Bellring Brands, Inc. Q4 FY2023 Earnings Call

Good day and thank you for standing by. Welcome to the BellRing Brands Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jennifer Meyer, Investor Relations for BellRing.

Good morning, and thank you for joining us today for BellRing Brands' fourth quarter fiscal 2023 earnings call. With me today are Darcy Davenport, our President and CEO, and Paul Rode, 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 filings section at bellring.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. 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 fourth quarter and fiscal '23 results and posted a supplemental presentation to our website. Fiscal '23 was a fantastic year for BellRing Brands. Our net sales grew 22%, with adjusted EBITDA up 25%. As I reflect on the year, there are three things that stood out to me. The first is the expanding growth opportunity of this category, specifically the segments that we compete in, ready-to-drink shakes and ready-to-mix powders. Both segments have experienced double-digit growth in each of the last three years. Low household penetration, combined with strong macro trends, highlights a long path of growth. Second, the power and the future potential of our brands, this year we saw tremendous growth on Premier Protein and Dymatize, both reaching new highs across many key metrics. Premier Protein demonstrates strong resilience, as it quickly regained the TDPs and households lost in prior years during our capacity constraints. This shows the unbelievable consumer and retailer excitement around this brand, which will help fuel future growth. Third, I've been blown away by our organization. It is hard to manage a high-growth business with limited supply. It is a heavy load on all functions to optimize supply and demand, especially operations and sales. Despite this added pressure, our organization is stronger than ever, a reflection of the amazing people and our unique culture. We still have work to do, but are well-positioned for a strong '24 and beyond. Now to Q4. I'm pleased to share our results came in at the high end of our expectations. Net sales grew 25% over the prior year and adjusted EBITDA was up 23%. Significant production growth allowed us to restart light shake promotions this quarter. We gained meaningful new shelf space on both Premier Protein and Dymatize, and our relaunched shake flavors and seasonal offerings continue to drive incremental sales. Moving to shake production. In fiscal '23, we made notable progress to grow and diversify our shake supply. Our production grew 17% over fiscal '22, modestly above our expectations. We added two co-mans this year, which continue to scale up. And our second greenfield facility, Michael Foods, will start up in December. There will be a much larger contributor to our second half of fiscal '24 and beyond. Over the past two years, we have transformed our shake co-man network. We have partnered with the biggest and most reputable players in the aseptic, low-acid industry. We now have a scalable, regionally diverse supply chain, which will enable many years of robust growth. Now to the category and brand updates. The convenient nutrition category grew 9% in Q4 as tailwinds around health and wellness and fitness continued to drive growth. Consumer interest in functional beverages and sports nutrition products continues to be high. Ready-to-drink led the category, up 21%, and ready-to-mix grew 11%. Increased supply and distribution gains are lifting ready-to-drink growth, while increased marketing is boosting both segments. Premier Protein shake consumption accelerated this quarter, up 36%. Growth was tremendous across all channels, driven by improved supply, which allowed us to restart light promotion and expand distribution. The highest growth was in mass and e-commerce, benefiting from our expanded range of flavors and higher in-stock levels. Additionally, e-commerce and club both saw strong growth behind promotional activity. Our fall seasonal flavor, Pumpkin Spice, demonstrated an impressive 90% incrementality to the brand. Q4 trends continued in October, with shake consumption up 27%, with volume driving 2/3 of this growth. Our brand metrics reflect our building momentum as Premier Protein reached all-time highs in TDPs and market share. Shake TDPs grew 11% versus Q3 behind distribution gains and relaunched shake flavors. Premier Protein RTD market share reached 21%, maintaining its position as the number one brand in the RTD segment as well as the number one brand in the broader convenient nutrition category. Premier Protein household penetration added 1 percentage point versus Q3, reaching over 16% of households. Our household penetration continues to be the highest in the category, with this quarter's growth driven by