Q2 2022 Bellring Brands Inc Earnings Call
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Welcome to Bell Ring brands second quarter, 2022 earnings conference call and webcast hosting the call today from Bell ring brands are Darcy Davenport, President and Chief Executive Officer, and Paul Brown, Chief Financial Officer, today's call is being recorded and will be available for replay beginning at <unk>.
One P. At 130 P M. Eastern time, the dial in number is 893 477 nine no pass code is required at.
At this time all participants have been placed in a listen only mode. It is now my pleasure to turn the floor over to Jennifer Meyer Investor Relations.
<unk> brands for introductions you may begin.
Good morning, and thank you for joining us today for Bell ring brands second quarter fiscal 2022 earnings call with me today are Darcy Davenport, our president and CEO, Paul wrote our CFO.
Darcy and Paul will begin with prepared remarks, and afterwards, we'll have a brief question and answer session.
The press release and supplemental slide presentation that support these remarks are posted on our website.
In both the Investor Relations and the SEC filing section at Bell Rang Dot Com. In addition, the releases are available on the SEC's website.
Before we continue I would like to remind you that this call will contain forward looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements.
These forward looking statements are current as of the date of this call and management undertakes no obligation to update these statements.
As a reminder, this call is being recorded and an audio replay will be available on our website.
And finally this call will discuss certain non-GAAP measures.
For a reconciliation of these non-GAAP measures to the nearest GAAP measure see our press release issued yesterday and posted on our website.
With that I will turn the call over to Darcy.
Thanks, Jennifer and thank you all for joining US last evening, we reported our second quarter results and posted a supplemental presentation to our website.
On March 10th post completed its distribution of 80% of its interest in Valerie to pose shareholders.
They're not positions us with more strategic flexibility to manage our capital structure and provides additional liquidity in our shares.
I want to thank all the people at both during and post who worked incredibly hard to make this transaction successful.
Given the large number of investors participating on this call who are new to Valerie I want to step back and give a quick overview of our business.
Bell ring is a unique company, it's rare to have our size, but still only be in the early stages of the category and brand growth.
We compete in a large and growing category convenient nutrition category, specifically in the ready to drink and ready to make segments.
Both segments are highly underpenetrated with only 26% and 14% household penetration respectively.
The growth in both segments is driven by mainstream health and wellness trends, which have only accelerated throughout the COVID-19 pandemic.
We fully expect both segments to continue to mainstream and dramatically increase household penetration.
We have two leading brands premier protein and diner ties at target differentiated consumer segments.
Premier protein was the original mainstream ready to drink brand with the vision to improve People's health by putting great tasting nutrition within everyone's reach is now over a billion dollar brand with incredible loyalty, but still has less than 8% household penetration, leaving us with a tremendous long term opportunity.
Diamond ties our second largest business is a world class sports nutrition brand known for high quality and trusted products there.
The brand has proven it has strong appeal with mainstream athletes and will be a major future growth driver.
Our business has scale double digit organic growth strong margins and high free cash flow generation. Since 2017, we have organically grown sales at a compound annual growth rate of 15%.
We operate an asset light model, which drives significant free cash flow generation, allowing us to invest in the growth of our business and quickly delever.
From our IPO in October 2019 to the first quarter of 2022 we reduced our funded debt by nearly $250 million and net leverage decreased from $3 eight to two one times.
When we went public we laid out our vision and growth strategies. They included increasing household penetration expanding distribution launching innovation expanding internationally and when appropriate M&A.
Since our IPO, we have made such great progress against each one of these organic strategies that we have outpaced our shake capacity as well as the capacity in the North American a septic shake co manufacturing network.
As a result, we are dramatically accelerating our multi year capacity expansion plan that will support our company's long term strategy.
You saw last night, we raised our outlook for the year.
Our first half results combined with increased confidence in our shake supply chain and drove this increase.
We feel confident in our ability to deliver our second half results and as our capacity constrained began to ease over the next several quarters, we expect to resume our historical shake volume growth rates.
Our co manufacturing partners are producing at the levels, we need to deliver the year and our planned production is expected to increase every quarter through the next several years.
This planned expansion will return unit volume growth to double digits in fiscal 2023.
However, as anticipated for the balance of fiscal 'twenty, two we will see a decline in volume compared to year ago as we rebuild inventory.
