Bellring Brands Inc - Ordinary Shares - Class A Aktie

Good day, and thank you for standing by. Welcome to the BellRing Brands Second Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Jennifer Meyer, Investor Relations for BellRing Brands. Please go ahead.

Good morning, and thank you for joining us today for BellRing Brands Second Quarter fiscal 2026 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 measures, see our press release issued this morning are posted on our website. With that, I will turn the call over to Darcy.

Thanks, Jennifer, and thank you all for joining us this morning. Our second quarter results came in below our expectations, and we are disappointed with our results. We faced a challenging operating environment as multiple dynamics pressured our financial results.

While net sales grew 2%, which was only modestly below expectations, the mix of our revenues differed meaningfully from both our forecast and what we've seen historically. The combination of negative sales mix, higher-than-expected freight costs and an isolated inventory-related charge weighed significantly on our Q2 profitability. The challenging operating environment was driven by increased competitive intensity, a more pressured consumer and macro-driven cost headwinds. Our updated outlook, which I'll discuss in greater detail, assumes these conditions persist through the back half and that our demand drivers will have a more muted impact on growth.

We are also seeing protein-driven commodity inflation running above our expectations, which will impact us in the second half. Against this backdrop, we are making a deliberate choice to continue to invest in promotion and advertising to defend share and support our long-term growth.

To put this in context, I'll step back and walk through how the environment has evolved over the course of the year. At the beginning of the fiscal year, the category was one of the fastest growing in [ CPG ] fueled by consumer health and wellness trends. Strong category growth, combined with increased industry capacity attracted new competition.

Retailers also expanded space particularly in the club channel, which represents just over 40% of BellRing sales. As a result, we expected some higher levels of promotional investment. As the year progressed, the most meaningful change has been the rising cost required to maintain our leadership position. In the first quarter, we noted increased promotional frequency across the category, which largely played out as expected. This quarter, however, we saw a more pronounced [indiscernible] year including higher levels of trade down and a greater response to promoted price.

These dynamics drove higher-than-expected promotional lifts across the category and pressured our baselines, further elevating the cost required to defend share. To illustrate, in Q2, promotional frequency and breadth increased sharply year-over-year as newer brands, particularly smaller entrants, continue to invest aggressively to gain traction. As a result, 27% of RTD [ shake ] category volumes were sold on price promotion up 8 percentage points versus last year and a meaningful step up from Q1.

Household penetration in protein shakes continues to grow, with little evidence of consumers shifting spend out of shakes into other protein enhanced products. However, in recent months, we have seen a contraction in RTD shake spend per household marking the first decline in buy rate in 5 years. This reflects an increasingly value-focused consumer with greater reliance on promotions, low-priced brands and value-priced pack sizes.

In short, the category remains strong with RTD shakes up 8%, which is well ahead of the broader food and beverage industry. However, the impacts of increased competition are more pronounced than we anticipated at the start of the year and the added factor of an increasingly price-sensitive consumer has put near-term pressure on our business, especially the bottom line. That said, our category remains highly relevant to both consumers and retailers with meaningful runway for growth.

For fiscal '26, we expect RTD shake category to grow at the low end of high single digits, primarily driven by volume. While we expect heightened promotional intensity to continue, we also anticipate base pricing across the category to rise, considering the rapidly inflating input environment.

Against this backdrop, I'll now turn to details on our second quarter results, operating plans and an updated outlook. Net sales increased 2% in the second quarter with Premier Protein net sales in line and Dymatize sales down 2%. Premier RTD shake net sales increased 2.3% with double-digit volume growth, mostly offset by price mix declines. Premier Powder and Dymatize net sales were consistent with expected consumer elasticities following our price increase.

Premier's shake dollar consumption was up 3%. Consumption outside of club continues to be strong, up 15%, with the mass channel up high teens driven by distribution and incremental promotion. We are pleased with the performance of our key promotions this quarter with a club retailer and a large mass retailer, driving a record quarter for both sales and consumption. Both events exceeded our expectations and delivered significant household gains with meaningful portion coming from new to category consumers.

Consistent with category trends, we saw softer velocity than non-promoted weeks and retailers, reflecting shifts in consumer purchase behavior to our promotions and value priced options. This, coupled with increased promotional lifts led to a higher-than-expected mix of promoted versus nonpromoted volume. Note, our promotions in Q2 ran as we communicated in early February with no further events added during the quarter.

I'll now turn to an update on our demand drivers, which remain centered on growing our distribution, both in and out of the aisle, increasing advertising investment while elevating its impact and launching innovation that provides consumer excitement, odds, occasions and drive trial. Distribution growth continued during the quarter, and we remain on track for double-digit TDP growth in '26. It's worth noting that single-serve bottles represent a decent portion of these gains. And while not as productive as larger pack sizes, they drive trial and are a critical part of our display strategy.

Our promotion with a large mass retailer, which included extensive displays and end caps across both pharmacy and grocery aisles drove strong consumption, increased household penetration and delivered solid trial for our coffee health innovation. Given these successes, we now plan to repeat this promotion in the mass channel in the fourth quarter.

Our second priority is advertising, where we've increased investment in elevated our creative. Our new [ go get 'em ] campaign launched in late December, is showing early signs of success with lifts in awareness, brand equity and traffic to our website and e-commerce product pages. Our analysis indicates strong ROI and incremental sales from the campaign. We believe continued brand investment is the right strategy to strengthen brand equity and support long-term growth and we expect to maintain our investment this year at approximately 4% of sales with more tempered and near-term returns given the more competitive promotional environment.

Turning to innovation. As I've discussed previously, we conducted a comprehensive demand study to identify white space opportunities as the category evolves to meet a wider range of consumer needs and occasions. Two of the most attractive and underserved areas were performance protein and refreshing protein. I'm pleased to announce we will be launching new products in both spaces in the fourth quarter.

The first, Premier Protein Ultimate is a new 42-gram shake for consumers looking for high protein levels, available in both multipacks and single-serve bottles. The item targets a fast-growing 40-plus protein gram segment and launches in mass, e-commerce and select food retailers.

I'm especially excited about our new second new offering, Premier Protein sparkling soda, which targets one of the most underserved segments of the category. Premier will be the first scaled player to enter this rapidly growing segment. Our sparkling soda is bubbly and refreshing with 15 grams of protein in a vibrant can format in 4 different fruit flavors. It has a very clean label with only 5 ingredients. We expect our protein soda to bring in new, younger consumers increased basket sizes and expand usage, particularly the afternoon and mid-day occasions.

The initial launch of this refreshing protein item will be in a significant mass retailer, e-commerce and many other FDM retailers. It will be supported by strong display merchandising targeted retail media and an exciting social media campaign to drive awareness.

I'll now move on to the details of our outlook. We expect Q3 Premier shake conception to be relatively flat with continued double-digit growth outside of club. Club remains challenged in Q3, with increased competitive promotional intensity and consumer trade down weighing on our performance in this channel. Our promotional activity in Q3 is expected to be fairly modest, slightly below last year's Q3 levels.

We now expect full year '26 net sales growth of flat to up 2%. Our updated adjusted EBITDA margin outlook is 14%, inclusive of 50 basis points of impact from the Q2 inventory-related charge. This assumes that price mix and freight cost headwinds continue in the second half of the year. Additionally, as consumer demand for protein remains strong and protein products continue to proliferate, demand for protein input has materially increased.

This is a result -- this is resulting in protein-driven commodity inflation above our initial assumptions, which will begin to impact us in the third quarter with a greater impact in our fourth quarter. In this environment, we are balancing near-term investment to defend market share with actions to strengthen long-term profitability. We believe that our results this year are below the long-term potential of the business and closing that gap through innovation, pricing discipline and cost optimization is a clear priority.

In closing, the near-term environment is challenging as we navigate competitive consumer and macro inflation headwinds. However, consumer demand for protein remains healthy. And while competitive intensity from insurgent brands remain elevated, we would expect it to gradually moderate over time. In the long term, we continue to expect scaled players with deep category expertise mainstream appeal and high repeats to be the winners as retailers consolidate shelf space behind the best-performing brands. Premier's strength across each of these attributes positions us well to capture our fair share of the long-term growth. Our team is acting with urgency to adapt to the evolving environment and position our business for long-term success. Now I'll turn the call over to Paul.

Thanks, Darcy, and good morning, everyone. Total BellRing net sales for the second quarter were $599 million, up 2% year-over-year with adjusted EBITDA of $54 million. As Darcy noted, sales were modestly below our expectations, while adjusted EBITDA margin of 9% was 400 basis points below our guide of 13%.

An inventory-related charge of $11 million represented 190 basis points of the variance. The remainder was primarily driven by the composition of our Premier Protein RTD sales along with higher-than-expected freight costs. Premier Protein net sales grew 1.7% with RTD shake net sales up 2.3%. The Premier shake volumes increased 12% with unfavorable price/mix of 9% with the latter above expectations given higher promoted volumes, coupled with lower baseline volume. Dymatize sales declined 2%, impacted by elasticities due to inflation-driven price increases.

Adjusted gross profit was $136 million with adjusted gross margin of 22.7% compared to 34.5% a year ago. The year-over-year decline was driven by significant input cost inflation, including tariffs, the unfavorable price mix I just described, higher freight and the inventory-related charge. Compared to expectations, freight costs were modestly above plan and protein inflation was in line. SG&A expenses were $92 million at 15.3% of sales, in line with prior year on a percentage of sales basis. This is inclusive of an increase in advertising investment, which was up 140 basis points as a percentage of sales.

Turning to our 2026 outlook. We now expect net sales of $2.325 billion to $2.365 billion, which represents flat to 2% growth. Adjusted EBITDA is expected to be $315 million to $335 million with a margin of approximately 14% or 14.5% excluding the inventory-related charge in Q2. Our revised guidance incorporates our second quarter results and our updated outlook for the second half, which I will now discuss.

We now anticipate net sales growth of 1% in the second half, in line with the first half versus 8% implied in our prior guide. The sales revision is primarily on Premier Protein, where we have reflected the consumer dynamics we saw in Q2 and a more muted contribution from demand drivers. Specifically, we have reduced our second half baseline velocities for Premier Protein RTD shakes, which has an outsized impact in Q3. As a reminder, Q3 typically is a lower promotional quarter than Q2 and Q4.

In Q4, we've added promotional activity, which increases trade spend and also unfavorably impacts mix as we saw more volume on promotion than previously expected. As a result, we now expect volume growth and price mix headwinds in the second half to be relatively similar to the first half for Premier Protein with high single-digit volume growth, partially offset by mid-single-digit pricing headwinds.

Regarding adjusted EBITDA, we expect second half margins of 15% versus 20% implied in our prior guidance. Four items drive this change in EBITDA margin. First, higher freight and protein costs represent approximately 200 basis points. Second, unfavorable mix and increased trade investment are approximately 160 basis points. Third, lower cost savings and other manufacturing costs are approximately 60 basis points. And last, lower SG&A leverage represents the remainder of the decline. Importantly, we are maintaining our advertising investment at approximately 4% of sales for the full year as we continue to support the Premier brand.

For the third quarter, we expect net sales growth to be down approximately 1%, with Premier declining slightly, somewhat offset by Dymatize growth. Third quarter adjusted EBITDA margin is expected to be approximately 16% and reflects significant year-over-year commodity and freight inflation, tariffs and higher planned advertising investment.

Compared to the second quarter, Q3 margins benefit from better mix as less volume is sold on promotion. Additionally, we expect improved pricing and margins on our powder business as Q3 fully reflects the price increase implemented late in Q2 to address historically inflation, the key input in powders.

Now I'll make a few comments on cash flow and liquidity. The first half was a modest use of cash in line with our expectations, and we ended the quarter at net leverage of 3x. We returned cash to shareholders through share repurchases with $26 million repurchased in the second quarter. We continue to expect strong cash flow generation in the second half of '26, in line with historical conversion.

Recall, we anticipate payment of a legal settlement in our Q4. As a result, we expect leverage to remain in the low 3s during the remainder of our fiscal '26.

In closing, we believe in the long-term potential of our category and the Premier brand and are not satisfied with our current performance. The near-term environment is challenging, and we are investing in promotions and advertising this year to defend market share while managing through significant commodity cost headwinds. We are evaluating our pricing plans and cost structure to strengthen our economic model and continue to believe in the long-term attractiveness of our business.

We hold a leadership position in the category supported by a brand that remains highly relevant to consumers and retailers, and an attractive scaled asset-light model, we are acting with urgency to position the company for improved performance. I will now turn it over to the operator for questions.

Our first question comes from Andrew Lazar with Barclays.

Great. I guess Darcy, over the last couple of quarters, you've mentioned that it will be gradual, but over time, the category will likely go through somewhat of a shakeout, right? As some of these insurgent brands ultimately don't prove to have the kind of velocity on the shelf to sort of maintain the shelf space, right, that they're currently paying up for? And I know that takes some time.

But we've seen that happen in other sort of growth of your categories as well. I think maybe one of the I guess, concerns that I've heard a lot about is what gives you the confidence that, I guess, the Premier Protein brand can be, right, and sustain its leadership or be among one of the leaders in this category if we're thinking 2 years out from now.

What are you seeing in the category that's making some of these insurgent brands so attractive right, to consumers? Are there -- is the innovation right, the Premier is keeping up with -- I'm trying to get a sense of if one thinks that Premier Protein is going to be a leadership brand 2 years from now in a category that clearly has a lot of runway. One would think, therefore, the stock wouldn't be at sort of levels where it is. That's kind of the question I've got.

Yes, it's a great question. So first of all, the category itself, I mean, we have seen it is a healthy category with a ton of tailwind. And so when you have that -- those type of macro tailwinds and then you get added capacity into the market. There is going to be a ton of competition. As the number -- I think our latest estimates were internally somewhere around 40 new competitors over the last 18 months. So it's tremendous. And as the #1 player, we are going to get affected by that.

I think what gives me confidence is, first of all, we're largely holding our share. We've had a modest share loss, which is expected. But we're actually gaining share outside of club, but there's no doubt it's costing us more than we expected, and that was evident in our results. I think that when I step back and I think of the long-term potential of a, the category and Premier as a leader, we truly believe that there is going to be a shakeout.

Their -- retailers are going to consolidate the shelf around the most successful brands, and we will be them. And we will be in that consideration set because we are, right now, have the highest awareness, repeat, household penetration. We are the most well-known brand, both with aided awareness and unaided awareness. From a GLP-1 standpoint. We are the brand that gets the most benefits from GLP-1 because of those things.

We have great brand metrics, and that has not changed. So are the most trusted brand. We are the brand that people are willing to pay more for. We are the high quality. All of these things, which take years to create that trust with consumers. And given the amount of -- given the amount of competition and because we have been the #1, we expect to have kind of -- we're getting [indiscernible], small [ mics ], but we actually are not losing our -- more than our fair share to anyone which I think is encouraging.

So I think that we've built this national supply chain. We have tremendous knowledge about the category and overall, the brand is ultimately what consumers are choose. And I think right now, we are having a shakeout and it's going to be the ones with these strong repeats that ultimately win, and we're going to be one of those.

