BellRing Brands Inc. Q2 2023 Earnings Call
Yeah.
Good day and welcome to the Bel Ray brands second quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone.
You will then hear an automated message advised them that your hand has been raised.
Please be advised that today's conference is being recorded.
I would now like to hand, the call over to Jennifer Meyer Investor Relations for Bell ring.
Good morning, and thank you for joining us today for Bell Rang brands second quarter fiscal 2023 earnings call with me today are Darcy Davenport, our president and CEO , Paul wrote our CFO Darcy them call 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 he says he filing section about Green Dot Com. In addition, the release and slides 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.
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.
Okay.
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 I'm pleased to share that our first half performance was strong with Q2 results above our expectations.
The business is steadily accelerating and gaining momentum as we bring on new capacity and begin to drive demand net.
Net sales grew 22% over prior year, and EBITDA and adjusted EBITDA was up 34%.
We continue to see higher shake production, leading to higher in stocks, which is driving higher consumption at the shelf.
You saw last night, we raised our outlook for the year. We now expect net sales to gross growth between 17, and 21% over fiscal 'twenty, two with adjusted EBITDA to grow 18% to 23%.
Our better than expected first half performance, along with strong consumption trends and continued category momentum drove our decision to raise the top and bottom line.
In addition, the updated guidance factors in lower than expected input costs in Q4.
Let's start with shake production, we saw double digit production growth this quarter as we finish lapping the worst of our supply constraints.
Our capacity expansion plans are on track with annual production expected to grow low double digits in fiscal 'twenty three.
Our bottle co manufacturer is performing above our expectations and our newest Tetra co man had a smooth startup in Q2.
As a reminder, our two greenfield facilities were scheduled to come online in Q4.
One of these come in just slightly ahead of schedule. However, we are not expecting meaningful contribution from either of these new co Mans until fiscal 'twenty four.
Our incremental capacity in 'twenty four is expected to be north of 20% setting us up for many years of robust shake growth.
Now to our category and brand updates that.
The convenient nutrition category remained strong up 16% in Q2 accelerating two points compared to prior quarter.
Ready to drink was up 21% and ready to mix grew 24%.
Both segments are growing despite price increases and continued capacity constraints across the RTD competitive set.
Every day and sports nutrition segments are driving category growth as more consumers seek functional food and beverages and pursue their fitness goals.
New powder products in particular are boosting sports nutrition growth.
Premier protein shake consumption strength strength accelerated this quarter up 22%.
Growth was robust across all key channels with the highest growth in food and mass as those channels were the most impacted by our capacity constraints last year.
The E Commerce channel returned to growth this quarter as our bottle supply is now sufficient to meet demand.
In April overall shake consumption continued to grow up 31% demonstrating continued strength.
Our brand metrics made great strides this quarter and reflect the strong momentum we are feeling in the business.
Premier protein market share ended the quarter at 19% up 130 basis points versus year ago, and I'm proud to share that across track channels. The brand became not only the number one brand in the RTD segment, but also the number one brand in the convenient nutrition category.
This is especially exciting given we still had limited skus on the shelf and hadn't started meaningful marketing and promotion.
I am pleased with the progress Premier protein made in household penetration this quarter with the brand increasing 3% versus Q1, reaching 14, 2% of households, the highest in the category.
We expect to steadily grow households, as we increase items on the shelf and restart marketing and promotion activities are.
Our repeat and buy rates are holding study demonstrating our consumer loyalty.
[noise] excuse me Premier protein powder has more than doubled this quarter with consent consumption up an astounding, 123% younger first ever national marketing campaign, it exceeded our expectations driving record breaking sales and household penetration for the product we continue to be excited about.
The growth potential for premier protein and this incremental for them.
Turning to Diamond ties the brand had a great quarter with consumption dollars up 38% across tracked and untracked channels, we saw double digit growth in nearly all channels driven by distribution gains pricing and promotion.
The brand strength continued into April with consumption up 32%.
One exception was club, where we went from two fulltime items in 'twenty two to one full time less expensive item this year.
Consumption on the new SKU is performing well.
Our strategy around expanding dematteis to mainstream channels is working market share at Tdp's reached all time highs this quarter and household penetration continues to grow we ended the quarter with five 5% market share in tracked channels encouragingly.