Remember in the back half of last year, we drew down inventory to an unsustainable level to satisfy the step up in a step change in demand.
Highlighting this because the underlying growth of the category and the company of unit volume growth will continue to diverge for the next two quarters.
We have a great growth story that is currently constrained by our capacity we feel good about our progress this year and while certainly not finished with our planning process. We expect that 22 back half revenue and EBITDA run rate is a reasonable proxy for 2020 three.
Now turning to Q2 category and brand highlights.
The convenient nutrition category continues to see strong growth with ready to drink <unk> and ready the next powders, both growing dollars, 13% versus a year ago.
Even though maybe most major competitors have taken price volumes continued to be strong with RTD ounces growing 8%.
Premier protein continues to demonstrate tremendous strength, despite our need to pull back promotion marketing and reduced our skus in order to dampen demand.
Premier protein repeat rates and velocities have held steady demonstrating our high consumer loyalty.
Our trailing 52 week consumption is up 20%, which is on pace with category growth. Despite the recent six months of capacity constraints.
Impressively Premier Protein's Q2, shake consumption was only down 2%, even though we lap significant new year promotions and strong advertising support in the year ago period.
Retailers have largely held our shelf space through it through this period of lower supply given our category leading velocities.
We saw brief sequential decline in shake tea piece this quarter as retailers work through remaining inventory of the temporarily discontinued tetra skus.
Since then RTD piece of stabilized and we expect them to remain at these levels for the balance of the year until we began building T. D piece again in fiscal 'twenty three.
I continue to be impressed by the strength and the resilience of the Premier protein brand.
Dimetapp had another terrific quarter with U S consumption up 46% across tracked and untracked channels.
All key channels saw double digit growth and brand velocities remain strong.
Our newest Dematteis, I said 100 flavors, Dunkin' cappuccino and Mocha Latte drove drove excitement in velocity for the brand pebbles and Duncan together are driving nearly half of diamond prices growth.
I'm encouraged by our progress so far this year new capacity.
New capacity is coming along as expected and we are confident the brand will reaccelerate. When we are fully in stock diameter sizes on fire and appealing to mainstream athletes.
We have successfully taken price on both businesses to offset commodity increases and seen literally elasticity to date.
We have two high growth complementary brands that have strong mainstream appeal and significant upside all in all we feel confident about our long term outlook and the building blocks. We have we have in place to get there.
For your time and support I look forward to updating you on our progress next quarter I'll now turn the call over to Paul.
Thanks, Darcy and good morning, everyone.
Our second quarter financial results were strong with sales of $315 million and adjusted EBITDA of $51 million net.
Net sales grew 12% over prior year and for the second quarter and the Rover led by Diamond ties, which was up 55% while premier protein grew 7%.
Adjusted EBITDA was up 21% over prior year with margin of 16, 1%.
Mayor protein net sales were driven by higher average selling prices, reflecting reduced promotional activity and prior year price increases.
Recall that while we face capacity constraints, we have temporarily reduce tetra shakes skus of promotion and marketing.
This resulted in expected volume declines for premier protein in the quarter.
Net sales outpaced volume growth of 25% benefiting from higher average net selling prices, which reflected October price increases and a favorable mix.
Strong velocities and distribution gains drove volume growth.
Gross profit of 87 million was flat to last year with the decrease in gross profit margin to 27, 6%.
Margin decline resulted from higher dairy protein cost increased freight and higher than expected logistics inefficiencies, which were partially mitigated by higher net selling prices.
We saw improvements in logistics costs in the latter part of the quarter, which continued into the third quarter as inventories were better balanced across the network.
We estimate these inefficiencies were roughly a 200 basis point drag on the second quarter gross margin.
SG&A expenses of 49 million included $10 million of separation costs related to spinoff proposed.
Prior year SG&A expenses included <unk> 8 million of restructuring and facility closure costs.
Both items were treated as adjustments for non-GAAP measures.
Excluding these items SG&A decreased $9 million. It was favorable 460 basis points as a percentage of sales driven primarily by reduced marketing.
We generated 27 million of cash flow from operations in the second quarter.
We expect working capital increases in the second half as we rebuild our RTD shakes inventory levels.