I think it's also just remember, Andrew, this is a growing category. And you can have multiple winners. So this is not just a zero-sum game. I know we talked about this when we first IPO-ed. But I think that's a big factor.

Our next question comes from Megan Clapp with Morgan Stanley.

Maybe you could just build on that and talk a little bit about the category and the promotional environment, which Darcy, I appreciate all the color you gave in the prepared remarks just around what has changed. And it does sound like promotions ran as planned. You didn't add any events, but that you're just seeing the cost of volume is higher as consumers are a little bit more price sensitive.

So the category does feel like it's trending a little bit more towards the kind of traditional [ CPG ] promotional cadence seeing that a big move in terms of the volume sold on promo was pretty significant in the quarter. So I guess, like the question is, do you view this as more macro-driven and kind of likely to normalize? And what gives you that confidence? Or is this maybe a bit more of the new normal for the category as it starts to scale and maybe attracts kind of a more mainstream price-sensitive consumer and related? And sorry for the multipart question. How do you expect kind of base pricing across the category to rise given what you're seeing right now?

Yes, I think this is macro driven. So as you mentioned, that -- the reason why I think it's macro driven is just -- well, first of all, that you highlighted that promotion materially increased in the quarter, up 8 points. So it's a big number. That's 40% higher than last year. So it is a big number.

So not only did the overall category, but then we saw [ higher less ]. And no, we did not add any more events to compete. It was simply the events that we had drove higher [ lifts ] and connected, pressured our nonpromoted baselines, hence the impact to the bottom line. We think this is a direct impact of kind of consumer -- the broader consumer affordability issue.

I mean, ultimately, when you look at the -- our products they're a pretty inexpensive breakfast, but the absolute pricing in club is about $30. So when you have a coupon that is 25% off that, that's $8. So it matters to consumers. So I think that's what you're seeing. We do believe that this is kind of transitory. I think that it will change. But right now, we're kind of in a bit of the perfect storm, specifically with increased consumer price sensitivity sustained competitive intensity when you have these insurgent brands not acting very rationally and then the increased inflation.

So that's the first piece. The second piece was just what do we expect pricing because of the increased inflation and Paul and I both talked about how not only these are also macro, so you're seeing freight increases and also protein increases that pricing has to follow. And so I don't know exactly the timing. But over the next whatever 12-plus months, we -- there have to be some pricing that follows because the increases are just too big.

Our next question comes from David Palmer with Evercore ISI.

Sort of a follow-up on that, just what you would encourage us to be monitoring along the way. With inflation increasing and maybe you can give us some color about when you see some of these things flowing through. It sounds like your last comment about the 12-plus months. I'd love to get a sense of maybe the cadence of inflation increases that you're seeing.

But really, I want to ask you about pricing power. What's going to convince you that you have that? And when I look at base volume in the all-channel numbers, it looks like it was up 4%, 4% or 5%, it looks not bad. I mean, compared to a lot of companies that we see in terms of base volume trends that would more or less convince you that you have pricing power versus the down what, high single digits versus the low single digits that you had. So what should we be following and thinking about to give us a sense of how you're thinking about pricing power going forward in the data?

Yes. I'll hit pricing power, and then Paul, you can address the inflation question. Yes. I think we've shown that we have pricing power. We have a fantastic brand with high repeat, high loyalty, the highest loyalty in the category. And we've taken pricing over time when we've had to. And so -- and we see kind of expected elasticities -- and if you think of the last 5 years, I think we've taken 3 or 4 price increases. So -- and we've continued continue to grow.

We try not to. But I think that given -- when you step back and you think of a how much it cost -- is a healthy breakfast and you think of a shake is about $2. So given all the kind of macro tailwinds around protein, and a $2 healthy, convenient breakfast is still pretty reasonable. And so -- and again, I go back to just our loyalty and our history showing that we have pricing power.

Yes, on inflation data. So a couple of things on inflation. So first, we expected a healthy dose of inflation this year anyway with -- especially on our whey proteins, which is the inputs on our powders. And so we had called kind of mid-single-digit inflation for the year.

What has changed is, first, as Darcy highlighted a minute ago, freight has increased. A lot of that has to do with the Middle East conflict. We saw that kind of happen after kind of in the February time frame and beyond. So that we expect to continue. That is not a huge driver, but because it's about 10% of our overall cost, it's definitely a headwind.

The bigger piece is we've continued to see whey protein increase, so that's affecting our powders in the second half. And then over the last couple of months, the nonfat dry milk market on the CME has gone up significantly. So that's really the biggest new news on the inflation side as we've just seen a significant increase there. We were largely covered for the year. We weren't fully covered. So there is some impact in the latter part of our year. And then as we look into next year, obviously, we need to see where this plays out.

It doesn't seem like it should stay at these levels and it should pull back, but obviously, we can't make that prediction at this point. If they stay at these levels, then obviously, we would have some headwinds in '27 that we would need to address. I think on the whey protein side, the headwinds in '27 should be less. They may not be 0, but they will at least not be as significant as we saw in '26. So really, the big new news is just a ramp up on the cost side of non-fat dry milk, which is a key input cost into or milk proteins, which is on our shakes.

Our next question comes from Alexia Howard with Bernstein.

Following up on the previous question on input cost inflation, do you have visibility into what competitors that are using ultrafiltered milk would be seeing because my understanding is that the milk inflation has not been as sharp. So I'm just trying to think about how this might play out across the space in terms of competitiveness.

Yes. We believe over time that the dairy complex should be similar for ultra filter milk as it is for milk protein concentrates. So over time, we don't believe that there is a structural difference. Now I -- to be fair, I don't have full visibility into some of our competitors and what they can achieve on the cost side. But we feel like we have -- we have strong advantages on scale with milk protein.

We obviously source it not only domestically but internationally, so that -- it's interesting the U.S. markets right now are elevated compared to the international markets on some of the -- on the non-fat dry skim milk powder, so that could give us some advantage and I should mention this on the last question, and I did not. But for '26, we're largely now covered on our protein side. But to answer your specific question, we do not believe there's a big structural advantage or disadvantage of ultra-filtered milk versus milk protein concentrate, they may not move exactly in lockstep, but we think over time, they should.

Our next question comes from Peter Grom with UBS.

Great. I do wanted to come back to the long-term targets. Several months ago, you outlined expectations for 7% to 9% on the top line. Adjusted EBITDA margin will be to 20%. Obviously, this year, it's far more challenged. But I guess based on what you've seen over the last several months, do you still view those as realistic targets? And if so, what is a reasonable time line that we should be ending get back to those levels of growth or profitability?

Yes. So as a reminder, we reassess our long-term algorithm and outlook in November, and we'll plan to do the same thing this year. But definitely acknowledging that, I mean, the near term is challenging from competitive consumer and commodity pressures kind of all hitting at the same time.

But when I step back, the category is -- remains healthy. We have the #1 brand with a very strong equity. We expect to get our fair share of that category growth over time. And we believe that the category will be growing at those kind of levels. So I think I talked about this to Andrew's question is that in the long term, we expect the scaled players with mainstream appeal, high repeats to be the winners and retailers to consolidate the shelf space behind the best-performing brands and Premier will definitely be one of those brands.

So I think it will take -- we're in the middle in the near term, and we need to get through some of these macro forces and we will continue to grow out of it and get back to that -- the long-term estimate.

Our next question comes from Matt Smith with Stifel.

Paul, you called out flat consumption for Premier in the third quarter. Can you talk about shipment expectations in relation to the level of consumption? It looks like prior year consumption was roughly in line with shipments. But does the upcoming launch of 2 new products or the resumption of the mass program in the fourth quarter? Does that benefit shipments in the third quarter? Or is that kind of contained as we get into the fourth quarter?

Yes. So most of the new product innovation shipments will occur in the fourth quarter. So we should get a little bit of a bump from that in the fourth quarter. So I would expect that shipments would be slightly ahead of consumption in the fourth quarter. And then in the third quarter, we'd expect consumption growth on a dollar basis to be slightly above our shipment dollar growth. Nothing of major consequence there, just some minor rebalancing from some of the shipments we had in the first half. So net-net, slightly [ Jim], it's slightly below consumption in Q3, and I would expect to be slightly above in Q4.

Our next question comes from Steve Powers with Deutsche Bank.

I just want to clarify a little bit more on the current environment. I think the -- in what's going on is pretty clear from your remarks. But I'm a little uncertain as to when it started. So I mean, are these dynamics you saw earlier in the quarter and they were evident when you reported the first quarter and it just didn't dissipate the way you expected?

Or are these dynamics that evolved more late in the quarter and that you expect to continue and if there's any clarity around where is the incremental challenge concentrated still in club? Or has it now spread to those non-club channels? That would be helpful.

If I could, well, I'm at it, Paul, just as we net out the pricing power and inflation commentary, I guess when you net it all together and you think about the next 12 months, what percentage of inflation that's building, do you think you're realistically able to price for? If there's $100 of incremental inflation, is it realistic that net of promotional environment, you can price for a majority of that? Or should we recalibrate our expectations at least in the near term that you kind of pricing power, so to speak, will be constrained by the competitive dynamics?

Yes. So I'll start -- Yes. So okay, the new information that we had since our February guidance, I think, is important to hit. So first of all, we only had a few weeks of consumption data heading into our February call. Our largest club promotion hadn't occurred, that occurred in March. And then many weeks of the mass promotion was still ahead of us. So that is really around kind of the consumption and the mix that we ended up seeing.

From a cost perspective, obviously, none of us predicted the Iran War, which affected oil in our freight costs. And then protein costs have accelerated late in the quarter, specifically late in March, but really in April. And then the last thing is just this unanticipated inventory charge was discovered in late March. So we recognize -- this is super dynamic, and we recognize that this is a significant change, but a lot of things have changed.

And so I appreciate the question because -- and going through each one of those. As far as your question around where -- we're seeing price -- the increased consumer price sensitivity is happening across channels. However, it is the most acute in club. And that is where we're seeing the highest promo list and the pressure baselines. And that's also where we're seeing the most competitive intensity. So -- and obviously, inflation is [indiscernible].

And just adding on to that, really, it was a lot of the competitive intensity which affects our baseline really started occurring in the February and March time frame. So kind of back to your question on timing, a lot of that occurred after our guidance. As far as your question around pricing power and our ability to pass cost increases through. I mean, historically, we have been able to do that.

I don't expect that the current environment, you're right, is more competitive. So it will be something we'll have to think through and assess if that affects how we want to pass through cost, but our current thinking is that we should be able to pass it through. We've seen -- we see competitors in our space that have taken fairly sizable increases recently as well. And so obviously, that gives us another data point that we can look at to see. But overall, we would expect to continue to be able to pass through commodity costs.

Our next question comes from Yasmine Deswandhy with Bank of America.

I just wanted to dig into the competitive landscape a little bit. I was just wondering if you could talk a little bit about the challenges that you're facing competing against the insurgent brands versus the legacy brands? And if those challenges are the same or have they require different strategies. I guess I'm wondering when things moderate with -- when competitive intensity moderates from the insurgents, how are you planning to competitively or effectively compete against the legacy brands once the insurgents kind of moderate?

So let me just kind of lay out the competitive set. I've talked about this before, but I think it's helpful. So about 50% of the category are kind of the leading brands, which includes Premier about 30% -- 25% to 30% of the category is kind of what I -- what you described and what we describe as legacy brands. And then about 10% are these kind of new insurgence and the remainder are kind of private label as well as kind of branches growing with the category.

So if you -- for years, the legacy brands have been donor brands, and you see you've seen them decrease in market share. The larger brands have mostly grown with the category. And the [ insurger ] brands, there is a -- there's a lot of -- they're making a lot of noise and -- but they shake out, meaning that the group of [ insurgent ] brands that we saw a year ago are different than the ones we see now. A couple of them are doing well. And we will see them. I think they will make it, but there will be a lot of churn in that group.

So I think that we will consider -- and the 30% of I think this is often overlooked because the insurgent brands make a lot of -- there's a lot of flashiness. They're new. But I think that it is -- it's important to note that the legacy brands, we think they will continue to be donor brands in essence and we will continue to source volume from them.

So that's ongoing. I think as we -- what's interesting about looking at some of the insurgent brands is it's innovation. So meaning that we're seeing them bring in new consumers, so -- which is good for the category. And I think that, that is an area that we are closely monitoring to see if we should launch innovation in those specific kind of product categories.

So what we're seeing is, whereas the category used to be much more nutrition-led, nutrition-focused. I think some of these insurgent brands are more beverage-focused and therefore, bringing in new consumers in new occasions. So it's -- we monitor it to see if it's something that we would want to put in our pipeline. So when you talk about how do we compete, we are continuing to -- we have a built-in customer base that is highly loyal, and we will feed that. But we also bring in new consumers around this kind of nutrition-first type of proposition, but then through innovation, we will compete in some of the areas that we think are incremental and interesting.

Our next question comes from Jim Salera with Stephens.

I wanted to get a little more detail on the innovation and how we should think about that contributing on a go forward. First of all, are those innovation launches going to have similar unit economics to the core shake lineup? And as we think about their presence on shelf, is there going to be some swapping of lower terming core SKUs? Or do you expect the innovation to be largely incremental to what you have on shelf right now?

I'll hit the incremental on shelf and then Paul I'll pass it to you for the unit economics. From I'll tell you what we're seeing so far is that they're incremental shelf, so they are not only -- I mean, actually connected to the last question that I answered. They are incremental to our business. And so we obviously communicate that to our retailers, and we are getting them incremental on the shelf. And then do you want to talk about unit economics, Paul?

Yes. I mean, so it varies by various innovation. Some are at par to hire from a unit economics perspective in summer smaller or lower from a margin perspective in particular. And keep in mind, I mean, obviously, our 30-gram shake business has got a large scale to where a lot of these other ones are smaller. So we would expect them to be lower margins beginning, but they should as they grow, the margin will improve over time.

Just one other thing. I talked about our 42-gram item that we're launching as well as sparkling. These are really different propositions. So if you think of the 42-gram line, that has been avoided in our business, in our portfolio. And it's important when it comes to singles and specifically the convenience channel. I think that we needed that to really effectively play there. So that's one piece.

Also important to kind of our single display strategy and getting new households. So that's one piece. And sparkling is really exciting. Every time we do more research on it, we get more excited about this incremental kind of demand what we call [ pallet ]. But it's really demand occasion because if you think of most of the categories really around the breakfast meal replacement, this is for an afternoon refreshing time. And you're seeing a lot of activity from small players, but we're going to be the first kind of scaled player that's competing here, and the product is fantastic.

Our next question comes from Jon Andersen with William Blair.

Darcy, you mentioned how things have evolved in the category where we've gone from an industry capacity shortage to -- it sounds like more industry capacity, whether there's surplus, I don't know. But I guess my question around is centered around capacity because it does seem to be driving the ability of perhaps these [ insurgence ] to play like in club and also to the category overall to engage in more promotion.

You give us kind of your perspective on where the industry or the category sits in terms of capacity? And the reason I ask is I'm kind of curious if -- what you're seeing in club in terms of heightened promotion, could begin to migrate to [ food, drug and mass ]. So these [ insurgence ] have the ability to scale. Is there enough capacity out there to take the competition in a bigger way beyond club?