Encouragingly as dematteis adds new households, and distributions repeat in buy rates are holding steady.
In closing I'm encouraged by our first half progress in almost every part of our business whether it is brand format or channel we are gaining momentum.
Our category continues to show remarkable growth on strong macro trends tailwind.
Premier protein reached the number one share of both tracked our T D and the entire convenient nutrition category for the first time.
Premier's household penetration is back to growth.
We are expanding shake capacity and are now only months away from a step change in our shake production run rate.
We are reintroducing, our full range of premier protein shake flavors, and restarting marketing and promotion.
Premier protein powder and diamond ties consumption are rapidly declining bringing mainstream consumers into the category.
We have a deep innovation pipeline that will help fuel our future growth.
Lastly, and I would argue most importantly, our culture is thriving for the seventh year in a row. We earned the great places the great place to work certification our U S employees voted and risk and received and we received our highest average score ever with 93% of our U S organization said.
It was a great place to work.
We remain confident in our long term outlook for Bell ring and look forward to providing further updates next quarter.
For your continued support I will now turn the call over to Paul.
Thanks, George and good morning, everyone.
As Jonathan highlighted our second quarter and first half performance was strong.
Net sales for the quarter were $386 million and adjusted EBITDA was $68 million.
Net sales grew 22% over prior year and adjusted EBITDA increased 34% with adjusted adjusted EBITDA margin of 17, 6%.
Starting with brand performance.
<unk> net sales grew 26%.
Higher average selling prices contributed to 20% to overall growth volumes grew 6%, reflecting increased production compared to year ago strong growth for premier powders.
Shake net sales growth of 2% was in line with consumption growth in the quarter.
<unk> net sales grew 11% compared to a year ago benefiting from higher net pricing organic growth and increased brand investments offset slightly by 1% lower volumes.
As expected volumes were negatively impacted by the lapping of our strategic discontinuation of certain <unk> products.
In addition club volumes declined as we lap distribution changes and the impact of load in timing this year.
The combination of these items was an approximate 23% headwind to the net sales growth rate in the quarter.
Excluding these items net sales growth tracks closer to consumption growth.
Gross profit of $117 million grew 35% with gross margins of 34% up 280 basis points.
Our pricing actions continue to offset significant inflation.
The increase in gross margin was largely driven by lapping prior year supply chain inefficiencies and favorable freight rates.
Excluding onetime separation costs SG&A expenses as a percentage of net sales increased 180 basis points.
Our marketing spend accounted for the majority of this increase as we invested behind premier protein powders and Diamondback.
Before reviewing our outlook I would like to make a few comments on cash flow and liquidity.
We generated $20 million in cash flow from operations in the first half of the year.
Net working capital increased in Q2, primarily driven by higher raw material inventory.
We expect to generate much stronger cash flow in the second half as our working capital increased largely reverses driven primarily by lower raw material and optimize <unk> inventory levels.
We're already seeing some of the working capital timing reversed in the month of April as we generated approximately $23 million of cash excluding financing activities.
As of March 31, net debt was $954 million and net leverage was three times.
With our expected EBITDA growth and strong cash flow generation, we continue to anticipate net leverage to be lower than two five times by the end of fiscal 'twenty three.
With respect to our share repurchases. This quarter, we bought 900000 shares at an average price of $29 74 per share.
Last week, the board approved a new $80 million share repurchase authorization.
Turning to our outlook.
We raised our fiscal 'twenty three guidance for net sales to be 161 to $1 66 billion and adjusted EBITDA of $3 $20 million to $335 million.
The updated guidance reflects our better than expected first half results.
<unk> consumption trends in category growth momentum.
Our outlook for EBITDA is tracking modestly higher factory and higher net sales as well as lower than expected input costs in Q4.
For Q3 net sales, we expect mid to high teens percentage growth compared to prior year with both premier protein and Donatella is growing double digits.
Proximately two thirds of the overall growth is expected to come from pricing and the remainder from volume.
We expect Q3 gross profit margins to modestly step up versus Q2 with further margin expansion in Q4.
Likewise, we expect adjusted EBITDA margins to step up each quarter.
Q3, adjusted EBITDA dollars are expected to be flat to prior year of sales growth is offset by higher advertising and other G&A expenses.
Before wrapping up I want to review our capital expenditures guidance, we now expect to spend approximately 6 million. This year as we invest in systems and process improvements to support our long term growth.