promotions and distribution gains. Our repeat and buy rates are holding steady, demonstrating our consumer loyalty. According to our most recent brand equity study, Premier Protein remains the number one brand in terms of consumer love and Net Promoter Score in the RTD category. We are very encouraged by all of these achievements, even though we still haven't restarted meaningful marketing and promotion. Premier Protein saw great success this year in other forms, showing the power of the brand. In Q4, Premier Protein powders remain strong, growing over 50% behind new distribution and strong velocities. It reached over $50 million in net sales this year, and we expect robust growth in '24 as we invest behind marketing programs to drive awareness. In addition to powder, our licensing strategy continues to perform well. Although not a significant revenue driver, we are encouraged that the brand has seen success in other high-traffic aisles. Turning to Dymatize. The brand had a great quarter, with consumption up 38%. We saw double-digit growth in nearly all channels, driven by distribution gains and incremental promotions. Consumption growth continued into October, with the brand up 23%. Dymatize continues to have success in mainstream channels with both TDPs and household penetration reaching new highs this quarter. Encouragingly, as Dymatize adds new households and distribution points, repeat and buy rates are holding steady. In fiscal '24, we are launching a new marketing campaign to continue the momentum and drive awareness and new users to Dymatize. Before reviewing our outlook, I want to give our point of view on GLP-1 weight loss medication. Our proprietary research indicates consumers most likely to adopt GLP-1 are currently light users of protein shakes but will become heavy users once on the medication. These individuals have reduced total caloric intake, but actually need more protein to mitigate muscle loss and certain other side effects. Products like Premier Protein are perfect because they are delicious, compact-size, high-protein nutrition, giving these individuals what they need without making them feel overly full. Research also indicates that once on the medication, consumers start exercising more and choosing healthier food and beverage options, ultimately increasing the demand for convenient and sports nutrition products. After our initial phase of research, we believe our current products and growth strategies are already well-aligned with this opportunity. They are great complements to GLP-1 while consumers are on the medication and a perfect nutrition solution when people decide to stop taking the medications to maintain the weight loss benefit. We have begun our next phase of research to better understand this consumer and how we can serve them on this important health journey. In '24, we plan to test media platforms created to determine the strongest, most effective strategies and tactics to reach these consumers. We're encouraged by the early results of these medications and feel that they strengthen the already strong macro trends behind our category and specifically, our business. Now to our outlook. As you saw in yesterday's press release, we expect fiscal '24 net sales to grow between 10% and 15% and adjusted EBITDA to grow between 6% and 15%. At the midpoint, this guidance is on the high side of our long-term algorithm in both net sales growth and adjusted EBITDA margin. As a reminder, our algorithm in net sales growth is between 10% to 12% with EBITDA margins of between 18% and 20%. Our plan reflects strong volume growth for both Premier Protein and Dymatize and the restart of shake promotions in the second quarter. We plan to step up marketing on shakes in Q4, which is when we expect to hit our target weeks of supply. The demand and supply dynamics remain tight for most of the year, and we will continue to be nimble so we can navigate effectively. In closing, I'm thrilled with our performance this year. We continue to gain momentum in every part of our business. Strong macro trends are driving sustained long-term growth in our categories. Premier Protein and Dymatize continue to reach new consumers and maintain all-time high market share positions. Our flavor strategy is working, and our innovation pipeline is rich, enabling us to bring excitement to consumers and retail partners. Last, we are moving forward on our shake capacity plan to support our future growth. Before passing over to Paul, I'm sure most of you have heard that Rob Vitale, our Executive Chairman, is currently on medical leave. We have been in close contact with him over the last several weeks. We wish him and his family the best throughout his recovery and we'll be excited to have him back at full strength soon. I will now turn the call over to Paul.