Overall, I would say the capacity -- it's a little bit mix still. Certainly, I think on the Tetra cartons, we've seen -- I believe there is more capacity available, so that's one. On bottles, we've definitely seen some capacity added. But -- there's also -- I think if you're trying to get into cans, I think some of the other competitors, I think, are likely going to need to add capacity to continue to scale. Obviously, there's some other competitors who are expanding facilities as well. So I think it's still mixed.

There's definitely more -- it's more in balance than it was before. So I would say again, I don't know if it's excess, but there's definitely more in the Tetra side than there was, and then bottles has been added over time. So that has obviously given some additional capacity out there available. But as we've talked about, it's one thing to get market share of 3 or 4 percentage points. It's a whole other one to get to the size and scale of our business, it just takes time.

But we've seen it. We've gone through 2 waves of extensive capacity additions to get to where we are now. So it just takes time. So -- can they -- is it more available capacity absolutely than there was before. But [indiscernible] still had to scale to a sizable business there tends to be more capacity added for those brands to continue to grow.

And just on that, capacity is definitely going to be a challenge, I think, for many of these kind of insurgent brands. But just the cost increases, I mean, the things that we're facing is not unique to us. And I think that those -- they're highly reliant right now on value and they're highly reliant on promotion. Some of the insurgent brands are promoting at 60% of the time. And so I think that with that is very expensive. And when some of the inflation becomes more meaningful towards the end of the year, in the back half. That's going to have a big impact on those businesses.

Our next question comes from Thomas Palmer with JPMorgan.

I did want to ask maybe on some of those promotional plans you mentioned for 4Q. One, you did have some other promotions running in the club channel and just want to confirm, are those going to be running again as we think about the fourth quarter? Any changes there?

And then second, just the promotion you mentioned in the mass channel. How does it compare to what ran earlier this year in terms of the duration of it? And then maybe how broad-based it might be across the category? Because I think last time we did see some other brands participating even if maybe you guys were more prominent.

Yes. The promotional schedule in Q4 will be similar to Q2. So we have -- that is when we have our 2 club promotions and then we will also have the mass promotion, which will mirror similarly to what we did in Q2.

Okay. And any color kind of how broad-based it will be with others?

We do have visibility to that. My expectation is that it was good for their category. And so my expectation is it will be similar. I mean maybe a little less just because -- if you think of the Jan-Feb March time frame, it is -- the time in the calendar in the year when the most new households enter into this category because of New Year, New You. So there's a lot of attention for the category in all retail. So I think if you -- the next big time frame is that our Q4. So it might be a little bit less, but again, we don't necessarily have visibility. We just have visibility to what we're doing.

Our next question comes from John Baumgartner with Mizuho Securities.

Darcy, I wanted to revisit your comments on innovation between nutrition credentials and even surgeons bringing more of a beverage experience. Historically, Premier in the category have differentiated through protein content and flavor variety. And I guess I'm hearing the strategy is offering more proteins during more times of the day. But at what point does the consumer look at the proposition as a commodity? It becomes more sophisticated, the demand pull goes next level where maybe just offering high protein is no longer enough.

Maybe to qualify as nutrition, you need high protein and maybe to be a true meal replacement with more vitamins, more minerals because I do wonder if part of this price sensitivity, yes, it's macro, but it also a sign that consumers are longing for something more and to wield that pricing power and defend market share you need to redefine the category's proposition with more specialized innovation.

Yes. I think you're seeing that. I mean, I think you're seeing -- so the demand landscape, the study that we did, I mean, it basically mapped out. I think it's like 10 to 15 different demand moments kind of going from, I mean, what I call kind of nutrition-focused with all the vitamins and minerals complete nutrition, et cetera, all the way to more of a beverage moment like the refreshing protein.

Those products and those demand moments creating a product for a refreshing moment versus a nutrition-focused moment are very different. I mean, a refreshing moment, you don't need vitamins and minerals, just to use an example. So I think that what -- as the category develops and matures, what will happen is, yes, there will be more specific products specialized to use your word specialized products for different demand moments.

I think what is encouraging, what came through very clearly in this study was our 30-gram product has a really good job against a lot of demand moments. Not all, hence the refreshing, but it does a very good job against a lot of the demand moments, which is why it's a $2 billion line. And so I think that -- but that -- I think as the category evolves, that's what you're going to see. And I think you're already starting to see it, which is more specific specialized products meeting a specific demand.

And then a follow-up, coming back to your comments on category buy rate. I think you stated that RTD is not losing share to other protein formats. But if vary for RTD is down and protein consumption is up overall, are you seeing consumers shifting out of process protein into unprocessed, maybe more commodity products like eggs or meat. I guess what are you seeing across the protein dynamic more broadly?

Yes. So it was -- as we looked -- we dug into this. And what we saw, we didn't see a huge outflow of consumers leaving our category and RTD shakes into kind of more protein enhanced products that you see all over the store. But -- and we also didn't see a decline in household entering, so into our TD shake.

So we're still seeing strong household growth, showing the strength of the category but what you're seeing is, like I said in my remarks, is that for the first time in 5 years, you're seeing a decline in buy rate. And that really happened this quarter. So I think that as far as the detail of if we're seeing consumers leave to go to more Whole Foods, we do see some interaction with our category and like eggs, depending on pricing, but it's not significant. It's not significant. So I would just say that the biggest change this quarter continued households coming in, but the buy rate did decline.

Our next question comes from Robert Moskow with TD Cowen.

I want to know, in most CPG categories, the market leaders set the price and that everyone follows. Would you say that it's harder to do that today given the influx of so many smaller players that may or may not play along. And you said that I think, Paul, you said that you have seen one of your competitors take significant pricing recently. Is that a big player? Or is it a small player? And does that make a difference?

It's -- I mean I'll answer. It's a big player. And I think that -- and it was just this quarter. So it's pretty recent and yes, I mean, I think that it's one of the leaders, and it's pretty significant pricing. So I think that right now, this is all pretty new in that, as I talked about, the changes in the category and the environment, they're pretty significant, and they're pretty new. So we are -- we're evaluating really how to respond.

And I think that this is not going to be, I think, ultimately, I think that most players are going to need to reevaluate their pricing given the -- both freight and but more importantly, the protein the protein increases. We're seeing it in powder where whey protein has -- is at historic highs. And there's been pricing across the board. We've taken pricing a couple of times. But now we're starting to see it come into also milk protein.

That concludes today's question-and-answer session.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the BellRing Brands First Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, Jennifer Meyer, Investor Relations for BellRing Brands. Please go ahead.

Good morning, and thank you for joining us today for BellRing Brands' First Quarter Fiscal 2026 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 we'll discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued today and posted on our website.

With that, I will turn the call over to Darcy.

Thanks, Jennifer, and thank you all for joining us this morning. First quarter delivered a solid foundation for the year as we continue to execute our plans. Results were ahead of our expectations with favorability primarily driven by the timing of customer orders. The RTD shake category remains healthy, and Premier continues to hold a leadership position with 22% market share and best-in-class household penetration, brand equity scores and repeat rates.

Today, we have narrowed our range of our '26 net sales guidance to between 4% and 6% growth. While much of our key selling periods remain ahead, we have observed more frequent promotional events from insurgent brands than expected. As a result, we have appropriately factored this into Premier's consumption trends in our balance of year outlook. We are continuing to execute on our strategies of growing distribution, increasing brand investments and launching innovation, which are progressing as planned. Many of these initiatives are ramping up, and are starting to positively impact consumption.

We were encouraged by the growth in consumption during January, up 6% in all channels and 16%, excluding Club. We expect Q2 Premier consumption to be generally in line with net sales and expect these growth strategies to be more meaningful contributors to growth in the second half of the year. As Paul will discuss in more detail, we have updated adjusted EBITDA guidance to $425 million to $440 million. This range incorporates our updated sales outlook and the impact of higher weight costs on our Powder business.

Turning to our category. We continue to expect RTD shake category growth in the high single digits for '26 primarily driven by volume. In the medium to long term, we expect more marketing spend, expanded shelf space, innovation and the main streaming and affordability of GLP-1s to drive higher household penetration and category growth. Retailers are fully behind the category and are increasing category space, testing higher traffic aisle locations and expanding display space to capture growing consumer demand. As I discussed on our last call, the success of the category has attracted competition. As insurgent brands work to establish themselves in the market, we expected promotional spending would increase. However, as I briefly mentioned earlier, year-to-date, the number of events is tracking modestly ahead of our initial expectations.

Over the longer term, we expect -- we continue to expect retailers to consolidate the shelf behind a handful of the best-performing brands and move them to more heavily trafficked aisles. We remain confident in our ability to continue leading the category. Though we anticipate some near-term transitional impacts on these competitive dynamics -- until these competitive dynamics play out. We believe that mainstream appeal, high repeat rates and execution capabilities will determine the long-term winners.

Turning to our first quarter performance. I'd like to highlight that our supplemental presentation and corresponding metrics now reflect a change in category definition from Convenient Nutrition to Wellness. With the U.S. category size increasing to $24 billion from $21 billion. The broader definition includes the same brands and products as our historical category, along with additional products that our research shows consumers consider in the category. This change does not impact any of our previously reported tracked consumption or household penetration metrics.

The Wellness category grew 7% in Q1 and RTD shakes also up 7%, with growth driven by volume. Premier RTD shake consumption was down 2% in the quarter, lapping 23% consumption growth in the first quarter of '25, which included very strong Club consumption with the smallest number of new brand entrants in a nonrecurring promotion. Consumption outside of Club was strong, up 11% in the quarter. Premier Q1 consumption growth came in slightly below our prior outlook of flat, primarily due to the timing delays in activating promotional display at a mass retailer as well as a modest impact from greater-than-expected promotional activity by insurgent brands. First quarter net sales increased 1%, with Premier net sales down 1% and Dymatize net sales up 16% on strong international growth. Paul will go into more detail in the quarter later.

Now I'll provide a review of our operating plans, which will continue to provide momentum as we progress through the year. We are on track with our plans to: One, continue growing our distribution, both in and out of the aisle: Two, increased advertising investment while elevating its impact and Three, launch innovation that provides consumer excitement, ads occasions and drives trial. Distribution, both in and out of the aisle is a major opportunity. Starting with Club, we launched new products and formats as well as increasing sampling and promotional spending, which is expected to improve our performance in this channel as we move through the year. Our Premier shake PDPs increased at double -- at strong double-digit rates in fiscal '25, primarily driven by mass, food, drug and e-commerce channel, and we remain on track to expand at similar levels in '26.

We're encouraged by the early performance with our new broker and internal retail sales team. In particular, our sales of single bottles have more than doubled in January, effectively increasing trial. Our improved store activations are already meaningfully impacting our FDM channel results, with strong share increases in feature and display. In late Q1, we launched a partnership with a major mass retailer, which included extensive displays and end caps across pharmacy and grocery aisles and the first launch of our Coffeehouse Shake innovation. Due to the timing of the retailers' holiday merchandise transition, program execution was modestly delayed. Our programming is now fully in place, and we are seeing strong double-digit consumption growth as traction builds.

We're also encouraged by the early performance of Coffeehouse, where Carmel Macchiato is one of the highest velocity [indiscernible] in January. Our second priority is advertising. We saw a strong return on investment in fiscal '25 and have decided to further invest and elevate our creative in '26. Our "Go Get 'Em" campaign was launched in late December and is designed to drive household penetration, strength in emotional connections and bring fresh energy and relevance to the premier brand. Premier Protein has always been a brand that celebrates everyday go-getters, not just those who work hard in the gym, but those who work seriously hard in life. As the original mainstream RTD brand, campaign is perfectly positioned to bring in new households as the category continues to mainstream. This omnichannel campaign was developed with a new agency and runs across linear TV, streaming, podcast and social as well as retail media and out-of-home locations, including gym. "Go Get 'Em" has tested better than any other prior campaign, and we expect it to drive further awareness and conversion as we move through the year.

Turning to innovation. In '26 we are intensifying our focus on innovation across flavors, formats, consumer segments and occasions. To expand Shake occasions last year, we kicked off the year with our Indulgence line. In this year, our new year, new you focus, is on our new Coffeehouse line. Coffeehouse meets the protein and energy consumer need with 30 grams of protein and the caffeine equivalent of 1 cup of coffee and targets a sweeter taste pallet versus our core Caf� Latte shake. Early results are promising, and we're excited about the adding a Coffeehouse variety pack in bottles as an incremental item at a Club retailer later this month. Premier is known for its flavor innovation, we will continue to bring flavor excitement to the category throughout the year. Our LTO strategy remains highly successful with Winter Mint Chocolate performing at the top [indiscernible].

In January, we launched Strawberry Powder and in our third quarter, we will offer an exciting new season shake flavor.

Lastly, I'm pleased to announce that we have two new shake lines. We have two new lines, we are readying for launch in the second half. The first line is a continuation of our strategy to expand our portfolio across protein levels. In addition to Minis, which provides a solar-sized product with lower protein levels that are perfect for snacking, we will launch a product with higher protein for those consumers looking for more protein in the ready-to-drink shake. I'm especially excited about our second line launching late in the year. It offers consumers a completely different drinking experience versus our core products. It tested well above industry benchmarks and targets both incremental consumers and incremental occasions.

In closing, the first quarter was a solid foundation for the year and consumption is ramping up. We have conviction around the category, the strength of our brands and our demand drivers. Premier remains the #1 brand with record high household penetration and repeat rates. We have deep expertise in one of the fastest-growing categories in retail and continue to expect strong category growth. We are investing in our brands, sharpening our execution and innovation plans and driving savings -- our savings agenda to deliver our '26 outlook. Our operating plans are on track and we continue to expect an acceleration in growth in the balance of the year. I remain highly confident in our future and our ability to create sustained long-term value for shareholders.

Before turning the call over to Paul, I want to discuss the leadership transition plan we announced this morning. As you saw from this announcement, I have decided to retire from my role as President and Chief Executive Officer later this year. The transition will take place on or before the end of our fiscal year on September 30, 2026. The BellRing Board of Directors has started a national external search to identify the company's next CEO. I remain fully committed to helping BellRing Brands achieve its full potential. Following the appointment of our new CEO, I will serve in an advisory role to ensure a smooth transition of leadership responsibilities and to provide strategic support to the company. I'm incredibly proud of all that we have achieved during my time with the company and the road map we have established in the future. It has been an unbelievable ride.

17 years ago, I joined a privately held company with approximately $20 million in sales. Today, we are publicly traded, global $2.3 billion business with significant runway still ahead of us. While the growth is remarkable, what I'm most proud of is the culture we have built along the way. A special thank you to all of our employees who put their hearts and souls in our purpose every day, changing lives with good energy. The foundation of BellRing is strong, and I look forward to helping the Board and the company's new CEO, advance towards its next chapter of growth. Thank you for your interest in the company.

I will now turn the call over to Paul.