In closing we are pleased with our first half momentum our strong first half results gives us greater confidence in our full year outlook and long term growth prospects.
I will now turn it over to the operator for questions.
Thank you.
As a reminder to ask a question you will need to press star one one on your telephone.
If your question has been answered or you wish to remove yourself from the queue press.
Press Star one one again.
Our first question comes from the line of Jason English with Goldman Sachs.
Yes.
Hey, folks thanks, Rob Thanks for slipping me in I.
I appreciate it.
Can you give a little more context around the pace and magnitude of the Reengagement, you're talking about in terms of marketing and merchandising activity going forward.
On a related topic, because they all kind of tethered to margins.
We're looking at the high protein whey kosten they've fallen.
<unk> in the recent months and we think we're now tracking with substantial down like 36% year on year levels.
When would you expect that to flow through begin to flow through.
How much of that upside would you expect to reinvest back in the belly of the portfolio who are daily in the P&L to keep the revenue going thank you.
Yes.
Oh go ahead.
Well I was just going to hit the marketing question you can answer the second one and just front, Jason just from our demand driving activities.
You didn't ask about the new flavors, but we started shipping the new flavors at the end of this quarter didn't really hit consumption until April from a marketing standpoint, we did have marketing first of all diamond ties will be pretty steady Q2 to Q4.
We had some marketing on basically the ion Premier protein powders and and then we'll start on.
The rest of the shake support in Q3, and Q4 and it's it's still pretty light.
Through Q3, and Q4 as we were basically just starting to communicate to our consumers again as we anticipate more demand driving in 'twenty four.
And then I'll hand, it to Paul from a dollar standpoint, and then your second question, yes, so as far as marketing investments. So in Q2, we spent just over 3% of net sales we expect the second half to be similar so we are.
Investing behind the marketing but.
At consistent levels that we saw in Q2 as we look at next year, we will revisit if that.
It has increased but from a from a.
Fiscal 'twenty three perspective, we expect to spend around 3% or so of net sales on marketing as far as protein. So we did as you saw we brought our guidance up on EBITDA and pulled out in the prepared remarks that we do expect gross margins to improve in Q4 to grow in Q4 sequentially from Q3 and Thats largely because we are start.
To see some benefits from protein cost primarily on our powder business not so much on shakes, yet thats, we think thats more in fiscal 'twenty four but we do expect to start to see and then to your point in fiscal 'twenty four we expect to see more meaningful.
M protein reduction however, we do have some other offsets.
We do have inflation in some other areas of our supply chain and packaging. So we've seen that step up and that starts to step up on our second half.
But those are.
From a protein perspective, we do start to see some of it in Q4, but really its more fiscal 'twenty foreign change.
Okay. That's helpful and as those lower costs flow through is there is there a risk that pricing will flip negative as you reengage on promotions merchandising at retail.
Or do you want the retail question.
Yeah, and I think that we.
We expect I mean, it's pretty common in especially the powder side of the business that as commodities go up and down that you basically offset it with promotion. So when it goes down you lean into promotion a little bit more and so that's how you really manage manage.
<unk> manage the pricing of the commodities.
Hey, Jason on shakes, you know as we look at 'twenty four we expect it to be more of a normal promotional calendar versus a very light promotional calendar 'twenty. Three so we do expect some modest headwinds from pricing there but.
As protein cost come down.
Yep got it it makes sense. Thank you. Thank you. Thanks.
Thanks, Jason.
Thank you one moment for our next question. Please.
And our next question comes from the line of Bryan Spillane with Bank of America.
Thanks, operator, and good morning, everyone.
I just had one just wanted to cover one area, which is.
If we look at the performance for shakes in the quarter by channel right in the tracked channels.
Outperforming on tract.
Assuming part of that is because club was getting more priority when you were capacity constrained.
So a is that true and then b as we kind of look out over the next couple of quarters.
Would we expect to have this sort of same relative.
Channel performance, meaning that the tracked.
Outperforming the untracked channels.
Yeah.
So youre right in that food.
And mass definitely got hit the hardest with our capacity constraints last last year. So we're lapping that now and that is why youre seeing tracked channels outperform untracked.
We should.
And you're right, we should expect to continue to see that I guess the other dynamic Brian is.
We just see.
