under the Revolving Credit Facility decreased to 5.5% for the nine months endedJune 30, 2021 from 6.4% for the nine months endedJune 30, 2020 , driven by lower variable interest rates and the refinancing of the Term B Facility during the second quarter of fiscal 2021. See Note 16 and Note 14 within "Notes to Condensed Consolidated Financial Statements" for additional information on our debt and interest rate swaps, respectively. Loss on Refinancing of Debt During the three and nine months endedJune 30, 2021 , we recognized losses related to refinancing fees incurred in conjunction with the refinancing of our Term B Facility of$0.1 million and$1.6 million , respectively. See Note 16 within "Notes to Condensed Consolidated Financial Statements" for additional information on our debt. Income Taxes Our effective income tax rate was 8.1% and 7.3% for the three and nine months endedJune 30, 2021 , respectively, and 7.2% and 12.5% for the three and nine months endedJune 30, 2020 , respectively. The decrease in the effective income tax rate for the nine months endedJune 30, 2021 compared to the prior year period was primarily due to us taking into account forU.S. federal income tax purposes our 28.8% distributive share of the items of income, gain, loss and deduction ofBellRing LLC in the period subsequent to the IPO. Prior to the IPO and formation transactions, we reported 100% of the income, gain, loss and deduction ofBellRing 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 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, debt repayments, including both scheduled amortization payments and any mandatory prepayments required from excess cash flow, 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 2021. Our ability to generate positive cash flows from operations is dependent on general economic conditions, competitive pressures and other business risk factors. If we are unable to generate sufficient cash flows from operations, or otherwise to comply with the terms ofBellRing LLC's credit facilities, we may be required to seek additional financing alternatives. Additionally, we may seek to repurchase shares of our Class A Common Stock. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. During the second quarter of fiscal 2021,BellRing LLC entered into a second amendment to its credit agreement (as amended, the "Credit Agreement," and such amendment, the "Amendment"). The Amendment provided for the refinancing of the Term B Facility on substantially the same terms as in effect prior to the BellRing Amendment, except that it (i) reduced the interest rate margin by 100 basis points resulting in (A) for Eurodollar rate loans, an interest rate of the Eurodollar rate plus a margin of 4.00% and (B) for base rate loans, an interest rate of the base rate plus a margin of 3.00%, (ii) reduced the floor for the Eurodollar rate to 0.75%, (iii) modified the Credit Agreement to address the anticipated unavailability of the London Interbank Offered Rate as a reference interest rate and (iv) provided that if on or beforeAugust 26, 2021 BellRing LLC repays the Term B Facility in whole or in part with the proceeds of new or replacement debt at a lower effective interest rate, or further amends the Credit Agreement to reduce the effective interest rate applicable to the Term B Facility,BellRing LLC must pay a 1.00% premium on the amount repaid or subject to the interest rate reduction. 19
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The following table shows select cash flow data, which is discussed below.
Nine Months Ended
June 30,
dollars in millions 2021 2020
Cash provided by (used in):
Operating activities $ 145.9 $ 27.2
Investing activities (0.8) (1.3)
Financing activities (105.0) (9.1)
Effect of exchange rate changes on cash and cash equivalents 0.6 0.2
Net increase in cash and cash equivalents $ 40.7 $ 17.0
Operating Activities
Cash provided by operating activities for the nine months ended June 30, 2021
was $145.9 million compared to cash provided by operating activities of $27.2
million for the nine months ended June 30, 2020 . The increase was primarily
driven by favorable working capital changes of $78.8 million , which were
primarily due to fluctuations in the timing of purchases and payments of trade
payables, the build up of inventory in the prior year period related to lower
net sales caused by the COVID-19 pandemic and the timing of promotional activity
and fluctuations in the timing of sales and collections of trade receivables. In
addition, interest payments decreased $9.5 million compared to the prior year
period due to lower aggregate principal amounts outstanding under the Term B
Facility and Revolving Credit Facility, as well as the refinancing of the Term B
Facility. These positive impacts were partially offset by restructuring costs
payments of $4.6 million and increased tax payments of $3.9 million .
Investing Activities
Cash used in investing activities for the nine months ended June 30, 2021
decreased $0.5 million compared to the corresponding period in the prior year
resulting from a decrease in capital expenditures.