Thanks, Darcy, and good morning, everyone. Total BellRing net sales for the quarter were $537 million, up 1% over last year. We delivered adjusted EBITDA of $90 million at a margin of 16.8%. First quarter net sales were ahead of our expectations of down 5% driven by a timing benefit from customer orders that we previously expected in the second quarter and some upside at Dymatize. Adjusted EBITDA was ahead of our guidance on higher sales and SG&A leverage. Premier Protein net sales were down 1% with RTD shake net sales down 2%. Premier Shake volumes were flat with price/mix and unfavorable 2%. Dymatize sales increased 16%, driven by strong volume performance, particularly in international. As we noted on our last earnings call, Q1 is our toughest comparison of the year in the Club channel, where we lapped a period with fewer new entrants and chose not to repeat promotions for Premier and Dymatize.

Gross profit was $161 million, with gross profit margin of 29.9%. Excluding mark-to-market adjustments on commodity hedges, adjusted gross margin declined 730 basis points. The decline was expected and driven by mid-single-digit input cost inflation, unfavorable mix and lapping a $5 million of nonrecurring cost favorability in the prior year. We expect [indiscernible] protein inflation for the remainder of the year, while headwinds on our RTD shake milk proteins will moderate in the second half. Tariffs had an unfavorable impact of 75 basis points on our gross margins in the quarter.

SG&A expenses were $78 million or 14.5% of sales versus 15% of sales in the prior year quarter. Before reviewing our outlook, I'd like to make a few comments on cash flow and liquidity. As expected, the first quarter was a modest use of cash in line with our typical seasonality, and we ended the quarter at net leverage of 2.5x. We continue to return cash to shareholders through share repurchases with $97 million repurchased in the first quarter.

Turning to our 2026 outlook. We now expect net sales of $2.41 billion to $2.46 billion, which represents 4% to 6% growth. Adjusted EBITDA is expected to be $425 million to $440 million with a margin of approximately 18%. Our guidance reflects our updated consumption outlook for Premier and some upside from Dymatize. We now expect Premier Protein net sales to grow mid-single digits at the midpoint. In addition to healthy category tailwinds, distribution gains, including innovation and increased brand investment are expected to lift sales growth starting in the second quarter with a more meaningful impact in the second half of the year. Volume performance is expected to be partially offset by a low single-digit headwind from promotional investment. We now expect modest growth in sales for the rest of the portfolio.

For Dymatize, we have executed additional pricing actions to offset meaningful whey protein inflation and have prudently modeled-in elasticities, which we expect to impact the second half of the year. Our [indiscernible] adjusted EBITDA guidance of $425 million to $440 million incorporates our sales outlook which embeds a slight mix shift towards the lower margin Dymatize business and a meaningful increase versus our prior outlook in whey cost, which is the primary input cost for our protein powders. Adjusted EBITDA margins are expected to decline 300 basis points -- 300 basis points year-over-year at the midpoint, with lower adjusted gross margins, the primary driver. The gross margin decline reflects significant input cost inflation, the introduction of tariff costs and the increased trade promotional investment. Tariffs are expected to have an unfavorable impact of 80 basis points on our full year gross margins.

The remaining EBITDA margin impact is primarily due to increased advertising, which was partially offset by other SG&A leverage. We continue to expect advertising as a percentage of sales of approximately 4%, with the largest year-over-year dollar increases in Q2 and Q3. For the second quarter, we expect net sales growth of 3% to 4% with similar growth for both Premier and Dymatize. Consistent with the first quarter, second quarter EBITDA margins reflects significant commodity cost inflation and tariffs as well as higher planned advertising investment. These factors, along with the timing shift of sales into the first quarter now result in a second quarter adjusted EBITDA margin of approximately 13%. Our first half adjusted EBITDA margin is expected to be approximately 15%, largely in line with prior expectations, with significant sequential margin improvement expected in the second half.

Specifically in the second half, our sales growth and cost savings accelerate. Dymatize becomes a smaller portion of our sales mix, and we expect significantly higher SG&A leverage.

In closing, we are executing our operating initiatives as planned, and expect the investments we are making in our brands this year to bolster our long-term position. Our business is highly cash generative, and we have a solid balance sheet, which positions us well to fund growth initiatives while continuing to repurchase shares opportunistically. I will now turn it over to the operator for questions.

[Operator Instructions] Our first question comes from Andrew Lazar with Barclays.

I guess Darcy and Paul, I guess my one question would be the main hope for the mass merchandiser test you talked about is to sort of just further prove that Premier Protein and ready-to-drink sakes in general, sort of belong outside the pharmacy section deserve greater points of disruption in the store. In those, I guess, stores where the execution of this test is in full swing. Maybe you could go into a little bit deeper, what sort of results are you seeing? And are they such that I think, if I'm not mistaken, this was supposed to be sort of a 3-month sort of test. Is there a possibility that based on the results you see that this gets extended or somehow changes the way Premier Protein is merchandised in either that store or others going forward? Given you'll have some proof points for it.

Thanks, Andrew. Yes, the program is performing very well. So we absolutely internally view this as a success and something that we want to bring to others first of all, bring to that same retailer later in the year, but also bring to other food drug mass customers and show the impact that they can have on their category and on our business. We're seeing record weekly sales on the rollback items. January was our largest month ever at this retailer. I mean just a shout out to our team, they're doing an amazing job with execution.

And when I say our team, the broader team, we have an internal activation team that I talked about in prior calls as well as a new broker, and they're in the stores all the time, and it's working. So I think we have good learnings. This was really our first major kind of program. If you think of -- I mean, right now, we have up to -- it depends store-to-store, but we could have up to kind of 7 displays throughout the store. Obviously, some are in testing, some are in fewer markets. But it is -- we have really good learnings that we can now apply to other customers. So yes, thanks for the question. It's -- we're really pleased with the results.

Our next question comes from Megan Clapp with Morgan Stanley.

I wanted to ask a little bit about the consumption. Darcy, last quarter, you talked about an expectation that December consumption for Premier would accelerate to low double digits, and that would continue into January. I think you noted in the prepared remarks that some of the timing of the master retailer partnerships was the primary driver of Premier being slightly below. But it seems like in January, the consumption is still hanging a bit below what you had expected. So can you just help us understand a little bit more of is that primary just what's going -- primarily what's going on in the Club channel maybe some of the weakness has persisted a bit longer than you expected on the promotional intensity into January? And just help us understand kind of what's embedded into the balance of the year for that channel, in particular? And maybe you can touch on just the expanded sets as well and how that's factored in?

Perfect. Okay. So yes, two main reasons that we -- so Premier shake consumption was down 2% in Q1, and we modeled and I predicted it would be flat. So two main reasons. One was what you talked about, which slightly -- we were slightly below the guide because of the timing delay in setting up that mass promo, and then there's a second piece, which is we started -- and I talked about it in my remarks, but we saw a small impact from increased frequency of events from insurgent brands. And that was mainly in Club, but also some in mass as well. So part of bringing down or narrowing our guide, a couple of points, basically taking the top end of the guidance was we're flowing -- we're assuming that level of kind of frequency of events, promotion throughout the rest of the year. So that -- and that is affecting kind of some of the January consumption that you're seeing, too.

What I will say is, and I think you guys are seeing it as well, the consumption is improving. So I think that although we kind of had a little bit of a late start than we expected, lots of learnings there. But we're starting to see a nice increase, 6%, all channels in January, 16% outside of Club we are seeing some strong momentum. We expect that to continue, through and continue into -- throughout Q2 and further into the second half as we start seeing our growth drivers become more meaningful. And I think, Megan, there was another question in there.

Just the expanded shelf set. Any update you kind of have on that at your largest Club customer.

Yes. So as we said last call, we expect that it would stay -- we still expect it to stay.

Our next question comes from the line of David Palmer with Evercore ISI.

Thanks I wanted to ask you about just assumptions and going into the back half of the year in the last 3 quarters of the year, I think your guidance contemplates mid- to high single-digit consumption going forward. And in January, I know people are going to look at the most recent trends. It's more like mid-single digits in terms of consumption for premier protein. And in that month, you could say that's looking very promotional, not just by the competitors, but by Premier Protein, it looks like it stepped up to 65% volume mix from 45% a year ago.

So I'm wondering if you could help us work with the recent trend and think about why trends would be at or above this going forward? What are your key assumptions going forward? It sounds like a couple of new shakes in the back half would be one of them. Because I think people are going to want to understand your guidance and why that's realistic.

Yes, it's a great question. So as I said, I think we expect consumption to improve in Q2 and further in H2, we said consumption in Q2 would largely track net sales. I do want to hit your point. There is always weekly consumption noise, depending on promo timing, a year ago, this year, competitive promos, weather hard-to-track weekly consumption. So I know it is the data we have, but it is just -- it's going to be bumpy. And so what I would say just to zoom out is that in Q2 we expect our consumption to largely track net sales growth. We expect it to increase throughout the second half as our growth drivers become more meaningful, I'll go through some of those kind of reasons to believe and why I believe we will see that increase, which is, first of all, distribution and merchant, there's really three pieces: distribution and merchandising, advertising and innovation.

So distribution and merchandising. It's already starting to build. That's what we're seeing in the consumption right now. We're seeing some good momentum, starting with our mass partnership, but also we have displays and also other food accounts. So that will continue. The next kind of pulse period is really Q4, but we have some small events also in Q3. The second one is advertising started in late December. The new Go Get 'Em campaign is to drive household penetration and relevance to kind of the mainstream audience. I love the campaign. It's tested better than any other campaign that we've ever had. But that is a lag. It has a lag on consumption, meaning call it, a couple of months before you start seeing it in past consumption. So that will more impact kind of the back half.

And lastly, innovation. So we launched our Coffeehouse already in mass. We are extending that to a Club account this month. So that's exciting that will start rolling out through to the other accounts throughout the year. I talked about some LTOs that we have coming in that's new, that always -- I mean it seems like a small thing, but it always generates a ton of excitement for consumers and specifically, excitement for retailers because they know these things sell and there is some bias for action. So we often get a lot of displays associated with the LTOs. And lastly, I kind of teased the idea of a couple of new lines. And although they're later in the back half, yes, they are exciting lines.

One, we are hitting kind of the higher protein levels. And then the other one, which I was purposely bag on but it is -- it is a line of products that's just a completely different drinking experience than what we have as our -- in our 30-gram shakes. So again, lot of activity going on, and that's why you're going to start seeing the acceleration in consumption, especially in back half.

Our next question comes from Thomas Palmer with JPMorgan.

It's Elsa on for Tom. So you've mentioned in the past that you'd expect some of these smaller brands that have entered into the club channel to start filtering out. And I think you've already maybe seen that happen in some cases. Could you just give us an update on where that stands today? Are you still seeing more entrants coming into the channel? Or is it starting to go the other way?

Yes, we are seeing, I think, -- there -- with a category like this that has the growth and the potential that we see, it is expected to have more competition. The way I have described this before, but it probably would be helpful to just hit it again. The way we break down the category is we have about half the category or the leading brands, which includes Premier, then about call it, 10% of the category of these insurgents and crossover brands, which is really what you're asking about. And then about 30% of the category are declining legacy brands, which has been meaningful shared donors over the years. There's an extra 10% that basically just follow the category growth.

But in general, if you think of those three key areas, we -- the insurgent brands much like other categories like energy, there's just a lot of brands that come in and out. We're actively watching repeat rate we have already seen some brands not make it, especially in Club because those thresholds are very high. And so yes, we've already seen kind of the shakeout. What I expect is that 10% of market share that we're seeing within insurgent and crossover brands that will probably stick. It will just be a different set of brands that are competing. So I would say that, yes, we're continuing to see kind of the shakeout. We are just we're watching. Remember, this is where low household penetration category, you can have multiple winners -- and don't forget that there is kind of 30% of the categories that have been meaningful to share donors and will continue to be.

Our next question comes from Jim Salera with Stephens.

Darcy, you called out several of these challenger brands being more promotional. And I wonder, do you have any data on the consumer shopping behavior for any of these particular brands when the promo rolls off? Is there an instance where consumers are just really being attracted by kind of the prominence of the discounting. But once that's pulled away, they revert back to previous brands? Any commentary you can provide on that would be great.

Yes, I don't know if I have specific data on that. I would just say we're watching it. I mean here's what we do see -- we assumed, and I talked about it last call, given these insurgent brands, they're going to spend to try to get their foothold in the category. So we knew that this next year, it would be slightly elevated promotional spending. What I would say, what we saw kind of year-to-date is frequency. So it's less about like more depth. It's more about just frequency of events, especially in club, but also we're seeing it in mass as well.

So I would say, I mean, it's early. It's only a few months in. I think we have conservatively embedded this higher number of events throughout the year. But I would say to have specifics about kind of what you're asking about, bump and stick, I think, is what we call it internally. I don't think necessarily we have that data. But as you can imagine, we are watching it very closely.

Our next question comes from Alexia Howard with Bernstein.

Can I ask about Dymatize specifically what's driving the growth in the international market to be higher than expected? And then domestically, how are share trends moving since the quite favorable consumer reports article about the fact that the brand does not have heavy metals in it to the same degree as the competition.

I'll start with Dymatize and you can weigh in on our second question. Dymatize International has been performing very well for a long period of time. We saw it really throughout '26 -- or fiscal '25 where Dymatize performed well in a number of markets across the globe, Middle East, South America, Central America. So it's performed very well. We have a great sales team or a great management team over international. We have great distributor partners around the world. And so it's just continued to perform well. You may recall, we expected actually -- we had a really strong Q4. We thought some of that was maybe a pull forward ahead of pricing, but Q1 actually came in better than we expected. And so that's why we now think that Q1 will stick and we've raised our expectations a bit on international, but it's just -- the brand resonates.

I think the competitive set perhaps in international markets is a little bit different, a little less intense perhaps than you see in the U.S.. The shutting experience, I think it's still a lot in specialty channel stores, whereas I've obviously in the states, it's been pivoting where it's online. And and more in some of the mass channels. But like I said, it's continued to perform well, and we expect it to continue. Darcy, do you want to take the second part of that?

Yes. With regards to U.S. share trends, I mean, it's pretty flat. So we're basically growing with the category. I would just say that the challenge, the brand is a really strong brand. And nice to get some acknowledgment in some of the -- with some good PR. But but there are challenges on whey pricing. I mean, I know that Paul talked about it having some headwinds, but that's facing the entire category. So we kind of pulled back on on support for Dymatize, just to manage the P&L lately. So because the whey pricing is so high. But overall, it's a strong brand, well-known and holding share basically in a growing category.

Our next question comes from the line of Yasmin Deswandhy with Bank of America.

I just had a bigger picture question. So in your slides, you talk about expanding your category definition from convenient nutrition to wellness. So is there any reason we should infer that there has been a change to your portfolio priorities or M&A priorities as you maybe look into expanding into these categories? Or is it kind of holding as is?

Yes, Yasmin. So just -- let me just give you a little more context on the category definition change. So we do a [indiscernible] category study with consumers. The last one we did was about 4 years ago. Category has changed a ton since then. So when we did it this last time, there were some new types of products that consumers put into this category.