Under distributor we're under distributed in food.
Food and math, so we have a lot more upside from a distribution standpoint in food and mass. So I think as we start shipping our flavors to food amassed the pause flavors as well as continue to launch new ones.
There is more distribution upside.
Okay and then.
Sorry, if I could add one thing the one thing I would add is that FTE.
<unk> is a more complicated channel and that has a lot more flavors and pack sizes were club is its.
It's a limited SKU environment, So you've mentioned prioritization, but it is more complicated which is why.
It took us a little bit longer to get.
Some of those flavors and pack sizes is fully back to bright because it took a little more it's a lot more skus to manage.
Okay, and then just just one follow up to that.
Should we expect as you exit fiscal 'twenty for that.
Youll have kind of the assortment, where you wanted right now that you've got more capacity available you'll have the flavors that you want the pack types.
What point in the future do we expect that.
Youre going to be playing with.
Basically at.
At full strength right in terms of assortment.
Yes by the end of <unk>.
I would say by the end of calendar 'twenty four we will have gone through a full cycle of reset and we will have our full existing portfolio on the shelf and then it will be about new items innovation et cetera.
Okay. Thank you.
Okay.
Okay. Thank you one moment for our next question. Please.
And our next question comes from the line of Ken Goldman with JP Morgan.
Hi, Thank you.
Okay.
How do we think about your ability to maximize capacity.
In the new plants into next year, and I realized youre not prepared to give any formal guidance into next year and of course, there will be some kind of <unk>.
Production ramp up period.
It feels to me looking at the Street's numbers the streets looking at under 12% sales growth for you next year, but youre going to have so many tailwind from that supply chain expansion and what it allows you to do in terms of marketing and the reintroduction of products and so forth. So it feels like it would be kind of a uniquely strong growth year in the streets not real.
The modeling that.
Again, I'm, probably putting you on the spot and the way you can answer right now, but I'm just trying to get a sense for how quickly you realize you really can get up to that.
Max capacity in those two plants.
I mean can you are putting me on the spot just kidding.
Right.
So we have communicated that we expect production to be above 20%, However, remember that.
Some of that production doesn't go you can't say that sales is going to be up 20% because some of that is going to go into rebuilding our internal inventory.
I think it's fair to say that we would expect net sales to be high end of our algo.
And in that 10% to 12%. So I think the street is pretty close.
But but you are right I think that we do we have some we definitely have some momentum in the business.
We are experiencing week to week.
Record record weeks without promotion without marketing and without our full portfolio. So.
I think that we're excited to see the continued momentum as we bring on new capacity.
Thank you and then my follow up.
You talked about how in powder as you won't take.
You won't you'll have to promote back sort.
Sort of offset any kind of cost deflation, but not every <unk>.
Producer can promote at the same time, there's limited shelf space for that so is it reasonable to think that youre not going to just to follow up on a previous question you aren't necessarily going to take your price your net price down all the way all the time, but just kind of heading that direction I just wanted to get a sense of.
How people are or how you were thinking about that from a net perspective versus inflation or deflation.
Our general plan, I mean diamond pies, and now Premier powder is a low household penetration brand and so we really want to invest in yes, we talked about at promotion, but we want to invest in brand building, we think there's a ton of opportunity to get.
New consumers to try these products and continue that kind of mainstreaming and that's going to be done.
Mainly through brand marketing, so we think theres, a big opportunity as commodities come down to invest in the brands and see it in topline and continue to bring new households into the category.
Thank you.
Thank you.
Moment for our next question please.
And our next question comes from the line of Matt Smith with Stifel.
Hi, good morning.
Good morning.
We've heard this morning about Youre restarting, our promotional and marketing activity later this year and I am curious if.
Inventory levels for retailers need to build in your fourth quarter ahead of planned events in the beginning of your 'twenty four should we expect.
Shipments to outpace consumption in the back half as retailers build back the additional flavors and perhaps build inventory ahead of distribution gains and promotional events.
Yes, I'll take that one so from a shipments versus consumption, we do expect shipments to slightly outpace consumption, but not dramatically and you mentioned the flavor relaunches.
Those come in it's not a big Bang, it's more as retailers reset shelves and so those going over time, so it's not one big Bang.