Before outlining our updated guidance for 2022.
I want to review the changes to our capital structure that went into effect upon closing of the spinoff from Poste.
On March 10th post distribute at seven 8 million shares of Bell ring common stock shareholders.
Our share count is now increased to 136 million shares outstanding.
Post retained 20% of its interest in Bell ring, which translates to 19 million shares or 14% of our shares outstanding.
At the time of the distribution Bell ring pay $2 97 per share to the legacy barring shareholders, which included post for a total cash outlay of $4 5 million.
In connection with the close of the spin off we issued $840 million of new 7% Senior notes due March 2030, and borrowed $109 million under our new revolving credit facility.
Goodbye, new debt of $949 million was used to pay off the entire legacy $520 million term loan fund the 405 million share of payment and pay transaction related fees.
As of March 31, net debt was $879 million net.
Net leverage was three six times down from the pro forma spinoff closing target of four times.
Turning to our outlook we were.
Raised our fiscal 2022 guidance for net sales of 1.39 to $1 43 billion and adjusted EBITDA of $258 million to $268 million.
Compared to prior year, our updated guidance implies top line growth in the second half of 13% to 18% and EBITDA growth of 12% to 20%.
As indicated last quarter, we expect sequential sales growth in Q3, and Q4, reflecting the incremental pricing actions in new capacity.
For Premier protein, we expect second half net sales growth to come from pricing actions offset partially by lower volumes as Darcy mentioned in the second half of fiscal 'twenty. One we saw significant inventory reductions of shakes shipments outpaced production driven by strong category and brand growth.
This was an expected headwind to shake volumes in the second half with the third quarter being the toughest volume comparable against prior year.
We expect to increase as the second half margins as recent pricing actions flow through and offset inflation.
We expect inflation to step up each quarter in the second half driven primarily by dairy proteins.
Second half EBITDA is expected to be roughly split across Q3, and Q4 growing significantly from prior year.
In closing we are encouraged by our first half performance and our well positioned heading into the second half.
I will now turn it over to the operator for questions.
At this time, if he would like to ask a question. Please press the star and one on you touched on phone you may remove yourself from the queue at any time by pressing the pound key once again that is star Antoine if he would like to ask a question and we will take our first question from Andrew Lazar with Barclays.
Great. Thanks, very much good morning dressing them Paul.
Good morning, good morning.
Yes.
Based on your outlook for the capacity ramp around when would you expect that we would start to see increases in PDP and flavor variants as well as in market commercial activities start to sort of move higher.
Are you seeing anything in terms of competitive activity on the shelf or consumer behavior in the category that would impede premier from restoring tdp's back ultimately to the brand's high watermark given the capacity that you ultimately have coming online. Thanks, so much.
We expect TDP set of last couple of months as I said in my prepared remarks that TTP has stabilized in the last two months basically February March and we expect those to maintain for the rest of the year until the beginning of that first half of 'twenty three where are we.
Really start to drive TD piece, again, and reintroduce the temporary disk and flavors and were spot in response to when we're gonna start dry and driving demand with marketing and promotions that will then get layered in you know current plan is that we'll get layered in in the back half of 'twenty three.
And starting with marketing in in Q3, and then promotion in Q4. So really if you think of 'twenty three we began layering in the on demand driving activities.
And then your.
I think the third question there about competitive activity that could impede us and any changes you've seen that would that would you.
Impede premier getting back of restoring tdp's to sort of where the high watermark was given all the capacity you have coming online.
Yeah, nothing nothing that has dramatically changed from a competitive standpoint that would impede US you know.
You can go.
Can go to any retailer pretty much right now and you will see out of that you'll see rising prices and across our competitive set as well as capacity constrained and it just depends on you know it almost changes which.
Competitor it happens too so that is just a clear indication that this capacity constraint.
Phenomenon is affecting affecting everybody and it's affecting everybody whether you are command or even self manufactured so no nothing from a competitive act.
Perspective that should impede us on you know with our reintroduction plan right.
Great. Thanks for your time.
Yep.
We will take our next question from Ken Goldman with Jpmorgan. Your line is open.
Hi, good morning.
I wanted to dig in a little bit on the back half guidance.
The consensus estimate for the third quarter top line.
$383 million it implies a pretty sizable step up in terms of both the one and three year.