First of all, they don't call it Convenient Nutrition, they call it Wellness and so that we're going to evolve the name. But other products like some powder products like hydration powder products, I think protein coffee, different types of isotonic protein drinks even you've started to see like protein sodas around like those types of product and expanded protein treats. So all of those things go into our category, which makes it increased about 10% which is not insignificant. As far as your question around, does it change how we're thinking about M&A and different things like that.

I would say it absolutely -- I mean, we are a consumer-obsessed company. So we are constantly looking at what consumers want and how we can get incremental sales, whether it be through organic innovation, which are some of the things that we are really focused on internally, but also we obviously look at inorganic opportunity as well.

Our next question comes from Brian Holland with D.A. Davidson.

Maybe just to clarify, first, Darcy, high level. Obviously, the consumption inflection second half of December, January was not to where you thought it would be. And obviously, you've explain some of the reasons that might be. So I just wanted to isolate and ask whether the mass merchandise -- mass retailer merchandising event whether that is performing to expectation and it was maybe impacted by, like you said, the lag in rollout or what's happening in Club? Or is competitive activity in that mass retailer, where we're seeing a bunch of rollbacks, et cetera, is that weighing on the actual performance at that customer relative to expectations?

And then second part of the question, which I guess is kind of totally separate. But [indiscernible] into similar merchandising events here as we look over the balance of the year that we can anticipate, whether it's in Club, which is obviously a pressure point or elsewhere?

Okay. I'm going to answer your first question and I might -- you were going in and out a little bit, so you might have to repeat the second one, but let me hit the first one.

So in the mass retailer, the delay, the kind of delay was the biggest contributor to the softer consumption. Small impact from increased from competition, but the larger was the timing. And I would say now that we are fully set up -- the event is hitting our expectations. So like I said, the bigger reason was just the delay. So then your second question?

Yes, I'm sorry, I'll remove the headsets, hopefully this clears. I apologize. Technical difficulties there. So just the second part of the question was sight lines into similar merchandising events either at this mass customer or other customers, club, et cetera, over the balance of the year now as we're just maybe 1 quarter in that we -- that might similar to catalyze demand?

Yes. We're in the process of -- if you can imagine, I mean, we're Feb 3rd, and we just kind of are seeing the kind of impact that it's having. So the team is putting together sell materials to go back in. Obviously, we already have line of sight to kind of our promotional plans. I think now what we're trying to do is going back in and making them bigger, honestly. So coming with this information, showing what the potential is, showing pictures. Also, I don't -- I want to hit this like execution because showing what great execution can look like for us because -- this execution is much better than we've ever had before. We haven't had these types of displays. We haven't had these types of single displays and then having people having our brokers come in and making sure that it's stocked. So we're now going out with this information and trying to make the promotions that we have sold into bigger.

Our next question comes from Jon Andersen with William Blair.

Just a quick one. It's kind of related to that last question, Darcy. I think on the last call, you mentioned a real focus, along with your merchandising or broker partner securing displays for singles and entry price point multipacks. To what extent has that kind of played out the way you had hoped? I don't ex- the mass delay, but more broadly. And are there incremental costs that you as an organization have to absorb to kind of take on this new capability that would have a long-term effect on profitability or margins in the business?

I'll hit singles and and progress, and I'll let Paul talk about costs. Yes, I would say it's early, but it's working. So I said in my remarks that singles in January were double what they were last year. So I think that it is -- we're getting these displays out there. We're getting trial, and it is starting to work, but it's early. So I would just say that -- and we're learning a ton. We're learning to -- do we need people in the store restocking shelves more often than we're doing it right now?

Do we need than in certain stores in other regions and not another. So it is like a very steep learning curve, but it's exciting because I think the most important thing is the consumer pull, and we're seeing that. So we know we have the right product. We know we -- this is -- we know getting out of the aisle is key. We know singles, for instance, we'll get -- we'll get new trial from consumers in household pen. So now it's just about really quickly implementing these learnings. And then I'll pass to Paul.

Yes. We talked about on the last call that we're obviously making significant investments this year on promotions, merchandising brand marketing, so all the brand investments. So yes, there is some incremental cost to the merchandising that we believe is obviously going to help us build -- continue to build our sales growth and fuel this business. So there is some incremental, but that's all contemplated in our guidance. It's not a dramatic change on just the merchandising piece alone, but there is some incremental cost.

Our next question comes from Kaumil Gajrawala with Jefferies.

And I think you've mentioned it a few times as we're going into a major protein boom or trend, maybe bubble whatever you want to call it. And I guess I'm trying to work out with all your commentary around promotions and competition, does it feel irrational? The big difference perhaps between energy drinks and maybe this category is, this category seems to be a lot more promotional than energy drinks are. And so I'm just wondering, as you see this race for protein everything -- is it happening in a sort of a healthy way from a profit perspective? Or do you feel like there's some irrational actors and you just have to work through the process of them coming and going?

Yes, great question. So okay, let's get back to the category actually -- it's usually not that promotionally-driven. Now I actually don't know the energy, you probably know that better. But it's about 25% to 30% sold on deal. So and compared to a lot of other categories in the store, that's pretty low. Having said that, this year is higher, as I've mentioned, the reason. As far as rational actors,

Yes. I would say that some of the insurgent brands are less rational. And I think that we expected some of that because they are trying to gain trial -- and so they're going to be spending to do so. So I'll just give some examples. In Club, there are these insurgent brands that are spending a ton of money on demos on promotion, displays, et cetera. I think that I think if you zoom out, I do think this is kind of a point in time. I do not think it is the new normal. I think part of it is what you referenced, which is it's like this protein crave and it's like a land grab. I think that we fully expect that once retailers kind of consolidate around the best-performing brands, this heightened promotion should eventually come down.

But as I talked about reason why we're narrowing the guide was mainly because we're going to expect it kind of frequency events, especially by these insurgent brands will continue for the year.

Our next question comes from Robert Moskow with TD Cowen.

I was hoping to dig a little deeper Darcy, into M&A and just look how you and the Board think about risk and reward. So you mentioned insurgent brands many times. Are any of them that -- do you think any of them will stand the test of time? And if so, there is an example of this in the energy drink category with two big energy brands merging and creating some real distribution and marketing synergies. Is there an opportunity for that to happen in the Protein shake category as well?

Yes. I think that Yes. There is -- as you guys see, this is a super dynamic category. I don't think it's ever been as dynamic as it is now. So many new brands, new formats kind of protein and everything. I think we are seeing -- there will absolutely be some winners and there are going to be some brands that we look back on and don't even remember their names. So I think that we are watching we are paying attention. We are watching repeat rates. We are evaluating the kind of consumer metrics to see incrementality and interaction with our brands to see if there are any that we think would be interesting add-ons to our business.

We're always looking at both organic and inorganic growth. As far as like a bigger something bigger, I would just say in any dynamic category there is always opportunity.

Our next question comes from Steve Powers with Deutsche Bank.

I wanted to pivot back to some of the innovation that you [indiscernible] Darcy from a slightly different perspective. And specifically, as you if you do things like envisioning new shakes with more protein and more notably the different drinking experience that you referenced. I'm just curious as to what extent you can leverage existing capacity for those initiatives? And any implications that may have on your ability to scale and distribute those new products quickly and smoothly or any implications on profit margin contribution relative to the core?

So from a distribution standpoint, well, let's go for capacity first, and I'm assuming you're talking about co-man capacity. It depends. I think some of our innovation is absolutely leveraging our existing co-manufacturers, but some of our innovation is looking at new co-manufacturers. I think what is I think exciting for me is we have invested and built an incredibly strong operations function. We have a national network of co-mans. We know every single co-man that makes a protein-type product. And so -- and we have a team that is really good at start-ups now. We've done a lot of them.

So I think that -- so some will use existing, some of them use new. As far as distribution standpoint, we will use existing -- we'll use our existing distribution for all of the new products. I think as we as we go down the path of working on kind of a DSD solution, obviously, that would -- we would be able to sell these products in those channels as well. But right now, we are all about using our existing distribution channel.

Our next question comes from John Baumgartner with Mizuho Securities.

Darcy, I'd like to stick with innovation. Historically, Premier has focused on flavors, and it's broadening now to protein content and the differentiated experience, as you mentioned. But given your core consumers, this everyday-type of consumer rather than someone who's maybe looking for some specialized or premium priced, how do you think about the incrementality of this forthcoming slate of innovation relative to cannibalization of the baseline?

And then by product line, you mentioned the focus this year in support of Coffeehouse. To what extent do you plan to continue investing behind Indulgence? Or is Indulgence sort of deemphasized here as you support these two new lines or platforms?

I think the consumer is evolving. So even the mainstream consumer. So I think this is where a portfolio is really helpful. So I think if you think of our 30-gram products and all the different flavors are perfect for people just coming into the category, then they start evolving and start looking for different things. I think some of the new innovation that we're coming with goes after an incremental consumer as well as an incremental occasion. So again, our innovation strategy is very simple. It's all about incrementality.

So from your second question which is about Coffeehouse and Indulgence, they're very different. So I think Indulgence has been very successful. And we just launched it a year ago, and it's been a strong contributor. And it has really been mostly around incremental occasions. And then Coffeehouse is unique because it has -- it's kind of flirting with the energy category a little bit with the caffeine equivalent of a cup of coffee. We've had a lot of success with Caf� Latte. This is kind of taking that, but running with it. So no, those -- they have two distinct positions within our portfolio and actually very little overlap.

That concludes today's question-and-answer session. This will conclude today's conference call. Thank you for participating. You may now disconnect.

All right. Before we get started, I'll just read a quick disclaimer. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales rep. Thanks, everyone, for being here and for those joining on the webcast, thank you for joining.

Welcome to Morgan Stanley's Global Consumer and Retail Conference. I'm Megan Clapp. I'm the U.S. food analyst here at Morgan Stanley. Really thrilled to be here today with BellRing Brands, the company's President and CEO; Darcy Davenport, and CFO, Paul Rode. So thank you both so much for joining.

For those who aren't familiar, BellRing convenient nutrition company focused on the ready-to-drink shakes, powders and bars through its Premier Protein and Dymatize brands.

With that, maybe Darcy, first formal fireside chat since your IPO. So for those maybe in the room or on the webcast that are newer to the story, maybe you can just start with a brief overview of who BellRing is, what fundamentally differentiates your main brand, Premier within the broader consumer staples landscape as we see it today.

Perfect. Well, first of all, thank you for having our first fireside chat, and thank you all for joining us. BellRing Brands is a pure-play company focused on the convenient nutrition category. Our biggest -- we just finished our fiscal '25 and our revenues are $2.3 billion. And our largest brand is Premier Protein, which represents about 85% of our sales.

Most of our business is ready-to-drink shakes, about 80%. The remainder is powder, as you mentioned, Megan. And we're largely a domestic company. About 12% of our business is international, but we're largely a domestic company. For those of you who are newer to our story, we were part of Post Holdings. We are a division of Post Holdings, and we spun out -- partial spinout in 2019 and then the remainder post spun -- liquefied in '22. So we are completely independent.

And your question about how we're different versus other staples. I would focus on 4 things. First of all, our category. So the convenient nutrition category is high growth, low household penetration, a ton of opportunity. has a lot of tailwinds. So first of all, protein, functional foods and beverages and most recently, GLP-1s. And GLP-1s happen to be a headwind for many, but they're actually a tailwind for us.

Second piece is our brands. So Premier Protein specifically is the #1 brand in the category and #1 household penetration, #1 repeat, #1 loyalty. So we happen to be not only the #1 brand within convenient nutrition, but also RTDs.

The third is our financial performance. So we have -- since 2019, when we IPO-ed, we have grown top line at 18%, bottom line at 16%, and we generate a lot of cash because we're asset-light. So we can use that cash to invest in our business. We can use it to do share buybacks. We can also eventually do it for M&A. So that gives us a lot of advantages and flexibility.

And lastly, probably what you guys are all interested in, we have a ton of room to grow in the future. The overall category is only about 50% household penetration for the RTD side of the business. Premier Protein has about 20% household penetration. So if you think of all the opportunity for the overall category and us as the #1, a lot of room to grow. So favored category, #1 brand, great financials and a lot of room to grow.

Great. Great overview. Let's start with the category. So RTD shakes grew mid-teens this year. You talked about a lot of the tailwinds to the category, still room to grow. You did talk about a bit of a step down this year to high single-digit growth, but still getting back to low double digit over time. So maybe kind of 2-part question. What's driving that step down in the category growth this year and maybe some of the recent trends we've seen that suggests a little bit of slower category growth? And then how are you just thinking about the opportunity to reaccelerate that and the durability of the category growth longer term?

Yes. So in our last earnings call, we did -- we -- this is the time that we do our planning. So we always look at what we think we're going to do in the next year and we look at our long-term algorithm. So we did bring it down. And the main reason is honestly a lot of big numbers.

I mentioned that the overall category since we went public in 2019 when we set this up, it's doubled in size in about 5 years. So it's just really exploded. Our business when we went public was $850 million. It's now $2.3 billion. So that is all part of it. And I would say, for the most part, it is just lot of big numbers. Nothing has happened to the consumer. There's still a ton of tailwinds, which I already hit on, and the opportunity is bright.

Can you maybe talk about do you have a target for household penetration longer term? You said 50% category today. What have you kind of seen? What did you see in 2025 from a category penetration increase perspective? What's baked in for '26 and beyond?

Yes, for the category?

For the category.

Yes. So we look at kind of -- if you step back, we like comparing the RTD, the protein RTD market to energy. And there are a lot of differences. But the reason why we like the similarity is, first of all, they're both functional beverages. Also around the same age, it's a pretty -- they're pretty young categories, only about 30, 35 years old. And what we've seen -- so energy is about 70% to 75% household pen, we're about 50%.

We think it's very -- this last year, the category grew 4 points. So we think it's very reasonable to see every year grow 3 to 4 points. And in 5-ish years, we're going to be bumping up to the size of the energy category.

Awesome. Helpful. And with the change in the category, law of large numbers, you also took down your long-term revenue algorithm to 7% to 9% from 10% to 12%, again, much bigger company than you were. But as you think about, I think that implies Premier grows a bit above 7% to 9%. So as you think about your ability to grow in line with the category, you are the market leader. There's been more competition. What are the drivers of your confidence in continuing to grow in line with the category?

Yes, you're exactly right. So 7% to 9%, we looked at Premier driving the category Dymatize, which is our second brand, slightly weighing down that. So our assumption is that we are growing with the category. This has been the case for the last several years, where we have basically held market share. If you peel it back a little bit, we've lost a little market share in club, but we've gained everywhere else, and we expect that to continue.

Okay. And then maybe a good segue to my next question on club, which there's been a lot of discussion around the increase in competition in club. I think a lot of investors have concerned that your early lead and kind of first-mover advantage in that channel, in particular, could continue to erode over time as more entrants have come in and maybe some of them stick around.

So how are you approaching the club channel, in particular, in '26 and beyond, just given everything that's evolved? And what drives your kind of confidence and visibility to maintaining your leading market share in that channel specifically?