Thanks, Darcy, and good morning, everyone. As Darcy highlighted, our fourth quarter results came in at the high end of our expectations. Net sales for the quarter were $473 million, and adjusted EBITDA was $99 million. Net sales grew 25% over prior year, and adjusted EBITDA increased 23%, with adjusted EBITDA margin up 20.8%. Starting with brand performance. Premier Protein net sales grew 30%, with volume growing 21%. In Q4, our shake production increased meaningfully over the prior year, which allowed us to restart modest shake promotions driving growth. Volumes also benefited from the relaunch of temporarily discontinued flavors, performance of our seasonal offerings and strong growth from Premier Powders. Net pricing for Premier Protein grew 9%, reflecting the October 2022 price increase. Shake consumption dollars grew 36%, outpacing shipment growth of 29%. The latter was modestly impacted by the lapping of a trade inventory build in the prior year. Dymatize net sales were relatively flat this quarter as the brand faced a tough prior year comparison. Recall last year's Q4 had heavy trade inventory build in the international and domestic specialty channels. This headwind, combined with continued weakness in the specialty channel, was offset by strong growth in domestic mainstream channels, driven by distribution gains and organic growth. Gross profit of $155 million grew 27%, with an increase in gross profit margin of 60 basis points to 32.9%. The margin increase resulted from improved pricing that mitigated input cost inflation. This was partially offset by incremental promotional activity. Excluding one-time costs in the prior year period, SG&A expenses as a percentage of net sales increased 40 basis points, half of which was driven by higher marketing spend. Operating profit of $78 million increased $17 million compared to the prior year and was negatively impacted by $7 million of accelerated amortization. This was a non-cash expense recorded in connection with our decision to discontinue PowerBar in our North American business and was treated as an adjustment for non-GAAP measures. We expect the remaining $17 million of non-cash accelerated amortization to be recorded in the first quarter. Our international PowerBar business is unaffected by this decision and continues to grow. Turning to full year 2023 results. Net sales were approximately $1.7 billion, up 22% over the prior year, with gross profit of $530 million growing 26%. Gross profit margin increased 100 basis points over 2022, driven by pricing actions that mitigated input cost inflation, along with favorable freight rates. SG&A expenses were $216 million, and excluding one-time items, increased 60 basis points as a percentage of net sales. Higher marketing spend drove the increase as our marketing spend in fiscal '22 was exceptionally low. We saw modest leverage on our remaining G&A base. Adjusted EBITDA increased 25% to $338 million, with a margin of 20.3%, an increase of 50 basis points. Before reviewing our outlook, I would like to make a few comments on cash flow and liquidity. We generated $85 million in cash flow from operations in the fourth quarter and $216 million for the year. In fiscal '23, net working capital declined slightly despite our strong top-line growth. In fiscal '24, our net working capital growth will moderately exceed our net sales growth rate as we add weeks of shake supply. As a result, our cash flow in fiscal '24 will be modestly lower than fiscal '23. During the quarter, we repaid $54 million against our revolving credit facility. As of September 30, net debt was $817 million, and net leverage was 2.4x. With our EBITDA growth and strong cash flow generation, we anticipate net leverage to fall under 2x by the end of fiscal '24. With respect to our share repurchases this quarter, we bought 200,000 shares at an average price of $39.20 per share or $8 million in total. For the fiscal year, we repurchased 4.2 million shares at an average price of $29.56 per share, or $125 million in total. Our remaining share repurchase authorization is $23 million. Turning to our outlook. We expect fiscal '24 net sales of $1.83 billion to $1.91 billion and adjusted EBITDA of $360 million to $390 million. Our guidance implies strong top-line growth of 10% to 15% and adjusted EBITDA growth of 6% to 15%, with healthy adjusted EBITDA margins of 20% at the midpoint. We expect dollar and percentage growth for both measures to be weighted to the first half of the year. From a brand perspective, we expect double-digit sales growth for both Premier Protein and Dymatize, driven primarily by volume gains and continued category tailwinds. Key drivers of Premier Protein's volume growth include increased promotional activity, distribution gains and the first half benefit of our relaunched flavors. Organic growth and distribution gains are the primary volume drivers for Dymatize. We expect fiscal '24 adjusted EBITDA margins to be largely in line with fiscal '23, with increased gross margins offset by higher SG&A. Gross margins are expected to benefit from favorable input costs, notably in the first half of the year, offset partially by higher promotional activity. Investments behind our brands, including promotional marketing spend, are expected to skew higher in both the second and fourth quarters. Turning to our first quarter forecast, we expect low double-digit net sales growth compared to a year ago. We expect strong growth from Dymatize, as it has an easier prior year comparison, lapping a trade inventory deload in the international and domestic specialty channels. Premier Protein sales growth is expected to be in the high single digits as we lap a prior year trade inventory build, which we estimate to be a low double-digit headwind to Premier's growth rate. As a result, we expect consumption growth to outpace net sales growth as we lap this headwind. Consumption growth will also benefit from higher net pricing, as price increases at retail lagged our October 22 price increase on shakes. We expect first quarter adjusted EBITDA margins to be similar to the prior year as higher SG&A as a percentage of net sales was offset by higher gross margins. Gross margins are expected to benefit from lower protein costs, offset partially by increased promotional spend and other input cost inflation. In closing, we are encouraged with our strong performance in fiscal '23. Our momentum continues to grow, and we are excited about our prospects in fiscal '24. I will now turn it over to the operator for questions.