From a promotional perspective, we do have some white promotion on shakes in the fourth quarter, but we really expect them to load in really in the same quarter and then can be consumed in the same quarter. So net net slight shipments above consumption in the second half as we do reload flavors, but.
It shouldn't be dramatically higher.
Okay, and then just quickly as a follow up club events have been a significant volume driver in the past do you have visibility and confidence into your capacity that you have the ability to restart promotional events in the club channel beginning in your fiscal 'twenty four.
Yes, we've factored in the volume that we expect to sell.
Sell through with club events, and overall events and promotional events.
Within food and mass and that's all within our forecast that we are.
Adding capacity for anymore.
Thank you for that Okay I'll pass it on.
Thanks.
Thank you <unk>.
For next question.
And our next question comes from the line of Andrew Lazar with Barclays.
Great. Thanks, a lot good morning, everybody.
Good morning, Andrew.
I think the.
Newer greenfield or dedicated co pack facilities are being built on sort of larger footprints that I think allow for incremental lines to be added much more quickly than what was possible with some of the previous maybe more space constrained co pack facilities. So I guess I'm curious how many lines.
Are being put into the new facilities.
Really what I'm getting at is how has that changed maybe recently.
Kris or option for more lines when you initially expected.
Just given the.
Obviously, the momentum and consumption trends in the business.
Yes. So currently in the two new facilities and you're exactly right. So the footprint there only it's I'll use the post facility first there is room for 10 lines there starting with four.
That has always that has been the case since the beginning.
I haven't produced the shake yet so starting with four and then the timeline is about and so think of.
For a.
To have to build a new facility.
The land et cetera that timeline is around somewhere between two and three years.
But now that we have our partners.
That have more space to grow the timeline is about somewhere about 18 to 20 months with if you need to get like the bolt processor and fillers.
We're already really talking about.
Adding in we're talking 25 and 26.
Volume now with our with our partners the second facility.
Is a similar so they added four lines that that was the same as what we planned in the future, but we're already talking about expansions with them as well.
Okay. Thanks for that and then.
With household penetration continuing to increase I think you mentioned that.
The repeat rate has remained pretty steady.
Would we normally expect not necessarily and convenient nutrition, specifically, but would be normally expect repeat rates to start to drop as you bring on more households that maybe are more casual users are less loyal users.
And if that's right.
As we have not seen that for four premier if I have that right.
Yeah, absolutely. So as you as you expand both distribution and <unk>.
Household pen is very common to see.
Repeat and buyer rates.
Paul.
And that's because you're yeah, you had your loyal base that are usually the higher consuming.
Consumers.
And then when you add they kind of get their toe in so and yes really encouraging on actually both of our brands Premier protein and <unk> that as we're adding distribution and household penetration that we're holding very steady from a buy rate and our repeat rate and it just shows how loyal our consumers are.
Sure.
Thank you.
Thanks.
Thank you.
At least for next question.
And our next question comes from the line of Pamela Kaufman with Morgan Stanley .
Hi, good morning.
Can you talk good morning can you talk about the improvement in your performance in the E Commerce channel and your strategy there for Premier.
Your comparisons for e-commerce get easier over the coming quarters. So should we expect to see accelerating growth there.
Yes e-commerce consumption, absolutely improved this quarter.
If you remember we had a slower ramp up for a bottle co manufacturer, which is the the format that we sell into e-commerce and <unk>.
And we know we are past that our bottle co manufacturers can consistently producing we have inventory.
Last quarter.
We had issues with our retailer our major E comm retailer, having enough inventory to really drive demand there and we are now seeing that.
That is getting better and we're seeing that in consumption. So you saw an improvement this quarter in E com consumption and yes, we should continue to see.
Improvement kind of quarter after quarter.
Great. Thanks, and then you mentioned that you expect lower input costs now in Q4. So can you just comment on what your outlook is for gross margins for the back half of the year.
Sure, Yes, so from a gross margin perspective, we would expect the second half to be at or slightly below.
The first half keeping in mind that in Q4, we do have some wide promotion that obviously is offset and we are seeing some other inflationary costs like I mentioned in packaging and some of the other supply chain, but Q3 should be up modestly from Q2, and then Q4 should be up again from Q3, but the second half.
Largely in line with first half and maybe down slightly.
Thank you.
Sure. Thank you.
One moment please for our next question.
And our next question comes from the line of Robert Dickerson with Jefferies.