Yes. Club is a really strong channel for us. It's where we started. It continues to be not only a strong channel for us, but we are very important to the club channel. So we are the #1 brand within the category. We are actually -- I talked at the beginning about our kind of equity, all the #1 equity measures. We're actually the #1 household penetration and #1 loyalty within the club channel as well. So that's really important. So just realizing how important we are to the club channel. Our velocities are always in the top half. So strong brands within that channel.

As we go through, it is absolutely a priority channel for us going forward and beyond. Our focus next year is going to be improving the assortment. So continuing to have our kind of strong core flavors there, but also testing new ones. So we're looking for incrementality that is exactly what they're looking for. So you can expect to see us continuing to test new items within the club channel.

The second is we're investing more. So specifically within the club channel as well as outside, within the club channel, our focus is really around merchandising, increased merchandising as well as sampling. So getting our product in consumers' hands. It's one of our best kind of attributes. It's one of the reasons -- the key reason why consumers repeat is because we taste so fantastic.

So inside the club channel or inside the club, all around increasing merchandise sampling. And then outside, we're increasing our marketing and advertising, and that will benefit the club channel as well.

The third piece is just around competition. There's no doubt competition has increased specifically in the club channel, but even a bit broader, but the focus has been the club channel. What I would say is there's a lot of insurgent, what I call insurgent brands. And we're already seeing that some of them aren't going to make it. And that -- one of our main partners that is their model. Their model is around treasure hunt. They bring in small brands, which is great. But those thresholds in club are high.

And so a lot of them are not going to make it, and we're already seeing some of that shake out. And what we're going to do is I have the utmost confidence that we will be one of the winners. We're going to continue being that #1 brand in the channel and actually toward the end of the year, and we even talked about this, is club channel is going to start lapping some pretty high numbers. And there, I fully believe that they will come to us as their key partner to bring to -- and proven partner to bring more sales.

Helpful. A good segue. I guess big picture, what drives brand loyalty in the RTD Shakes category? And as you think about like what the category will look like in 5 to 10 years, and you alluded to it a bit, but how do you think it will shake out between leading brands, insurgent brands, legacy brands? Do you think it's -- the 2 leading brands today, I think, are close to 50%. Do we stay there? What do you think the category is? Is there another category you look to, to kind of as an analogy for what you think the category will look like longer term? A lot in there.

I know. I was where should I go in this? Okay. I'm going to hit your 3 to 5 years, what does the category look like? We will absolutely be one of the winners. There -- again, no doubt in my mind, you can't have the size of business and equity and brand equity measures without staying on top. We have this inherent following, and it continues to grow because of the word of mouth, which is such a key part of this business.

Where I see the category going from a household penetration, we hit this at the beginning, but I do believe that we will start getting closer to the energy drink category.

Second, around products, this category is on fire, and there's going to be -- and it's maturing. I think that there's going to be -- it used to just be 30-gram shakes. Well, now there's going to be different formats, different liquids, different macros, up, down. They're going to be different pack size, different package types. So I think what you're going to see is more of the maturing of the category in different types of products going after incremental occasions and incremental consumers.

From a retailer standpoint, I think the biggest change you're going to see is in grocery and food. It is by far the most underdeveloped. They know it. They are testing different areas of the store. And so what I think you're going to see is this category and not everybody in the category. So we expect to see the main brands move into the -- the mainstream successful brands moving into a higher traffic aisle and more of the legacy brands staying likely in the pharmacy. And so that's from kind of product, retailer standpoint.

Competition is going to continue. You can't have this type of success in a category and not expect people to -- different brands trying to make their way. But I think that what will be clear is that the leading brands will continue to lead. Insurgent brands, I think there will be churn and the legacy brands will continue to be donor brands, which they have been for the last several years.

Makes sense. Maybe we can shift a bit towards the near term. So you -- one year in your first quarter right now, as you mentioned, you guided to a 5% decline. We're seeing the consumption data, you can see that it's a little bit softer right now. You talked about an acceleration expected starting in mid-December and return to that kind of high single-digit rate on the top line. So can you just talk about key drivers of that expected acceleration in consumption and ultimately, your top line in the second quarter?

Sure. So Q1 has a bunch of unique elements, specific -- less about this year, but more about what we're lapping. So we're lapping a club promotion that we chose not to repeat. We're also lapping within another one of our club retailers. We're lapping a period where there were less new entrants.

And then there's a few other things like port strikes, et cetera. But I would just say there is several unique items within Q1. When we start getting to Q2, Q3, Q4, it kind of goes back to what we have seen for many years. But I'll tell you, there are basically 4 main accelerants.

The biggest one is, and I talked about it on our earnings call just a couple of weeks ago, it feels like a long time ago. We have a major partnership with a mass retailer. I'm really excited about this one, specifically because we've never had a partnership at this level. We have had a lot of success getting out of the aisle. So why that's important with a low household penetration brand is because you get eyeballs. It's much more relevant to people that don't even know we're in the pharmacy section. So once they see it in the aisle, they see 30 grams of protein, they know they need it, they try it. And then because of our fantastic repeat metrics, they stay within our brand. So we know getting out of the aisle is key.

What this partnership does is it's like that on steroids. So we are doing -- it's [ 12:15 to 3:15 ] so a 3-month program. We have about 3/4 of our business that will be on a rollback, in exchange for that, we get multiple placements throughout the store. The placements include pallet drops outside of pharmacy, end caps in the grocery section, end caps outside of pharmacy as well.

We're getting several tests with our single bottles within coolers, which will be great for immediate consumption. So the whole partnership, again, lasts for 3 months. But I think one of the reasons why I'm excited about it is because I think it will show the potential. It will be a great case study to not only bring back to that mass retailer to potentially repeat later in the year, but also to sell it into grocery where I talked about how underdeveloped they are and to give them a potential example of what they can do to really jump-start their category and our business. That's one, a long one.

Okay. So two is advertising. So we're increasing our advertising. We started in the end of December, and it goes throughout the rest of the year. We've increased our spend as well as we have a new agency, new campaign, and it will be really a 360-degree surrounding the consumer. So that's the second.

Third is distribution. Not -- we've talked about expanded distribution within the mass retailer, but we have a lot of distribution opportunity within grocery, and that will continue to grow throughout the year.

And then lastly, innovation. So -- and that's a little bit of a slower build throughout the year, although our coffee house line starts in the mass retailer within exclusive, so those are kind of the 4 reasons that you're going to see an accelerating from our Q1 guidance.

So clearly, the mass retailer partnership, the biggest in the second quarter. That technically ends in the second quarter, but it seems like you're perhaps optimistic that this -- it's not as if the shelf space necessarily goes away? Or can you kind of just talk about what that looks like beyond 2Q, your point on the case study, is there an opportunity to do it again? How should we think about just like the durability of that?

Yes. So some of it is finite for those 3 months. But some of it does change -- some of it does stay. And some of the pieces like the singles in the coolers, that's a test. So if we perform well, that will stay on. But like I said a moment ago, I really believe that I think, a, it will be successful. And b, if it's successful, then we will repeat it later in the year. So we have -- and also Coffee House, that's going in early staying. And then just remember, we've seen this kind of time and time again. When we get out of the aisle, we get trial and then those consumers repeat. So that's also just part of the flywheel.

Makes sense. Innovation, the fourth bucket you talked about. You on the call a couple of weeks ago talked about a demand landscape that I think you just said validated some of the white space, that white space helped refine your innovation pipeline. When you -- maybe you can expand just on what you learned from that study and how you're thinking about change how it refined your approach to innovation? You talk a lot about incremental occasions. Is there an offer you've done very well with a lot of flavors. Coffee seems like a bit of an incremental occasion, but different forms. How are you kind of thinking about the pipeline with what you're willing to share today?

The demand landscape study that we did had over 6,000 consumers that we talk to, both in the category as well as prime to enter. So it gave us a fantastic map of where the category is going and not only where kind of the heat is, so think of consumer segments across the top, down the left-hand side, occasions. And there's actually a unique third dimension, I won't go into.

But when -- I mean, the biggest thing I wanted to know is how much runway is there in the RTD marketplace. And that came back incredibly clear that there is a ton of runway. It's only kind of started to mainstream. It will continue to mainstream. So that was the first piece.

The second piece is that it validated a lot of the innovation that we already had started. So we felt like, okay, check, we're on the right track. And it also highlighted some white space that would be highly incremental to what we already have out in the marketplace and what's already in our pipeline. So those are the 3 main pieces.

What I will also -- I'll also just add that it also -- it highlighted a big opportunity, I think, for us as the leader in the category to consumers need more education. They need more education on how much protein they need, what type of protein they need, when they should eat it, when it's the most optimal time to have it. And so as the leader in the category, I think it really gives us an opportunity and kind of a responsibility to do more education. So we've factored that into our marketing program.

Got it. That's helpful. We talked about this a little bit, but the FDM channel has been a great driver from a growth perspective, gaining a lot of distribution there. What -- 2-part question. What inning do you think we're in, in terms of that expansion? What kind of visibility do you have beyond the mass retailer partnership to continued distribution growth there?

And second part of the question is when you think to the convenience channel where you're underpenetrated, how do you think about the opportunity there? You've talked about the need to partner with the DSDs. So kind of where are you in those conversations?

Yes. FDCM is by far the biggest opportunity ahead of us. And I think you hit the second one, which is convenience, which we believe is smaller, but still highly incremental. So I'll start with FDM. As far as innings, it's early third, to be specific. Yes, I think it's early. It's second to third inning. It started mainstream. They are behind. But I think what's -- I mean, when we did -- we actually did another study where we're going as the leader in the category, we want to be the thought leader and partner to our retail partners. So we've gone to them with leadership around where -- how to maximize the category opportunity.

So where it should be, what aisle should it be in, what it should be called, what products should be in, what should be out, how it should be merchandised, what brands should lead off the aisle? And what would that mean for incremental sales for their category. So we have been -- we want to be, again, the partner to them. And I think what's exciting about it is they're listening. They're actually coming to us with ideas about when they're going to test it in higher traffic aisles. And that's actually happening, not only in mass, but in grocery.

So we're starting to see not only the thinking, but the action. And so I mean, ever since we went public, I talked about getting to a higher traffic aisle. And finally, I feel like there's movement. So that's the FDM side of things.

The convenience and singles opportunities, I would -- I'd like to pull apart because I think that sometimes is convoluted. I like pulling apart singles versus convenience. So singles is a big opportunity. Part of that is in convenience, but part of it actually is ambient in FDM. And we're going after that opportunity currently. It's one of the main reasons why we brought on a new broker partner, which specializes in merchandising around the store.

So we're going after the singles opportunities in FDM. You really need a DSD partner, like you mentioned, for convenience, and we are strategizing around that. We're talking to different DSD partners to figure out how do we create a win-win partnership and who we partner with. It's just going to take a little time. But I'm optimistic that, call it, in the medium term, I think 3-plus years, I think we will have -- we will be in convenience stores, and we will have a DSD partner.

Great. Paul, maybe we can get you in the mix.

Great, give Darcy a break.

Talking about margins. So this year, you guided to 280 bps of EBITDA margin compression, gross margin being the biggest driver, a way inflation and tariffs, I think were 2 big things you talked about. So how should investors kind of think about the progression of gross margin throughout this year? And I think the guide still does imply in the back half, you kind of get back to 20%, which is the high end of your long-term target on EBITDA margins. So what are kind of the levers that good guys that we start to see in the back half of the year that give you visibility to that?

Yes. So you hit the key point. So we are calling for -- at the midpoint, our EBITDA margins to be down about 280 basis points. And the biggest drivers, again, at the gross margin line, which is mostly inflation as well as tariffs.

We're also making incremental promotional investments. And a lot of that over-indexed to the first half of the year. So if you look at our fiscal '25, our first half, you see our gross margins, in particular, were very high. We had nearly 37% margins in Q1, nearly 35% margins in Q2. So if you kind of look at '25, protein costs, which is the biggest input cost for us, kind of started at the lowest point and moved their way up as they went throughout the fiscal year. So we're lapping a very favorable environment in the first half of '26. And so that's really the biggest driver of some of the bigger headwinds in fiscal '26, in particular in the first half.

As we get to the second half, those inflation trends moderate significantly. And we also have the biggest increase in marketing spend in our second quarter. So our first quarter kind of takes the brunt of a lot of the inflation and increases in spend. And then also because Q1 is always a seasonally low quarter for us. It's just the seasonality of the category. We also lose some G&A leverage in the first half.

So as you get to the second half, we have our cost savings initiatives, which become more impactful in the second half. We took pricing on our Dymatize powder business late in Q1. So the second half gets more of a full benefit from that. And then we have a little bit more G&A leverage in the second half because of just the higher sales. In Q3, in particular, typically is not a high promotional quarter. So it tends to be a higher margin quarter for us. So those are the big drivers for why the second half, as you mentioned, the margin should be stronger.

Okay. And then maybe a follow-up. You kept the, as I mentioned, the long-term EBITDA margin target, 18% to 20% -- there's clearly a lot of competition. You're doing more promotional activity this year. You're stepping up brand investment. You're still going to be up 4% versus -- you said 4% to 5% longer term. So again, kind of longer term, like what gave you the confidence to continue to say this is an 18% to 20% EBITDA margin business?

Yes, I mean, really since IPO, we've been operating in that -- that's been our long-term algorithm since IPO. We actually operated above that for the last couple of years. But what gives us confidence and to your point, to also still have some room to increase our marketing spend is there's still opportunities for us to improve our margins over time. One is, I mentioned whey protein, which is the primary input cost for our powder business, which is about 15% of our total portfolio. Those have been at historical highs, and they continue to rise. That will normalize at some point. And it has -- while we've taken several rounds of pricing, it has chipped away at our margins. So we do think that will normalize over time.

Cost savings initiatives, as we've talked about, that's something that we've stepped up. It wasn't that long ago, we were capacity constrained, right? And so cost savings was not the highest priority, but we started prioritizing that in '25. And so that's another lever that we expect to allow us to enhance our margins.

And then G&A leverage is something we've been consistently getting over time. And when I say G&A, I mean G&A, excluding our marketing spend, which we call A&P, I'd expect to still see some G&A leverage over time. So I think there's still opportunities to get us back into that kind of upper half of our EBITDA algorithm.

Okay. You talked about it a little bit, but can you just -- the cost savings again, maybe a bit of a new topic for selling investors. So expand exactly on where these cost savings are coming from? Is this kind of a multiyear effort? Was it kind of done this year to protect the P&L, just given some of the headwinds big picture, kind of what the -- what are the primary buckets that you're looking at?

Yes. So as I mentioned, I mean, if you step back in 2024, we were still replenishing shelves fully for -- as we are exiting capacity constraints because obviously, demand outpaced our capacity. So cost savings became a bigger initiative for us in fiscal '25. And then as we move into '26, it become a bigger initiative. And it's mostly in our supply chain. That's where the biggest opportunities stand within our co-mans, within our distribution network, within our freight network. So that's where -- but it's across our P&L.

We're looking at G&A and marketing spend efficiencies and trade spend efficiencies. But supply chain is where you'll see the bulk of it. We'll see a little bit of it earlier in the year, but it tends to lean more to the second half of the year. We'll start to see some of that cost savings, and so I'm really happy with the progress that the team has made. They've got a long list of items that they're working through.