Thank you. Our first question comes from Andrew Lazar with Barclays. You may proceed.

Darcy, during your third quarter earnings call, you mentioned your initial guidance for 2024 would be at the high end of your long-term expectations for sales and EBITDA margins. Today, you shared a range for guidance that aligns with that at the midpoint. However, the range you provided, particularly for EBITDA, is wider. Does this suggest a change in your confidence regarding the outlook? It doesn't appear that way based on the metrics you presented, but if there has been a shift, could you elaborate on the key factors? Or am I possibly overinterpreting the range you've given?

Yes. There has been no change in our confidence. I wouldn't interpret the slightly expanded range in EBITDA too much.

Okay. And then Paul, I think pricing, I think, was expected to be somewhat lower year-over-year in shakes in '24, just in light of the move in dairy protein costs. I guess what sort of magnitude should we expect around pricing in Premier Protein? And have you seen any shifts in sort of competitive behavior along these lines that may have impacted your initial thinking on the shape pricing will likely take in '24?

Yes, we plan to return to a more typical promotion schedule in 2024, which will likely create a pricing challenge for the year. We are anticipating a low- to mid-single-digit headwind on pricing affecting net sales growth. Regarding the competitive landscape, I don't believe there have been significant changes. In fact, we've noticed some competitors raising their prices recently. It's important to note that our costs are influenced not only by protein prices, which we expect to decrease in fiscal 2024, but also by inflation affecting various other input costs, such as packaging and manufacturing. While we expect overall costs to be somewhat favorable, there are still other factors that could have a negative impact.

Our next question comes from David Palmer with Evercore. You may proceed.

Just a question on some of the data that you're showing us here on Premier Protein ready-to-drink shakes. On Slide 9, you talk about the shipments being in line with consumption or roughly in line with consumption in the last couple of quarters, but the all-channel consumption outpaced your shipped dollars by 8 points and 6 points, respectively, the last two quarters. I'm wondering, maybe give us a sense of what's going on there? And do you expect that negative price/mix gap to all channel consumption to continue in the next couple of quarters?

Yes, there are a few factors at play. As we enter fiscal '24, especially in Q1 and Q2, we have noticed a delay in retailers adjusting prices on the shelf. We implemented a price increase on our shakes in October 2022. By Q1, we have fully adjusted our shipments for this price change, yet the consumption growth is still experiencing a high single-digit increase as we move into the first quarter. We anticipate this trend will extend into the second quarter, as some retailers have not entirely reflected the price change until later. Additionally, in Q4, we are adjusting for trade inventory builds from the previous year, which is the primary reason for the discrepancy between consumption and shipment growth in that quarter. Moving into Q1 and Q2, the key factor will be the pricing aspect.

Regarding the capacity increase that Michael mentioned for December as we approach calendar year 2024, is that around 10%? Are there indications that consumption will rise with that capacity, given that retailers are purchasing everything available from us?

Yes, it will be about 10%, but it will take some time to ramp up. I mentioned that we should start in December, but it won't significantly contribute to our sales until the second half of the year. We do need that volume to feel comfortable building our inventory and starting our marketing efforts. We expect to begin promotions in Q2 and plan to start marketing from a Premier Tetra perspective in Q4.

Our next question comes from Ken Goldman with JPMorgan. You may proceed.