Great. Thanks, so much.
Sorry could you just kind of general question, Phil I have.
Kind of longer term outlook I think the target.
For gross margin 32 to 34, and then EBIT.
18% to 20%.
Released in the first half now and then kind of what's guided on EBITDA for the year Youre kind of there right.
Right.
And I realize there could be some incremental spending promotions, maybe ramped marketing, but at the same time you have like a nice production capacity tailwind.
So just kind of trying to get a general perspective.
How you're thinking about the current.
Business performance on the margin side relative to those longer term targets, given youre kind of doing pretty well as is and you've still been somewhat capacity constrained.
Let me start.
Yeah, why don't you start with margin.
Yes. So you are correct that really last year, we were at the high end of our EBITDA margin algorithm and we're kind of in that same spud in 'twenty, three and I'll keep in mind over the last two years.
We have been.
We pulled back on marketing and promotion. So obviously as we go into 'twenty for those will ramp back up at higher levels than we've seen over the last couple of years, but we've also weathered obviously protein cost at historical high so is it going into next year.
Really we're thinking is that we're going to we want to keep investing in the top line and so that should mean more promotion and likely more marketing.
Perhaps gross margins.
Ramping up a bit from this year, but not getting back to an EBITDA margin. That's still I think we're likely in the high side of the high halfway the algorithms so 19% plus.
But that's still where we're targeting at the moment, but there is opportunity as you mentioned that perhaps we can.
Sustained towards the higher side of that.
Alright, Thank you that's it.
Thank you.
One moment for our next question.
Our next question comes from the line of Matt Mcginley with Needham <unk> Company.
Thank you I have a quick follow up on the EBITDA guide.
Guidance implies that the margins in the back half will be down I think 150 to 200 bps year over year. You noted I think twice at the gross margins will be up sequentially in the third and fourth overall do you expect that year over year pressure to be mostly realized in gross margin and G&A in the back half.
And.
It's more in G&A.
As we ramp up our A&P spend.
Compared to last year, that's the that's the primary driver.
Versus last year in the second half.
That makes sense.
The second question was on with the decline in working capital investment around inventory that you noted I think you should have a pretty good back half in terms of cash flow generation, what's the priority for capital returned in the back half is it paying down the revolver balances are weak purchasing stock.
And does the strong stock performance and multiple expansion that you've had this year change your priority in terms of how you think about returning capital.
Yes, that's what the second half.
We will prioritize.
Debt Paydown will pay down the revolver as you mentioned.
We continue to look at the long term growth prospects of this business. We still feel are very strong and so we will continue to be opportunistic.
On share repurchases as we get into the second half, but first party would be debt pay down and then second not sure sure buybacks.
Thank you very much thank you.
Thank you one moment please.
Our next question comes from the line of Bill Chappell with Truest.
Hey, Good morning, This is Steve and Lyne go on for Bill Chappell. Thank you for taking our question.
Good morning.
Hi. This is just a quick one I guess you called out some of the investments in systems to support the long term growth around capex expectations, I guess, how have those expectations changed over the past few months.
Kind of anything you could call out there.
No we've been.
Assessing.
Looking at our processes looking at our systems and so we went through an assessment process that identified some some things we want to implement change it's not ERP, but it's some of the sub systems and support infrastructure of the business and so as that became clear that.
What we were planning to do there than we realize that some of that would be capital expenditure and so that's what's really driving the increase but we look at this we have a very fast growing business and we want to make sure that.
We have the infrastructure and processes to support that growth and not only now but for the next few years and so we're investing now to make sure that that is the case.
Great. Thank you guys so much.
Yeah.
One moment please for our next question.
Our next question comes from the line of Jim <unk> with Stephens.
Hi, guys. Thanks for taking my question.
You mentioned that you guys are under distributed in FTE.
What would it take is that just a function of kind of the capacity constrains and not having all the skus that they want and what would it take to kind of get on par or or back to a level that's kind of realm.
Relative to some of the other channels.
Yes, so we believe that and I mean, so yes short answer is it's.
A byproduct of our capacity constraints.
But also just.
When you look at the potential and we should have done.
If you look at some of our competitors.
We have about even market share with one of our major competitors and they have doubled the space we have.
So we know that.
The premier protein and I'm, specifically talking about premier protein shakes.