Growth rates versus <unk> I realize you don't want to give specific numbers, but.
The street's modeling sales dollars growing much higher from <unk> to <unk> <unk>, Paul I noticed that you called out the tougher volume comps in <unk> as well so I guess, what I'm trying to get at is is there any sense you can give us a sort of that cadence between <unk> and <unk> and how comfortable you are with where you were where the street numbers are right now.
Yeah sure I'll take that.
So if you look at what's driving growth in sales from Q2 to Q3. The one thing I'll point out is obviously theres significant pricing actions that are that are taking place.
And Thats really late second quarter really early into the third quarter. So we've taken double digit price increases on our on our diamond ties powder business and we've taken.
Mid to upper single digit increases on our on our shake business. So.
So some of the stuff is clearly from Q2 into Q3 is related to two.
Pricing actions, but.
Overall, we're well.
We're relatively comfortable with the growth rates that you that you that you've outlined.
Okay. Thank you and then I wanted to follow up by asking about operating expenses, which you know.
SG&A plus amortization that is which came in much lighter than what the street had expected this quarter. So I.
I wanted to ask to what degree was SG&A in terms of dollars lower than you might have thought going in it or is it really just the street mis modeling, which it may seem a little bit from our perspective. It is the latter but I guess the real question is how do we think about SG&A dollar progression from here it seems to us that consensus is modeling.
Nice step up in <unk> and <unk> from the first half I'm not quite sure. If that's in line with how youre thinking about things as well.
Yes, so I don't think about SG&A with amortization as much with the strip the amortization piece out so SG&A in the first half.
If you strip out the separation cost of about $12 million ends up right around 12% of net sales.
We are expecting that the second half is largely in line with that.
SG&A as a percent of sales, perhaps slightly higher but that would obviously imply that SG&A dollars grows as sales grow but from a sales and SG&A percentage perspective, I would expect that to be largely in line.
Great. Thank you so much.
Sure.
Yeah.
We will take our next question from Pamela Kaufman with Morgan Stanley . Your line is open.
Hi, good morning.
I know, it's I know, it's still early and you're in the middle of fiscal 'twenty two but in the prepared remarks, you suggested that growth for 2023 can look closer to the back half outlook for this year, which at the midpoint implies about 15% growth.
Is it fair to think about next year being above the algorithm here and can you break down the drivers that give you confidence around a stronger outlook.
Yeah.
We'll say that we did put it in our prepared remarks, but we are also I'm going to caveat it and just say we're early we're still planning for 'twenty three but you are exactly right that we looked at the back half as being a good proxy.
And we have always said that.
We are constrained this year and so next as we and it takes it takes a while longer than all of us want to build capacity and so but when we have it we fully expect to be able to get back to kind of historic growth rates, which are right in.
In line with what you what you talked about and so I think that that is that is where we are and you know we also have pricing and that will that will benefit the first half as well.
So I think that what you laid out is is exactly where we think you know we think it can be above algorithm, because we will no longer be you know will be less constrained than we were in 'twenty two.
Great. Thank you and then just on Diamond ties, obviously, you're seeing very strong growth can you talk about what channels. You are focused on building distribution and where you see further growth opportunity and what are you observing across repeat rates on velocity.
And particularly in untracked channels, which we have less visibility around.
Sure I think what's interesting about <unk> is that we are seeing growth across all channels, even the channels that historically had been softer like specialty. So if you kind of zoom out overtime specialty had lost them.
Volume two ecommerce, but what's nice to see is that we're actually seeing growth across all and that's really.
Because of our new flavors and or specifically a dime.
Duncan and pebbles have done remarkably well across all channels. So that's it so when you look at.
Distribution opportunities the biggest distribution opportunity really is in mass channel. So more think of a food.
Drug mass and club and the latter two being probably the biggest opportunity just because that's where powders are the most successful, but we have upside and specialty and e-commerce as well so.
Yes.
When we talk about household penetration dimetapp at less than one household penetration so really.
The distribution opportunity is is is tremendous.
From a repeat rate and velocity standpoint, very strong usually are right in that you know E. Commerce. We are the number two brand I'm on E. Commerce, specifically, so and we are one of the leaders in specialty I'm very strong velocity. So overall.
A lot of opportunity on this brand.