I just wanted to build on Andrew's question, if I could. And Darcy, you were quite clear that nothing has changed in your outlook or your confidence in the business. But the EBITDA dollar spread sort of from high to low in guidance is higher than what you've typically done in the past. And I didn't know if there was a specific reason for that. And I guess, kind of more importantly, maybe we could get a little bit of sense from you about what the key drivers would be that would lead that number to come in toward the upside or toward the downside? I mean, obviously, no one has a crystal ball. But just as you kind of think of what you're most excited about and what you're most concerned about or what some of the risks might be that you think are more important to call out? I'm just curious what those might be for this year.

Sure. Let's start with net sales. The main factor that could lead us to the lower end of the range is production, specifically the timing of our production scale-up. Other influences include responses to promotions, competition, and the overall economy, but the primary concern for net sales is still the timing of that production scale-up. When considering EBITDA, net sales is the key element, and it will impact the outcome. Additionally, variations in protein mix and freight rates could also affect our results. Paul, do you want to discuss some of the fluctuations in protein? However, I wouldn’t emphasize the slightly broader EBITDA range too much.

Yes. From a protein perspective, we have good line of sight really through the first half of the year into the third quarter. So, I think it's still kind of wait and see how the protein costs. There's been some fluctuations on the milk protein side. And then on whey protein, which is our primary input for our powder business, we have seen some tightness in that market recently, which likely will start to affect our second half. The question there is that that's a temporary blip or if it stays at an elevated rate, but we have seen some fluctuations there. But to Darcy's point, the wider range is just more of a reflection of our growth versus really anything fundamentally changing from how we're thinking about fiscal '24.

Thank you. Our next question comes from Pamela Kaufman with Morgan Stanley. You may proceed.

I have a follow-up question on your production capacity. I think you previously indicated that it would be up around 20% year-on-year in fiscal '24. Is that still fair? And then in addition to Michael's capacity, is there additional production that you're bringing online? And then what is the visibility into production expansion beyond this year?

We are optimistic about achieving over 20% growth, which is expected to be somewhat more pronounced in the second half of the year due to the startup from Michael Foods. For our 2024 production growth, roughly 40% will come from new co-manufacturers that we are adding this year. Another 40% will come from the benefits of the additions made in 2023, and about 20% will be from increased volume from our existing operations. This gives you an idea of the growth we anticipate this year. In addition to Michael Foods, we have two current partners who are expanding their capacity by adding production lines. Regarding our plans for capacity expansion, we have a clear outlook. Given the substantial capacity we have added over the past two years, we expect to benefit from a full year of operations and their anticipated run rates. We conduct long-range planning twice a year, or when there are significant changes, and our current five-year plan indicates that we will likely need additional capacity in 2025-2027. We are already in discussions with our partners about how to expand our capacity accordingly.

Great. And then also, thanks for sharing your thoughts on how you're thinking about the impact from GLP-1 drugs on the business. And it's consistent with our research on the benefits to higher protein and weight management foods. But can you elaborate on your initiative to target these consumers? And how do you plan to identify them?

It's still early, and we're generally optimistic about the results of the drugs, both for society and for our business category. We're currently in a learning phase. We've conducted initial research and are now supplementing that with additional studies. We have already completed a thorough analysis regarding how consumers approach weight wellness, and we're expanding on that. Our goal is to gain a deeper understanding of consumer needs and their information-gathering journey. We will also be testing different media strategies to identify the most effective ways to reach these consumers, which may include outreach to support communities and potential partnerships. While I don't want to go into too much detail, I want to emphasize that we are committed to thoroughly understanding this area and will conduct extensive testing and learning this year to better grasp their health journeys.

Thank you. Our next question comes from Matt Smith with Stifel. You may proceed.

I wanted to ask about promotional events timing through the year. Can you talk about the timing of your planned activity? You called out investments in Q2 and Q4. And I guess when we think about the large promotional events to the extent that there will be timing differences between consumption and shipments beyond Q1? That would be helpful.