One example is something we've talked about for different reasons, but we went through a packaging redesign on our Premier Protein brand in late fiscal '25. And while that obviously has brand implications and consumer-facing implications, that also had some cost savings behind it as well. We rationalized some ingredients. We optimized some suppliers to get some of the cost out. So that's an example of this one. But there's things across our distribution and logistics networks and our supply chain that are the biggest opportunity.

Okay. Maybe shifting to capital allocation. Darcy mentioned at the beginning, capital-light business, highly cash generative. You've leaned into buybacks more recently, but maybe you could just kind of talk through priorities from a capital allocation perspective and how you think about M&A as fitting in over the next 3 to 5 years and kind of the desire to diversify the product portfolio if there is one.

Yes, I can start if you want to add anything on M&A. So from a capital allocation perspective, our priorities have been pretty consistent really since we went public. When we went public, we were actually -- we had higher leverage at the time. We're closer to 4x. And so because of our EBITDA growth and our strong cash flow generation, as you mentioned, we delevered very quickly. So really from then on, we've been pretty focused on share buybacks as a return to our investors. And so we've leaned into that over the course of really since going public.

So as we go through our priorities, it's been invest behind our business, which mostly we do through marketing, promotions, systems and processes, which mostly flow through our P&L. We're asset-light. Our CapEx has been generally kind of $5 million or less over the course of time. Share buybacks have been -- maintaining leverage and getting our leverage in the right spot. And then share buybacks have been the primary focus.

From an M&A -- yes, from an M&A perspective, we still see that as a key for us as we go forward, but it's still more mid- to longer term. We still believe we have so much organic growth opportunity in front of us, and we still think share buybacks makes the best use of our capital. So M&A is certainly part of our story as we go forward, but still we see it as keep on our -- focused on organic growth.

You said it all.

Great.

I have one more, and then I want to make sure we leave time for questions in the room, if there are any. Darcy, maybe we can just end my last question is just what do you think is most underappreciated about the Premier brand or Boeing's kind of competitive advantage by the market today?

As you might expect, I have thought about this a lot. I think there's 2 things. So the first is the power of the Premier Protein brand. And then the second piece, and I'll go into a little more detail. And the second is, I think that it is -- I think it's underappreciated the -- how hard it is to get to be the size we are. There's a lot of talk around insurgent brands. And it is a different skill set. It is hard to launch a brand, but it takes a totally different skill set to go from $100 million to $2.3 billion.

So I'll first hit the Premier Protein. It is such a special brand. It was the first mainstream brand that really -- I mean, I say that it's for kind of the everyday person. It's a protein shake for the everyday man, everyday woman. It was totally -- it was kind of revolutionary at the time because at the time, there was -- there were protein shakes for old people. There are protein shakes for weight management. There are protein shakes for gym goers, but there wasn't anything for all of us. And so it was unique and it resonated and it still resonates.

And I've never been -- I've worked on a lot of brands, and I just haven't seen how much passion there is around a brand like this, the way it helps people, the way it helps them lose weight, the way it helps -- we get these testimonials from consumers. And the passion for -- I always say like it's a protein shake, but it is more than that because it gets involved in what -- how it helps people be something better than what they are.

And then it shows up in the brand equity measures. It's the #1 brand. It's the #1 household penetration, #1 repeat, #1 brand I love, #1 Net Promoter Score. There just I can go on with the power of the brand, and that is hard to build. And so that is the first one.

The second piece is just it is difficult to scale with where we are. And we have had bumps along the road with capacity constraints. And -- but what we have built is a national supply chain. We have built a sales organization that calls on over 200 retailers that we are category captains in many of our retailers, and we're literally helping them design the future of the category. And we have great financials.

And so it is one of those things that it is -- you can get caught up in all of the competition and the insurgence brands. And -- but at the end of the day, like we are a 25% market share company with a brand with a ton of room to grow. And our own consumers are almost doing some of the marketing for us. So it's unique. It's a great brand and business to work on. And yes, underappreciated.

We have about 90 seconds. I want to open it up to see if there's any questions in the room. Sarah? Do you mind with the mic for the webcast can hear you?

Two quick questions. One, why is 5% the right level of marketing spend to eventually aspire to? Kind of curious what benchmarking you've done there. That's the first. And the second is you speak about the tremendous white space in convenience and yet the DSD opportunity is midterm, I believe, were your words, Darcy. So why not accelerate that? What are kind of the limitations to have that midterm versus near term?

Okay. I'm going to hit the second one. I didn't hit both if you want. Okay. So DSD, it takes a partner. So if you think of -- we've been looking at it for several years. At the time, several DSD partners, they knew the opportunity in protein, but it was behind energy hydration and then came the protein space. At that time, that was okay because for us, we were building capacity. So it actually was behind FDM and making sure that we had filled our shelves. We had built that national supply chain network that I just talked about. So it was okay.

But what we've been doing is staying in touch with all the -- getting smarter on DSD and then also staying in touch with the different partners. And so I think the time has come where actually the -- our priorities are aligned. And so I put out the -- because I know if I tell you guys that it's going to be like in this year, then you guys are going to continue asking me about it. But it's going to take some time. We have to make sure it's aligned interest.

We have to make sure -- I mean, we have a very sizable warehouse business. So we just have to make sure that the partnership makes sense and we find the right partner. So it's definitely on our priority list. We see it as incremental, but we're also not waiting around for it.

So I mentioned that we are getting after that singles opportunity within FDM, and we're using a broker to do it. So that's the DSD piece.

On advertising, we were -- we've been kind of 2.5% to 3%. And so we're easing it up. Our -- we think it's around 4% to 5%. But if it's working, we'll increase it. We are easing into it mainly this year because we've got other headwinds. We've got other headwinds around inflation, tariffs, et cetera. So we wanted to ease into it just because in mind of the P&L.

Great. Well, Darcy, Paul, thank you so much for being here. Thanks, everyone, for joining. Have a great rest of the conference.

Good day, and thank you for standing by. Welcome to the BellRing Brands' Fourth Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that this conference is being recorded.

I would now like to hand the conference over to the speaker today, Jennifer Meyer. Please go ahead.

Good morning, and thank you for joining us today for BellRing Brands fourth quarter fiscal 2025 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 this morning. Fiscal year '25 was a strong year for BellRing Brands. Net sales grew 16% and adjusted EBITDA margin reached 20.8%. We launched our first media campaign since '21, delivering compelling returns, expanded distribution while elevating retailer partnerships and accelerated our multiyear innovation strategy. We also advanced our savings program, enhancing flexibility to reinvest in future growth. Our strong track record of cash generation continued this year, and we meaningfully stepped up our share repurchases, buying approximately 7% of our shares outstanding. We expect another successful year in fiscal '26 with a softer Q1 followed by a stronger balance of the year. Paul and I will provide additional detail on our guidance and quarterly cadence.

Turning to the fourth quarter. The ready-to-drink shake category grew 15%, while Premier shake consumption grew 20%, driven by incremental promotion events. Premier continues to have category-leading metrics, including the #1 household penetration and the category's highest repeat rate. Notably, both household penetration and buy rate increased during the quarter, reinforcing the brand's unmatched strength and consumer loyalty.

Now turning to the category. RTD shakes are one of the fastest-growing CPG categories, fueled by consumer health and wellness trends, functional beverage preferences and GLP-1 usage. Household penetration of 54% highlights a long runway for growth as it trails mature CPG categories, which are often at 80% to 90%. Retailers are leaning into this opportunity, increasing category space, testing higher traffic aisle locations and expanding display space to capture growing consumer demand. The success of this category, which has doubled in retail sales since 2019 to $8.7 billion has naturally attractive competition. Currently, the two leaders, including Premier Protein, have approximately 50% market share. The other participants include newer insurgent and crossover brands and some declining legacy brands. Of note, legacy brands, which collectively represent approximately 30% of the category, have been meaningful share donors for several years now. Over time, we expect retailers to consolidate the shelf behind a handful of the best-performing brands and move them to more heavily traffic dials. We believe that mainstream appeal, high repeat rates and execution capabilities will determine long-term winners. Premier Protein is well positioned to benefit from these developments and continue to lead the category.

Over the next few years, we expect RTD shake category dollar growth to be high single to low double digits with volume the primary driver. In late '25, a major club retailer significantly expanded their RTD assortment. While we do not know for certainty, we assumed the expanded assortment continues through fiscal '26. We expect pricing benefits to subside and promotional spending to slightly increase as new brands work to establish themselves in the market. These near-term dynamics lead us to expect category growth in the high single digits for '26. In the medium to long term, we expect more marketing spending, expanded shelf space, innovation and the main streaming and affordability of GLP-1s to drive higher household penetration and category growth.

We are confident in our continued strength in the category. Premier's deep category knowledge, strong brand equity, scalable manufacturing network and robust retailer relationships give us confidence that we will continue to be the category leader in capturing meaningful share of long-term growth.

I'll now turn to our long-term targets. BellRing began its [indiscernible] as a public company 6 years ago with $850 million in revenue. Our total revenue base is now $2.3 billion, and our Premier Protein shake revenue has tripled. Since IPO, we have delivered a net sales CAGR of 18% and significantly ahead of our long-term revenue growth projection of 10% to 12% share at the time of our listing. There are multiple ways to achieve strong growth in our business. However, it becomes more difficult to grow at double-digit rates of a larger revenue base. And in the near term, we are expecting a more competitive environment. As a result, we are updating our long-term revenue growth algorithm from low double digits to high single digits, specifically 7% to 9%, with Premier Protein driving our growth. This assumes that Premier Protein, the #1 market share brand will continue to grow relatively in line with the RTD category, while Dymatize slightly weighs down our growth rate. We are maintaining our adjusted EBITDA margin algorithm of 18% to 20%, which embeds higher levels of brand investment enabled by our cost savings agenda. These investments are designed to reinforce our brand strength and position us for sustained profitable growth over the long term. Our updated revenue growth algorithm is healthy. And together, with attractive margins and our asset-light model, we expect to continue to generate strong cash flow and create significant value for our shareholders.

Turning to our outlook for '26. Our '26 net sales guidance is a range of 4% to 8% growth with adjusted EBITDA margins of 18%. At the midpoint, sales for the year are expected to be modestly below our long-term algorithm because of the softer first quarter driven by specific items and near-term competitive dynamics. We expect performance to strengthen with the remainder of the year at the top end of our algorithm. Adjusted EBITDA margin is expected to be at the lower end of our range, primarily due to significant commodity inflation and tariffs, along with the lagged revenue impact of increased brand investments. For Q1, we expect flat consumption for premier RTD shakes with October and November, lapping the toughest club channel comparisons, including a nonrecurring promotions. For context, we are lapping 23% consumption growth in the first quarter of '25, which included very strong club consumption with the smallest number of new brand entrants in an incremental promotion.

Q1 net sales largely follows consumption with some additional timing-related headwinds impacting sales, resulting in a roughly 5% decrease in net sales. Paul will provide more detail later.

We expect consumption along with net sales to accelerate starting in mid-December. As we move through the year, our FDM merchandising initiatives, advertising and innovation become more meaningful contributors to our growth and club comparisons ease as we lap expanded assortment.

Now I'll provide additional details on our operating plans for '26. Our priorities for this year include: One, continuing to grow our distribution, both in and out of aisle; two, increase advertising investment while elevating its impact; and three, launch innovation that provides consumer excitement, [ advocations ] and drive's trial. Distribution, both in and out of the aisle is a major opportunity. Starting with Club, we intend to bolster our position in cloud channel with new products, increased sampling and additional promotional spending. We expect our performance in Club to improve as we move through the year. Our Premier shake TDP increases, driven primarily in mass, food, drug and e-commerce channels grew by more than 20% in '25, and we have strong plans to expand at similar rates in '26. As I mentioned last quarter, we have partnered with a new broker to significantly expand store level coverage and launched an internal retail sales team focused on securing in-store displays, especially singles and entry price point multipack. In late Q1, we will launch a partnership with a major mass retailer that includes placements across pharmacy and grocery aisles plus extensive displays and end caps. This program will also include the first launch of our new shake innovation targeting incremental occasions, which I'll discuss later in my remarks.

Our second priority is advertising. We saw a strong return on investment in fiscal '25 and decided to further invest and elevate our creative in '26. Premier has the highest unaided brand awareness in the category, though there it remains a significant opportunity for expansion. We have strengthened our agency roster, and we'll be launching a new creative campaign designed to drive household penetration, strengthen emotional connections and bring fresh energy and relevance to the brand. The campaign kicks off in late December and includes national TV and strong digital components.

Turning to innovation. In fiscal '25, we conducted a comprehensive demand study and incorporated the results into our multiyear innovation strategy. The study validated our product focus for '26 and identified several white space opportunities, some of which have accelerated that we have accelerated launching in late '26 and early '27. Specifically, in '26, we are intensifying our focus on innovation across flavors, consumer segments and occasions. In June of '25, we launched almond milkshakes, our first non-dairy protein offering with the strategy of bringing new consumers into our brand. Although early, it is already the #2 turning for count in the nondairy RTD set. We are seeing strong incrementality with nearly half of the buyers new to the brand. Almond milkshakes are expanding distribution throughout '26 and supported by advertising. About a year ago, we launched our indulgent line with the goal of driving incremental occasions. It worked. In '26, we will build on that success as well as the success of our Cafe Late core shake flavor with our new Coffeehouse or [ Profi ] shake line. Each shake provides 30 grams of protein and the caffeine equivalent of 1 cup of coffee, meeting the protein and energy consumer need, which is incremental to our core baseline. It will be offered in Carmel Macchiato and MoCA targeting a sweeter taste pellet. Coffeehouse launches in mid-December in both mass and e-commerce channels. The launch will be fully supported with paid media influencer partnerships and in-store signage and sampling. And lastly, Premier is known for its flavor innovation, and we will continue to bring flavor excitement to category throughout the year.

In closing, Premier has a history of strong growth and is the #1 brand in one of the fastest-growing categories in retail. The power of the brand is evident in our record high household penetration and repeat rates. Our first-mover advantage lies in being a scaled pure-play company with attractive margins and a deep category expertise. Retail see the category's potential, and they are partnering with Premier as they develop their growth plans. Q1 has some unique dynamics that are causing near-term challenges, but growth in the balance of the year is strong. The brand and business fundamentals are robust, and I have confidence in delivering the year. We are investing in our brands, sharpening our execution and innovation plans and driving our sales -- our savings agenda to enable our next phase of growth. I remain confident in our future and our ability to create sustained long-term value for shareholders.

Thank you for your interest in the company. I will now turn the call over to Paul.