Thank you.
We will take our next question from Chris Growe with Stifel. Your line is open.
Hi, good morning.
Good morning, Hi, I just had a question for you to make sure I understand the second half.
In terms of building inventory it sounds like Thats your own inventory, you're trying to build as you get more capacity.
Or is it retailer inventory I guess also we're trying to get to is to achieve call. It mid teens growth. If you will of pricing for premier Youll have dematteis growth.
Would seem like you'd need some premier volumes to grow in there, but I think youre, saying theyre going to be down in the second half is that am I reading that correctly.
So, yes, we expect volumes for premier to be down in the second half.
And so again, it's largely pricing action. So we've taken pricing actions on premier again.
Hitting the <unk>.
Late March into April .
It's a single digit increase but it's more than it was in the last time, so thats a driver and also keep in mind that we're continuing not to promote.
Or premier in the second half and so that's obviously a pricing benefit as well. So there is significant pricing benefit to come here in the second half and then for Diamond is we've taken our second double digit price increase so the second half we'll have the benefit of both of our double digit price increases that we've taken one in October one in March April .
And so there's a lot of pricing benefit to diamond ties as well so volume growth expectations for diamond tied for the second half.
Okay. Thank you and then just a quick question on the.
On the gross margin, there's obviously a lot of factors going on there from cutting back on promotion and you had I think some a unique factor this quarter in terms of the gross margin but.
And the other thing I want to ask I think you mentioned that input costs were going to be up across the second half of the year, we have started to see.
Way in non fat dry milk rollover, a little bit is there an expectation that that will start to benefit maybe in fiscal 'twenty three.
Or is that do you have heard physicians, maybe that keep you from from realized in the second half of the year.
Yeah, we would not expect much benefit at this point for many.
Significant decreases in protein our second half we're largely covered at this point.
We are a little bit of a variable.
We're about 90% covered we are a little bit of variable.
Pricing that could benefit, but it's fairly nominal so really it's more of a fiscal 'twenty three and to your point we have seen.
There are some signs.
The early signs, but there are some signs of that.
The milk proteins and the really the dairy proteins are starting to top off and come down, but they've been somewhat bouncing up and down for the last couple of weeks, but there are signs but to answer. Your question, we would expect to be largely a 'twenty three benefits.
Okay, and then just to round that out Paul on the gross margin just the.
Again, the reduction in promotional spending for example, although volumes likely down I guess just to think about the gross margin.
Is it more like the average of the first half or more like the first quarter, I guess to kind of understand where that could shake out for the year.
You mean from a gross margin percent gross margin percentage, yes, sorry, yes, yes.
Q1, or even the second half of last year I think is a good proxy okay.
Okay. Thanks, a lot.
I appreciate the time.
We will take our next question from <unk> bin bin bin window with Stephens. Your line is open.
Hey, Thanks, good morning, everybody.
Good morning.
Sure.
Two questions. The first is just on the debt reduction.
You seem to be ahead of schedule, obviously, the business is performing well.
Or is it your intention that if the business performs well you intend to just take that incremental cash and pay down debt and a more.
Rapid rate than promised when we filed the prospectus or how are you.
Thinking about where you might that level.
Yes, certainly our priority is to Delever.
Got it.
That was pulled on the revolver at the end of March and so.
Expectation is continue to pay down on that revolver suggests that our goals are priorities.
Ever.
As far as being ahead of schedule you are correct. We were at three six times at <unk>.
The end of March.
Yes.
To get down to low threes by the end of this fiscal year. So yeah, we're progressing well.
Okay, Great and then you pointed out in your slides.
<unk> of the ready to drink liquids category broadly, but you also I think characterized.
Everyone in the industry is having capacity issues as well. So do you think the category is the growth that we can see is understated and.
Growth there is understated in the same way that yours is or how would you characterize kind of comparing and contrasting the situation you're in with.
A lot of competitors.
Yeah. So.
I think if you look at the growth of the cat the ready to drink category. It we saw pretty a step change in growth last year around this time about April its been you know pre pandemic was around 5% to 6% growth.
And then we got up to we've been consistently in the double digits.
Even as high as high teens, it's now come down a little bit. So now at this this quarter was 13%. So we think because we are weak we think that it's going to continue.