Sure, Matt. Yes. So Q2 is important because Q1 tends to be a seasonally low period with minimal promotions and marketing. Q2 is when most new users enter the category, so we will have promotions for both Premier and Dymatize. We will also be launching a new media campaign for Dymatize in Q2, along with some media for Premier Powder. In Q3, we'll extend the media campaign for Dymatize, and in Q4, we plan to have promotions for the entire Premier Protein brand, as well as a national marketing campaign, subject to capacity. This outlines our marketing and promotional calendar for 2024 as it currently stands. A positive note is that in Q2, one of our major cloud promotions will happen later in the quarter, which means we shouldn’t see a significant difference between shipments and consumption. Most activity will occur in the same quarter, unlike in 2021 when we had large promotions. Paul, do you see any other significant changes between shipments and consumption?

No. If you consider consumption and shipment volumes, we expect them to largely align throughout the year. To Darcy's point, we are not anticipating any significant increases or decreases. In our first quarter, we are experiencing a trade inventory adjustment, which acts as a headwind. It's important to note that we also had an inventory reduction in the second quarter of last year, which will provide a benefit to our performance in the upcoming second quarter. These are the only two factors influencing the difference between true consumption volume and shipment volume, and we anticipate they will largely track in fiscal '24 on a quarterly basis.

And as a follow-up, if we take a step back and we think about the level of promotional activity behind Premier Protein shakes and the rest of the business in fiscal '24. Is this still just a step towards getting back to a full investment level? Or would you consider this year once you get through the first quarter kind of representative of the level of promotional activity that you think you need behind the two brands?

It will largely be on track. We've communicated this before. Back in '21, we were a bit heavy on promotion, doing up to three major promotions a year. Over the last couple of years, we've learned that we were likely subsidizing a significant amount of volume. As we move into '24 and beyond, we're aiming to return to what we believe is the appropriate level for our business without subsidizing much volume. Therefore, I would say '24 is representative.

Our next question comes from Jim Salera with Stephens. You may proceed.

I wanted to ask about the benefits of having some temporarily discontinued flavors return. Can you explain whether this offers an opportunity to attract more households back to the brand that might be focused on specific flavors? If their favorite flavor is unavailable, do they choose not to shop with Premier? Or does it mainly lead to increased purchasing, where consumers are likely to buy both their usual vanilla flavor and their preferred flavor?

Yes, Jim, it's really both. You saw a bump in household penetration in the supplemental presentation on our website, increasing by about one point. This is a result of starting light promotions during the quarter, as well as bringing back flavors that had been paused, like cinnamon roll, which people were eagerly waiting for. So, it's definitely a combination of both increased buy rate and household penetration.

And this might be too early for you guys to have an answer on this yet, given that the national marketing campaign is towards the end of the year. But do you have a sense of kind of what the messaging is going to be there? Is it really to kind of communicate use occasions to consumers so it's more like to grow the category? Or is it something specific for Premier?

We plan to launch a new campaign for both of our brands. Since Dymatize starts in Q2, I have more information about that compared to Premier. We have our strategy in place. I'm very excited about the Dymatize campaign, which features stronger creative that will clearly distinguish it from the competitive landscape, emphasizing its premium positioning and science-backed benefits that attract consumers. Dymatize is recognized for its super premium, high-quality, science-backed offerings, and that will be a focal point of our new campaign. For Premier, our marketing approach has always involved using our consumers to share their love for the brand in an authentic manner, which has proven to be very effective. This will continue, along with highlighting the great taste. While I don't anticipate major changes to this overall strategy, the teams are diligently working on the best angle for the Q4 campaign.

Our next question comes from Matt McGinley with Needham. You may proceed.

So for the higher marketing spend this year, I think you were targeting something like 3% or 4% this year versus the 2.5% of sales you spent last year. Is that 3% to 4% in marketing still the right range? Or do you have that tighter than that now? And is the critical decision point, you made a couple of comments around how you would spend it. Is the critical decision point more around the production? Or is it more around the effectiveness of the 2Q advertising campaign that you would then kind of ramp the spend into the fourth quarter, if you really got good results from what happens earlier in the year?

Yes. Darcy, I'll take the first question. You can take the second part of the question. Yes, we are modeling our marketing spend being kind of the 3% to 3.5% range. We don't think we'll get to 4%, that is more likely as we go forward with our full production capacity going, but we'll be in that 3%, 3.5% range is our expectation for '24.