But we know we're under distributed we know that we drive new households into the category.
And so now the getting those getting the capacity and then getting those products back on the shelf I think it goes back to a prior question about when does that happen and I think that.
We're getting some really encouraging news from that.
The resets.
The retailer calls that were having.
And feedback on the shelf dynamics and what's changing in the shelf sets on resets and retailers are really leaning in and excited about the fact that we have capacity coming on.
And they are definitely leaning into premier protein and <unk>, which is exciting.
Okay Alright.
As a follow up.
If we zoom out you guys are obviously, the leader who can come that ought to be shake category.
What does it take to drive overall category awareness.
You have kind of a core consumer that utilizes the product on a normal basis, but what does it take to pool in additional consumers that might not be familiar with kind of a use occasion.
Or just the category more broadly speaking.
Yeah. It is basic stuff it is getting back to I mean, so if you go back into in.
'twenty one fiscal 'twenty one when the last time that we were really marketing promoting and driving demand through new items et cetera.
We increased we helped that we are bringing in new consumers into the category, we added about <unk> <unk>.
Between one and two points of household penetration for our brand as well as the category and so we have a playbook on what how to kind of.
Talk to those consumers that are outside of the category that are.
Kind of open to.
Ready to drink shakes and powders and so it is.
Linearity, it's PV is digital.
It's that kind of a 360 marketing view of making sure we have shopper marketing.
As well as promotion and display so we have kind of a playbook that works for us.
And now it's just about getting back to executing that playbook.
Okay, great. Thanks, guys I'll pass it on thanks.
Thank you Mollie please for our next question.
And our next question comes from the line of John Baumgartner with Mizuho.
Good morning, Thanks for the question.
Good morning, John .
Darcy I wanted to ask about diamond ties the momentum in E. Commerce has been pretty strong for the last couple of years, but I've been surprised more recently at the pace of distribution growth in grocery mass for a brand. That's traditionally had an audience. That's more specialized what are you seeing or what's evolving that's giving you confidence on the ties has appeal in these out.
Listen I don't know if its just white space filled but if not it would seem to suggest a much longer runway for growth.
Yeah I think this is one of the most exciting things about <unk> and really kind of.
The the make or break of it and it was youre going to be a really steady niche product within the specialty side of the business or it was going to be.
Bigger more mainstream.
Sports nutrition brand that had relevance across not only specialty.
<unk> e-commerce, but also SDN and it is definitely proved to be the latter.
And.
I think the.
The support of that was its success in specifically mass.
One major mass retailer.
Where we got distribution.
Just about I guess it was about <unk>.
Two three years ago.
It was successful and I think that was the first time that was kind of a proof point that this brand, which is a super premium sports nutrition powder brand for athletes in the no.
It could sell in math.
And so since then I think we're continuing to expand distribution and you didn't see it in some of our supplemental charts.
It's still low.
But we're seeing really strong takeaway.
In well really strong distribution TDP growth within food and mass and we continue and we expect to continue to see that.
Okay. Thanks for that and then just a follow up.
Mr. Baumgardner could you. Please press star one again your line seems to have dropped.
One moment please.
Great.
Line is back open.
Okay. Thank you and then just to follow up D'arcy am I asked last quarter about the change in our data providers to numerator and it was a bit more time under your belt now can we sort of revisit that in terms of just graph with some of the nuances any learnings or surprises you can kind of integrate into the plan going forward. Thank you.
Yeah for sure. So we've continued to yeah. If you remember last quarter was brand new we now have about three to four months under our belt and.
It's great I think of that are.
We're definitely able to kind of dig into the consumer understanding more we're under we're understanding purchasing patterns media habits.
And it is helping us and I would say two specific areas. One is just improved day to day management, we're able to.
To forecast more effectively because we understand the interactions with competitors as well as kind of where our growth trajectory is just from a like.
Like lifts et cetera, but I think more importantly, and more and I think what excites me is just around our future thinking and planning more around brand strategy media media.
Median communications planning and as we get into planning for 'twenty, four and beyond that's where I think the deep consumer insights that we're gleaning from that data is really helping us.
Thank you Jackie.
Thanks.
Thank you.
And ladies and gentlemen, this does conclude today's conference call. Thank you for participating and you may now disconnect.
Yeah.
[music].
Okay.
[music].
Yes.
[music].