High single digits, maybe low double digits because of a combination of that many.
Competitors like us are pulling back promotion and we are also having some sporadic out out of stocks from several competitors. So long way to answer. Your question is I do think it's a little bit.
Lower than it could be and but I also would just temper that with we are lapping some pretty big increases in household pen of new people entering into the category last year at this time.
Okay. Thanks best of luck.
We will take our next question from Bill Chappell with true Securities. Your line is open.
Thanks, Good morning.
I guess first question on Diamond tells you said half the growth coming from the pebbles in the Duncan.
Flavors is this kind of.
Do you expect competitive responses.
Kind of a flavor innovation of the category that's going on or just these these are particular.
Particular flavors really Kenneth.
Hit home with with consumers.
Combination so.
Flavor.
Excitement has and and the idea of licenses has been around in the specialty side of the world. So think of vitamin Shoppe GNC et cetera.
And what is I think.
It was really well done by the team here is finding the right licenses for mainstream and that's where I think pebbles is perfect as well as Duncan So what I think you'll see more of it is you know.
It's about finding the right license to match the equity to match the channels and I think these were home runs.
Got it.
And then.
There's been some I guess some noise.
Intra quarter over the past few months about potentially moving premier protein to the convenience store channel or in a different form or fashion any update on that but you can share with us.
We still think it's.
A big opportunity, it's just not near term Ah. It you know we have we've talked to you guys about all the distribution opportunity right now we're focused on capacity and four that is the first and foremost thing we need to hit on then we feel like there is a fair amount of.
Low hanging fruit.
Just rebounding in the channels that we are and then there is upside in the channels, where we are specifically around TD peas et cetera, then we start thinking about these you know these new opportunities in white space distribution, absolutely an opportunity we see.
See it but it's down the road.
Great. Thanks, so much thanks.
Thanks.
We will take our next question from John Baumgartner with Mizuho Securities.
Good morning, Thanks for the question.
Good morning, John .
First off Darcy I guess coming back to <unk> and the growth. There you mentioned the strength across channels. Obviously, a lot of it is brand specific and execution related but if we just step back to what extent do you see structural changes in that athlete segment that sort of underpins. The long term opportunity I mean, there seems to be a generational shift with <unk> going away.
Metrics not being what it used to be and it seems as though the segments looking for new leadership, whether it's innovation brand investment I mean to what extent would you agree with that and how do you think about building diamond ties and going after the opportunity differently than you've done over the past decade is it really just more of a licensing thing.
No I think it's much bigger than licensing and I agree. So if you look at if you step back and look at the category.
We are seeing the growth in the overall.
Convenient nutrition category come from two places, it's every day, which is where premier labs and its sportswear diameter sizes. So those are the two areas that are during the pandemic actually adult nutrition also was in there for obvious reasons.
But now we're seeing the that the growth coming really from everyday and sports. So one thing there are more people that are getting back. The pandemic was kind of sedentary for all of us and so there is just a new interest and excitement.
For getting back to exercise regiment, and so I think that's one structural shift I also do not think that's temporary I think that that is a kind of long term trend. So that is one thing from just a structural shift and then when you think of the brands.
It used to be sports nutrition used to be if you go into GNC or vitamin shop. It was all.
Really intimidating en masse skill in and big Black prototype.
Powder.
Tubs and now it's completely different there is a influx of women into sports nutrition. The I mean, just looking at how a few years ago, we rebuilt that we rebranded diner ties from the traditional mass scale.
And black tab to the white kind of you know much more.
Approachable look and feel still very clearly going after the athlete, but now it's more about mainstream athletes instead of only body builders for instance, so and I think we're seeing that across the category and it's a perfect place for <unk> to be.
Great I guess just to build on that as a follow up you touched upon it a little bit but in the Nielsen data there seems to be a bifurcation in that the sales of the deprivation segments, whether it's meal replacement weight loss those sales are down, but specialty and sports are continuing to grow is that sort of what youre seeing on an all outlet basis right now and if it is Mike.
Next year be sort of the year with a category you can use a bit of a shake out underperformers as you get into a post COVID-19 trend environment.
Absolutely the thing that trend and absolutely think it is going to continue.
Great. Thank you.
Thanks.
We will take our next question from Bryan Spillane with Bank of America. Your line is open.