Yes. To clarify your second question, we are fully supporting the parts of the business where we have capacity, including Dymatize and Premier Protein Powder, as well as our Premier bottles. What we are waiting for in terms of marketing until Q4 is the Tetra side of the Premier Protein business. This is solely based on our capacity needs. We need to ensure we have the right level of inventory so we can effectively support it from a marketing standpoint and achieve the desired growth.

Got it. That makes sense. And with the debt repayments that you made on your revolver last year and into this one, you have a zero balance, and I don't believe you can call your senior notes until a couple of years out. I think in the prepared remarks, it sounds like working capital would be more of an investment this year, but you'd still probably be building cash over the course of this year. Do you expect share repurchase to become more of a priority this year? Or does it make sense to sit on larger cash balances this year to, I guess, to have some dry powder if you see opportunities that present themselves?

Yes. In 2024, we plan to prioritize share repurchases as our main use of capital. In 2023, we actually bought back 125 million shares, so it was not a light year in terms of repurchases. As we move into 2024, while we could build cash, it is more likely that we will focus on share repurchases and take advantage of any opportunities that arise.

Our next question comes from Bryan Spillane with Bank of America. You may proceed.

I have two follow-up questions. First, Matt earlier asked whether our promotion level this year is normalized. Can you also comment on marketing, Darcy? I remember that you've had capacity spending limitations for a while, which I think has limited marketing spending to some extent. Now that you have more capacity and as we look forward to this year, do you see this as a normal year? If demand continues to rise, how do you expect marketing to evolve, either in absolute dollars or as a percentage of sales, given the increased production capacity?

Yes. From a marketing standpoint, this year is not typical. We are really focusing on the business size that we can support. It's a regular year for Dymatize and Premier Protein Powder products, but on the Tetra side, which constitutes the majority of the Premier Protein business, our marketing efforts are restricted to Q4. As we move into 2025, we will certainly increase our spending. The primary reason we are not marketing in Q2 this year is due to capacity constraints, and we prioritize promotions first before marketing in the latter half of the year. Therefore, 2025 should resemble a more standard marketing year for the entire business, as all our new facilities will be fully operational, allowing us to effectively drive the business forward.

I have a follow-up regarding Pam's question about GLP-1s. From what I gathered in your prepared remarks, it seems you're conducting extensive consumer research. Will you also consider any product formulation research that could demonstrate the effectiveness of Premier for patients on GLP-1s, similar to what we see with infant formula? Is there an opportunity to market this to doctors and nutritionists to promote the product's effectiveness in supporting weight loss?

Yes. The exciting news is that our products are well formulated, positioned, and already resonate with GLP users, as seen on social media platforms like Reddit and Facebook. We have experience marketing to specific groups with particular medical needs without altering our overall brand positioning. We approach this in a targeted manner. Regarding your question about targeting doctors, we have some experience there as well. It's possible, but from what we've seen, doctors are generally uninterested in discussing what products people use, while support groups, nurses, and dieticians may be more receptive. It's important to understand this different product and health journey so we can communicate effectively. As for product formulation, we are evaluating this aspect. It's still early, and we want to understand the nutritional gaps. We recognize that these drugs can lead to muscle loss, making protein important, and we need to investigate other potentially lost micronutrients. We plan to learn more in these areas.

Our next question comes from John Baumgartner with Mizuho Securities. You may proceed.

Darcy, first off, I wanted to ask about innovation as the supply chain issues are being solved in advertising and promos being turned back on, at what point do you think the model is ready and sort of capable of supporting innovation that's larger and more platform-based in nature? You mentioned your long-range planning. So, how do we think about portfolio development from here, whether it's flavors, format, differentiated products that we may even see in fiscal '24?

We have some new insights in this area. Over the past several months, we analyzed our data with an external partner and uncovered some exciting findings. The most significant takeaway is that we see considerable potential with our existing products through closer-in innovations like flavor variations, pack sizes, and formats, along with enhancing the distribution of these offerings. This approach is appealing because it carries less risk and is more efficient. At the same time, our R&I team has dedicated the last two years to developing new product lines, particularly in our Premier Protein segment, resulting in a robust pipeline. However, my expectation for 2024 is to concentrate more on closer-in innovations, while the launches of new lines we have been working on will take place in 2025 and later. Our aim is to introduce a new line every 12 to 18 months for both Premier and Dymatize, with a strong focus on 2025 and the following years.

