Business context and reporting period
BellRing Brands, Inc. is a convenient-nutrition company with Premier Protein, Dymatize and PowerBar brands. This unaudited 10-Q covers the three months ended December 31, 2019, compared with the three months ended December 31, 2018. Comparability is affected by the October 21, 2019 IPO and separation from Post Holdings: the prior-year statements reflect the business within Post, while post-IPO results allocate 71.2% of BellRing LLC earnings to Post’s redeemable noncontrolling interest.
Key financial results
Amounts in millions, except per-share data and percentages.
| Metric | Q1 FY2020 | Q1 FY2019 |
|---|---|---|
| Net sales | $244.0 | $185.8 |
| Gross profit / margin | $91.3 / 37.4% | $65.6 / 35.3% |
| Operating profit / margin | $49.3 / 20.2% | $32.9 / 17.7% |
| Net earnings including redeemable NCI | $31.8 | $25.1 |
| Earnings attributable to redeemable NCI | $25.8 | $25.1 |
| Earnings available to Class A stockholders / diluted EPS | $6.0 / $0.15 | $0 / not applicable |
| Net cash from (used in) operating activities | $(24.9) | $5.9 |
- Sales increased 31%; Premier Protein sales rose 45% ($63.2), with volume up 38%, attributed primarily to distribution gains and the prior-year comparison against capacity constraints. Dymatize sales fell 10% and PowerBar fell 12%.
- Operating profit increased 50%, chiefly on higher sales. Offsets included higher product costs, warehousing, marketing, employee-related costs and incremental public-company expenses.
- Interest expense was $11.6, versus zero in the prior-year quarter, following the new debt financing. The effective tax rate was 15.6%, down from 23.7%, primarily reflecting BellRing Inc.’s post-IPO 28.8% tax share of BellRing LLC.
Financial position, liquidity and debt
- At December 31, 2019, cash was $29.9, current assets $288.1 and current liabilities $107.4. Total assets were $670.9 and total liabilities were $873.9; stockholders’ equity was negative $2,278.2, alongside $2,075.2 of redeemable NCI.
- Debt principal outstanding was $780.0: a $700.0 Term B loan and $80.0 drawn on the $200.0 revolving facility. The balance sheet reports $35.0 current debt and $723.8 long-term debt, net of issuance costs and discount. Revolver availability was $120.0.
- The Term B loan matures October 2024 and has quarterly scheduled amortization of $8.75 beginning March 31, 2020. Both facilities have variable rates; $350.0 of interest-rate swaps hedge forecast interest payments. A maximum total net leverage covenant of 6.00:1 begins with the quarter ending March 31, 2020; management said the ratio would have been within the limit at December 31.
- Operating cash flow was negative $24.9, versus positive $5.9 a year earlier. Management attributed the decline primarily to working-capital outflows, including higher receivables associated with sales growth and timing of collections, and higher interest payments. Investing cash use was $0.7. Financing cash provided was $49.9, reflecting IPO and debt proceeds and repayments, among other items.
Material changes, outlook and risks
- The October 2019 IPO raised $524.4 net; proceeds and new credit facilities funded repayment of the $1,225.0 bridge loan and related transaction uses. Post retained 71.2% of BellRing LLC’s economic interest and, while it owns more than 50% of the LLC units, 67% of BellRing Inc.’s combined voting power.
- Management expects positive operating cash flows and believes cash, operating cash flows and potential future credit facilities will meet foreseeable needs. No significant capital expenditures were planned for the remainder of fiscal 2020. The filing provides no specific earnings or revenue guidance.
- Key disclosed risks include dependence on RTD protein shakes and a limited number of contract manufacturers and suppliers, competition, input-cost and supply-chain volatility, high leverage and variable interest rates, and ongoing dependence on Post. The tax receivable agreement generally requires payment to Post of 85% of specified realized or deemed tax savings; $12.9 was recorded as payable at quarter-end.
- Joint Juice consumer class actions remain pending or on appeal. The company said it does not expect them to materially affect its financial condition, results or cash flows; an $8.5 accrual was recorded at both December 31 and September 30, 2019. The company also adopted the new lease standard on October 1, 2019, recording $14.8 of right-of-use assets and $16.0 of lease liabilities at adoption.
Important facts for investors to verify
- Whether Premier Protein’s distribution- and volume-led growth can continue, and whether declines in Dymatize and PowerBar persist.
- Whether receivables and other working-capital needs normalize and operating cash flow turns positive.
- Debt repayment capacity, variable-rate exposure, covenant headroom and remaining revolver availability.
- Effects of Post’s voting control, the redeemable NCI and the tax receivable agreement on public shareholders’ economics.
- Developments in the Joint Juice litigation and whether the existing accrual remains appropriate.