Thanks, operator, good morning, everyone.
Maybe just a follow up on John's question.
Darcy I guess now that you've got the.
The flexibility right with with capital allocation.
Start thinking about how bell ring can be <unk>.
As it is.
If you could just touch on like what's the platform right like what is what is what is bell ring bring maybe to a target asset.
You could bill where he could help with and then second I guess following up on John's question is it.
Is it really.
Is there more opportunity in active nutrition so.
<unk> pretty workout post workout.
Versus shakes, which is again kind of more meal replacement.
Yeah.
So from an M&A perspective, our stance hasn't changed we still we've got our hands full with capacity. We have two brands that have tremendous upside from our household penetration standpoint that we don't we don't want to do anything that could possibly interrupt.
Or dampen our focus on that opportunity because we think it's the biggest winner in the category. So just like kind of stop there.
And so I think that M&A, even in my prepared remarks, I say when the time is right and I think right now.
The time isn't right you know I think we will continue to focus on the organic opportunity I do think that.
These two brands can have a.
Have the license to <unk>.
Really.
Take advantage.
Of all of the trends, especially around mainstreaming, both ready to mix in ready to drink. So you know most of the time.
M&A strategy is because you don't have the brands that can take advantage of the trends and that is just not asked.
So I think that we will have more of a a build strategy as opposed to a buy strategy.
Great and then maybe just just.
Follow up on that so if M&A is kind of a back seat and youre going to start to generate cash.
I understand there is still some debt reduction, but just what are the other options.
Cash would you consider repurchasing shares.
Dividends is there any consideration given.
The capacity Lumpiness over the last couple of years of actually maybe putting more capex than in owning some plans. So just just kind of curious what the other the other priorities are for the cash.
Yeah, I'll take the capital allocation and doors, if you want to touch on the.
How many facilities, but our priorities as you said, it's a delever share repurchases is certainly part of our capital allocation strategy and so those would be the.
Two priorities as Darcy touched on M&A behind that.
And from a perspective of owning facilities, we always look at it right now we.
We like our approach, which is I think I've talked to you guys about kind of the spectrum of influence or control and we keep moving you know on the far left you have small brands co man that have very little influence and then on the REIT itself manufacturing and what we keep doing it.
Is moving toward the right hand side toward self manufacturing.
So we're.
Increasing our influence, but still maintaining our asset light model, which has worked very well for us and we really like so if you you know we started with dedicated commands that increased our our influence now we have a partnership with a post hoc.
<unk>, which is also dedicated but obviously, we have a strong relationship with post.
So each one of these were moving that way to increase our influence them, but still maintaining our asset light model alright. Thanks Darcy Thanks, Paul.
Thanks.
We will take our final question from Ken Zaslow with Bank of Montreal. Your line is open.
Hey, good morning, everyone.
Good morning.
Do you think your pricing will catch up with your current inflation right.
Yes, we believe our second half pricing.
There's going to be more than offset the inflation yes.
So if for example way or milk or other things happen you would get back to your pricing right.
So as we get into next year.
The underlying protein costs come down then obviously, we'll have to decide.
The right strategy for that.
Which could include reinvesting back into promotional activity reinvesting back in the marketing activity. So.
No we're not.
Our strategy is not to give price back, but there will be options that will be assessing as we as we get to that point.
And then my last question is what have you seen with elasticity.
No no no elasticity to date and obviously, we just took you know the beginning basically April the next round so watching closely.
But I, but nothing to date I think one interesting thing about elasticity is.
We are.
Again zooming out we are seeing consumers move channels not dramatically, but seeing some increased growth rates and some of the value channel more value channels like like club and mass and so I think that's it.
We're we're watching and I think that's an interesting it's kind of an interesting.
It's not elasticity, but its a behavior consumer behavior change, which which makes sense, but from a pure elasticity standpoint, no we haven't seen anything.
But how does that actually affect your business does that negative neutral or positive.
If somebody changes where they go to buy your product does it matter.
How do you frame it and then I'll leave you had very positive very positive for us because of our channel mix.
Oh interesting thank you very much.
Thanks.
This does conclude today's program. Thank you for your participation you may disconnect at any time and have a wonderful day.
Yeah.
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Uh huh.
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Okay.