Okay. And then as a follow-up on marketing. You've also mentioned the TV campaigns, obviously and the high ROI you're seeing from influencers and social media. But I'm curious, do other opportunities exist, whether it's partnerships or brand sponsorships, that can maybe amplify and complement that influencer breadth and accelerate brand awareness? What levers are still out there, maybe that could be high impact, but haven't been pulled yet given where the supply chain has been?

We have a lot of opportunities to explore, especially when considering Dymatize and Premier separately. With Premier, we've been somewhat conservative in our approach and have not undertaken significant marketing efforts for the past two years. We've relied on basic social media maintenance, but we haven't launched a major campaign since 2021, which presents a considerable opportunity for growth. For Dymatize, we utilize influencers through our Shaker Program, which includes everyday influencers with substantial reach. This program has seen significant success within Premier. There may also be opportunities to engage more high-profile influencers. We have successfully incorporated both regular and higher-profile influencers into the Dymatize brand and plan to continue this strategy into 2024. While I can't disclose the names of our high-profile influencers yet, we are definitely leveraging this aspect.

Our next question comes from Bill Chappell with Truist Securities. You may proceed.

Thank you for allowing me to ask a question. I would like to discuss the additional capacity and different distribution channels, including international opportunities and single-serve options for convenience stores, and how those are progressing as we approach the end of the year.

Yes. First of all, regarding international opportunities, I believe both are more long-term prospects. We have a significant amount of potential in the U.S. with our current products and close-range innovations. Internationally, there's definitely an opportunity, but it requires more time to develop and tends to grow at a slower pace. Currently, international accounts for about 10% to 12% of our business, and it's growing strongly at a rate similar to what's happening in the U.S., but from a smaller base. We're committed to this area with a dedicated team. We have a solid business in Canada, are expanding in Mexico, and are growing with our global customers. We also have operations in the EU. We see international growth as a future opportunity, even though it takes longer, especially given the potential we have in the U.S. Regarding single-serve products, we also view this as an opportunity. However, it’s slightly more complex due to the different marketing channels required. We are expanding our bottle co-manufacturing, which is exciting and aligns with our e-commerce sales. We believe there is future potential for bottles across various channels.

Got it. And then just some housekeeping. Can you give us an idea of interest expense and tax rate for fiscal '24?

Yes, our tax rate will be around 25% to 26%, a little higher this year because of the accelerated amortization on PowerBar. What was your second question? It was the cash interest?

Yes, interest expense, cash interest expense.

Cash interest ought to be around $60 million.

Our next question comes from Jon Andersen with William Blair. You may proceed.

Just one quick question on Premier Protein. From the slides, it looks like consumption growth for the brand has been running stronger in tracked channels relative to untracked panels, both on a 52-week and 13-week basis. I'm assuming that's a function of where the new distribution or TPs or the restoration of TPs is hitting the market. Could you remind us of kind of for Premier Protein, how much of the consumption for that brand is tracked versus untracked? And as you look to 2024 and restarting promotions, et cetera, how do you expect that channel mix may evolve in 2024 from here?

So Jennifer might have to help me. I think it's about 60% of our business on Premier is in track. Jennifer, is that about right?

I believe so.

About 60% of the Premier business is tracked. The main reason it's outpacing is that we're gaining a lot of distribution, especially in food accounts and mass accounts where we're significantly increasing distribution. Sorry, what was your second question?

More around the focus of marketing in 2024 and will it have a kind of a channel orientation to it that might affect that mix in '24?

No. All of our marketing primarily supports the overall brand, which is expected to elevate all channels fairly equally. While we do engage in some channel-specific marketing, the majority will focus on the overall brand. I anticipate that the distinction between tracked and untracked will become important moving forward. We expect to see distribution increases primarily in tracked, but untracked can also benefit significantly from major promotions within the quarter, which we will observe especially in Q2 and Q4.

Thank you. We reached the end of our Q&A session. This concludes today's conference call. Thank you for your participation. You may now disconnect.