Financing Activities
Nine months ended June 30, 2021
Cash used in financing activities for the nine months ended June 30, 2021 was
$105.0 million . BellRing LLC drew an aggregate of $20.0 million under the
Revolving Credit Facility, repaid $55.0 million on the principal balance of the
Term B Facility and repaid $50.0 million on the Revolving Credit Facility during
the period. In addition, BellRing LLC had net cash transfers of $17.5 million to
Post which included tax distributions to Post pursuant to BellRing LLC's amended
and restated limited liability company agreement and state tax withholdings
payments on behalf of Post.
Nine months ended June 30, 2020
Cash used in financing activities for the nine months ended June 30, 2020 was
$9.1 million . 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 $22.4 million to Post, which
included cash deposits prior to the IPO, tax distributions to Post pursuant to
BellRing LLC's amended and restated limited liability company agreement and
state tax withholdings payments on behalf of Post. BellRing LLC also repaid the
$1,225.0 million outstanding principal balance of the bridge loan assumed from
Post in conjunction with the IPO, repaid $130.0 million of outstanding
borrowings on the Revolving Credit Facility and repaid $17.5 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.
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 June 30, 2021 , 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 BellRing LLC to incur other secured or unsecured debt, in all cases
subject to conditions and limitations on the amount as defined and specified in
the Credit Agreement.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our critical accounting policies and estimates are more fully described in our
Annual Report on Form 10-K for the year ended September 30, 2020 , as filed with
the Securities and Exchange Commission (the "SEC") on November 20, 2020 , as
amended on March 9, 2021 . There have been no significant changes to our critical
accounting policies and estimates since September 30, 2020 .
RECENTLY ISSUED ACCOUNTING STANDARDSSee 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, the health of our employees, our ability and the
ability of our third party manufacturers to manufacture and deliver our
products, operating costs, demand for our on-the-go products and our operations
generally;
•our dependence on sales from our RTD protein shakes;
•our ability to continue to compete in our product categories and our ability to
retain our market position and favorable perceptions of our brands;
•our dependence on a limited number of third party contract manufacturers for
the manufacturing of most of our products, including one manufacturer for the
substantial majority of our RTD protein shakes;
•the ability of our third party contract manufacturers to produce an amount of
our products that enables us to meet customer and consumer demand for the
products;
•our ability to maintain the net selling prices of our products and manage
promotional activities with respect to our products;
•our reliance on a limited number of third party suppliers to provide certain
ingredients and packaging;
•significant volatility in the cost or availability of inputs to our business
(including freight, raw materials, packaging, energy and other supplies);
•our ability to anticipate and respond to changes in consumer and customer
preferences and behaviors and introduce new products;
•disruptions or inefficiencies in our supply chain, including as a result of our
reliance on third party suppliers or manufacturers for the manufacturing of many
of our products, pandemics (including the COVID-19 pandemic) and other outbreaks
of contagious diseases, fires and evacuations related thereto, changes in
weather conditions, natural disasters, agricultural diseases and pests and other
events beyond our control;
•consolidation in our distribution channels;
•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 other litigation;
•legal and regulatory factors, such as compliance with existing laws and
regulations, as well as new laws and regulations and changes to existing laws
and regulations and interpretations thereof, affecting our business, including
current and future laws and regulations regarding food safety, advertising and
labeling;
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•our ability to identify, complete and integrate or otherwise effectively execute acquisitions or other strategic transactions and effectively manage our growth; •fluctuations in our business due to changes in our promotional activities and seasonality; •risks associated with our international business; •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; •changes in estimates in critical accounting judgments; •economic downturns that limit customer and consumer demand for our products; •changes in economic conditions, disruptions in theU.S. and global capital and credit markets, changes in interest rates, volatility in the market value of derivatives and fluctuations in foreign currency exchange rates; •our ability to protect our intellectual property and other assets and to continue to use third party intellectual property subject to intellectual property licenses; •costs, business disruptions and reputational damage associated with information technology failures, cybersecurity incidents and/or information security breaches; •impairment in the carrying value of goodwill or other intangibles; •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); •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, our obligations under various agreements with Post, including under the tax receivable agreement, and Post's proposed plan to distribute its interest in us; •risks associated with our public company status, including the additional expenses we will continue to incur to create and maintain the corporate infrastructure to operate as a public company; •our ability to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002; •significant differences in our actual operating results from our guidance regarding our performance; •our ability to hire and retain talented personnel, employee absenteeism, labor strikes, work stoppages or unionization efforts; 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 endedSeptember 30, 2020 , filed with theSEC onNovember 20, 2020 , as amended onMarch 9, 2021 . 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.
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