Thanks, Darcy, and good morning, everyone. Fiscal '25 was a year of strong performance for BellRing with net sales growth of 16%, adjusted EBITDA of $482 million and an adjusted EBITDA margin of 20.8%. Our business generated $261 million in cash flow from operations, and we ended the year at net leverage ratio of 2.1x. Our strong balance sheet enabled us to repurchase 9 million shares or $473 million in total or approximately 7% of shares outstanding. We've continued to repurchase shares in October with $40 million repurchased to date in the first quarter. In the fourth quarter, net sales were ahead of our expectations at $648 million, up 17% over the prior year. We delivered adjusted EBITDA of $117 million at a margin of 18.1%. Premier Protein net sales grew 15% and were in line with our expectations with strong volume growth for our RTD shakes and putters. RTD shake sales grew 14%, driven by volume growth from incremental promotional events and distribution gains offset partially by unfavorable price mix. As expected, Premier shake dollar consumption was up 20% and outpaced revenue growth. This difference was driven by expected changes in trade inventory, primarily the previously noted commerce load as well as the pricing impact from our incremental promotional events, which had an outsized impact to our net sales compared to consumption at retail prices. Dymatize net sales growth of 33% was well ahead of our expectations, driven by growing volumes. International benefited from strong consumption and a volume pull forward ahead of our late Q1 price increase with the latter and expected headwind to Q1 growth. Adjusted gross profit, which excludes mark-to-market adjustments on commodity hedges, was [ $190 ] million and declined 4% from prior year. Adjusted gross profit margin of 29.7% decreased 620 basis points. The decline was driven by mid-single-digit input cost inflation, increased promotional activity and a onetime packaging redesign cost. Protein costs stepped up in the quarter across both powders and shakes, and we expect these headwinds, most notably on powders to continue into fiscal '26.

SG&A expenses were $81 million and delivered significant leverage at 12.5% of sales versus 16% of sales in the prior year quarter. The reduction in expenses were driven by lower marketing and advertising expenses as expected as we lapped a period of heavier media and creative testing.

I'd now like to discuss our long-term targets and capital allocation priorities, followed by our 2026 financial guidance. As Darcy discussed in her remarks, we now target long-term annual net sales growth of 7% to 9%. We expect our business to maintain strong profitability and are reiterating our long-term adjusted EBITDA margin algorithm of 18% to 20%. In 2023 through 2025, we exceeded our adjusted EBITDA margin algorithm. That performance reflected strong sales growth with favorable pricing and a more constructive commodity cost environment prior to the second half of fiscal 2021. Advertising spend as a percentage of net sales was also relatively low at approximately 3% given past supply constraints.

Looking ahead, our adjusted EBITDA margin algorithm reflects a healthier level of premier brand support with total company advertising investment increasing to 4% to 5% of net sales and promotional spending at competitive levels. Our adjusted EBITDA margin algorithm also now incorporates the impact of tariffs. As previously communicated, tariffs will begin to impact our P&L starting in fiscal '26. While we have mitigated much of our tariff exposure, we do expect an ongoing annualized impact to our margins of approximately 120 basis points. We continue to evaluate ways to further mitigate these impacts. To bolster our margin target, we have accelerated cost savings initiatives across our organization. The primary areas of savings involve more efficiently utilizing our co-manufacturing, warehousing and transportation networks as well as procurement savings from ingredients and packaging. Longer term, our cost savings efforts, normalization of record highway protein costs in 2026 and modest SG&A leverage are expected to be supportive of improvement in our EBITDA margins. Our disciplined capital allocation priorities remain unchanged. We will first invest in growth initiatives, including innovation, marketing and systems and process capabilities. Second, we expect to remain asset light with low capital expenditures. After investing in our business, we expect to be aggressive and opportunistically repurchasing our shares with M&A being a longer-term priority.

Turning to our fiscal '26 outlook. We expect net sales of $2.41 billion to $2.49 billion. This represents 4% to 8% growth. Adjusted EBITDA is expected to be $425 million to $455 million with a margin of 18%. From a brand perspective, we expect high single-digit sales growth from Premier Protein at the midpoint. Premier's volume growth is expected to be driven by continued category tailwinds, distribution gains, including innovation and brand investments. Volume performance is expected to be partially offset by low single-digit headwind from promotional investments as Darcy mentioned in her remarks. We expect high single-digit sales declines for the rest of the portfolio. For Dymatize, we're executing a price increase beginning in late Q1 to offset meaningful way protein inflation and have prudently modeled in elasticities. Additionally, we are reducing brand investment as we navigate high protein costs and the brand has a difficult sales comparison in Q4.

Specific to Q1, total net sales are expected to be down approximately 5% of both Premier and Dymatize declining largely in line with our overall decrease. Consumption growth for Premier Protein shakes is expected to be flat. In Club, Q1 is our toughest comparison of the year where we lap a period with fewer new entrants and chose not to repeat promotions for Premier and Dymatize. Additionally, Dymatize had a strong fourth quarter and benefited from a sales pull forward from Q1 of approximately $8 million, mostly related to shipments ahead of our late Q1 price increase. Together, the non-repeating promotions and sales pull forward are a 4-percentage-point headwind to our first quarter growth.

As we move in Q2, we expect an acceleration in both consumption and net sales with the balance of the year sales to grow at the high end of the algorithm at the midpoint of our guidance. This is driven by Premier, which we expect to outpace overall company growth for the balance of the year, as a robust merchandising programs in the FDM channel phase-in for Q2 and beyond and Club comparables ease.

Moving to fiscal 2026 adjusted EBITDA. We expect adjusted EBITDA margins to decline 280 basis points at the midpoint with lower adjusted gross margins, the primary driver. Adjusted gross margins are expected to be pressured by significant input cost inflation, particularly whey protein, the primary input costs for powders, the introduction of tariff cost and promotional investment with margin pressure primarily in the first half of the year. Tariffs are expected to have an unfavorable impact of 80 basis points on our gross margins, net of mitigation and the impact of timing. The remaining EBITDA margin impact is primarily due to increased advertising, which is partially offset by SG&A leverage. Advertising as a percentage of sales is expected to be approximately 4%, with the largest year-over-year dollar increases in Q2 and Q3. We expect Q1 adjusted EBITDA dollars to be below prior year levels with a margin of approximately 16% to midpoint, primarily driven by lower sales and gross margins.

In Q2, adjusted EBITDA dollars are expected to improve sequentially, with margin rate approximately 100 basis points lower sequentially due to a combination of higher sales, inclusive of Dymatize pricing, continued high commodity inflation and the timing of advertising support. We anticipate adjusted EBITDA growth in the second half due to higher sales growth, easing commodity inflation and higher cost savings.

In closing, fiscal '25 was a strong year, highlighted by robust top line growth and strong profitability. We feel confident in our plans and ability to deliver our 2026 guidance and long-term outlook. Premier is the #1 shake brand with durable competitive advantages in an attractive category, and we expect the investments we are making this year to bolster our long-term position.

Finally, our cash-generative business and strong balance sheet enable us to fund our growth plans while also opportunistically repurchasing shares.

I will now turn it over to the operator for questions.

[Operator Instructions] Our first question comes from Steve Powers of Deutsche Bank.

Darcy, I think it's fair to say that a lot has changed over the last 6 months in your categories and around your business. Maybe just -- could you start off by summarizing what you've observed and how that's influenced your '26 plans as well as your updated long-term views. And why you believe the outlook you've landed on is the right one, both in the year ahead and longer term?

Sure. I would actually start with what has not changed. I think what has not changed is the momentum in the category. There is -- I mean, the household -- it's still a low household penetration category, call it 50% with a ton of upside. There -- I mean, you could actually argue there's more momentum in the category. And what has also not changed is Premier's position in the category. So we are the #1 brand, #1 household penetration, #1 repeat, strong national supply chain, et cetera. So I think those are kind of the mainstays. I would -- so I think what has changed is it's more competitive, which I think is expected. I mean the way I view the category in total is that there are -- they're kind of -- and I walked through some of this in my prepared remarks, but they are the leading brands, which include Premier, which represents about 50% of the category. There are these insurgent and crossover brands, which represent about 10% of the category. And then there are declining legacy brands, which represent about 30% of the category, who have been kind of meaningful shared donors through the year. As I look forward, what we expect to see is the leading brands keep leading and winning. The insurgent brands are -- there's going to be some mix. There's going to be kind of a shape up, where some will make it and some will not. And then the declining brands will continue to decline. So as I look at our guidance and our plan for '26, I feel really good. We have a tough Q1. There's some unique dynamics going on with Q1 with -- in the club side of the business. We're lapping a period with fewer new entrants and one major club customer. And we're lapping some non-repeating promos in the other. So it's a tough quarter, but that does not represent the business. The last 3 quarters are much like every other quarter that we've had, which has strong, strong growth. And the reasons to believe there is the category is healthy. We have strong plans. The rest of the business is growing very rapidly. We've got a couple of really exciting partnerships, like we have a partnership with this mass retailer that I talked about, which really is, I think, a sign of what we're going to see in other grocery accounts and then advertising hitting as well as innovation. So I think there is the reason to believe as well as my view on the category.

Our next question comes from Andrew Lazar with Barclays linked.

Dorcy, I remember last quarter, you did not yet have as much clarity as you wanted around the repeat rate for some of the new entrants or the in surgeons that have come into the category, particularly your largest customer. I'm assuming you at least have some additional clarity now on some of this. And I guess, more importantly, what that means for sort of the -- your expected shelf set, right, for the year ahead at your largest club customer. I was hoping you could maybe update us a bit on that dynamic. I think that was one of the main reasons why last quarter, you weren't yet in a position to sort of provide '26 guidance as I think many had kind of hoped at the time.

Yes, sure. So yes. As I said in my remarks, that one of the changes is that we do expect that our major club customer will keep that expanded set. So that is a change versus what we had assumed before. So we think that the competitive set will be bigger and remain the same. I think that we wanted to watch repeat rates. I would say we're continuing to monitor. I think what is clear is that not all of these kind of insurgent brands are going to make it. There is definitely going to be a shakeout. These thresholds that you have to hit at these club customers are high. And so I think that we will continue to see sort of a rotation of different kind of smaller brands, bringing news, but also kind of just coming in and out. I would say what we have learned, we are our fifth pallet in that customer as we expected, will be -- will transition out. The rest of our business is super strong. I think that what I've learned, and what we have learned is that I think that -- the category is strong, it's expandable. I think that they're -- from a search and brand standpoint, there will be winners kind of in losers, and it's really hard to hit those thresholds. I think that we are really well positioned versus consumption. When we look at the interaction between us and many of the competitors, we have a clear position and our repeat rates are only getting stronger. So -- and we're also source -- we are sourcing some volume from those competitors. So I think I feel really good about our business in the long term despite there kind of a little bit of messiness in this quarter.

Our next question comes from Megan Clapp with Morgan Stanley.

I just wanted to ask about the Club channel, again, maybe following up a bit on Andrew's question. There's been a lot of unique dynamics, not just here in the first quarter, but all year in the Club channel. And clearly, it's an important channel for the category a bit more mature for you. But when we think about the acceleration that you talked about that you're going to see in mid-December and the kind of down 5% to up 9% or so embedded in the guide. How much is driven by the Club channel in particular? And can you just tell us what that means for what you're expecting for growth in the Club channel this year? And and how the various headwinds and tailwinds kind of shake out in your mind as you think about that channel.

Yes. So what we expect is that -- the growth is -- the major growth is largely coming from outside of the Club channel. I mean we've been seeing stronger growth for many, many quarters from our STM, the food, drug, mass and e-commerce channels. So that is where we see -- that's where we have kind of the most potential, and where we see kind of the most opportunity for the category as well as us. So what our guidance assumes is that the Club comparisons get better throughout the quarters. But the growth is largely coming from the rest of the channels. So I think that -- and in our -- in my remarks, I talked about kind of kind of the reason to believe just around distribution, merchandising, advertising and innovation.

Our next question comes from David Palmer with Evercore ISI.

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Thanks for the commentary on your general areas of investment. A lot of us are going to be looking at the all-channel scanner data, the consumption data. I wonder how you're thinking about what we will see in that consumption trend through the rest of the fourth quarter. And I presume which will be a ramp into 2Q? How you're thinking what we would see based on what your plans are -- and to the degree that you can, can you tell us how you're factoring in increased competition that you see and perhaps some room for surprises and your innovation contribution to growth.

From a consumption standpoint, we are expecting, in November, we'll continue to see tough Club comps. Remember, we have that non -- that Club promotion that we are not recurring. So expect kind of slightly negative kind of low single digits, continuing through November. What we start seeing when you'll start seeing an acceleration in sort of the back half of December as New Year. So we have the mass partnership, so kind of expect low double digits in all of December, but it will ramp up towards the end. And then that momentum will continue through kind of Jan, Feb, March and on. So there really is some unique things going on right now within the club channel, then ease out. Obviously, the nonrecurring Club promo is very specific in October and November. But after that, I think that what happens is that it continues to accelerate as we layer on these demand drivers.

David, what was the other question?

Well, then how you're thinking about increased competition being headwind, perhaps including some room for surprises there, but also contribution to growth, and how you're thinking about just the innovation giving you some help on some of the consumption numbers you're thinking about?

Yes. I would say that our guidance is very, I would say, it's prudent. It's conservative. It puts in assumptions around continued competition. And so I think it's one of the reasons why I feel really good about -- I feel really good about delivering the year quarter by quarter.

Next question comes from Brian Holland with D.A. Davidson.

I wanted to maybe follow up on the conversation around compares as we go over the balance of the year. I mean if I look at Premier Protein's consumption, a little bit softer in Q2 and Q3 prior year in Club. Overall, consumption pretty strong throughout the year. So I know you did a longer promo event at your largest club customer this past August, September. So just a little more -- just a little better understanding about why, or how you view the compare as being easier over the balance of the year? And what level of visibility do you actually have into competitor shelf placement as we go through the year?

Okay. So I'll start, and then, Paul, if you want to add on anything? Yes, so our Club comparisons do get easier. So if you remember, in our largest club customer, the expanded that started easing in Q3 and then expanded more in Q4. So we are lapping, so especially in Q1 and into Q2, we are lapping a period with kind of less competition. So the comps are more difficult in the front end. I think what -- as we move forward, I would say we have -- the visibility on competitive entrants is -- I mean, I would say, pretty good for the first half. And then we have -- I mean, we don't even know about our reset for the back half. Here's what I would say is our -- as the #1 brand within the category, our retail partners are choosing us to figure out what they're going to do in this -- in their category. So there's some exciting things going on. And I'm going to -- I referred to this in my remarks, but in several retailers, a Club retailer as well as some major food retailers. They're testing higher traffic dials to move the category. And they're not just -- they're not moving the entire category. What they're deciding to do is they're selecting the best performing brands the ones that have the most mainstream appeal, and they're moving those into these new higher traffic sets. Obviously, that includes premier protein. But some of the legacy brands will stay back in kind of the pharmacy. So that dynamic is not something that are testing it right now. So we're not seeing that necessarily make its way into consumption, but it will in the medium to long term, probably -- actually not even long term, medium term. So some of those dynamics are really exciting. And I think show you where the category is going, and where as the #1 brand where we will be going.

And Darcy as a couple of things. So obviously, we had very strong distribution gains in fiscal '25. And so we'll obviously get the full year benefit of that in fiscal '26, including some pretty significant distribution gains in our fourth quarter, in particular at [indiscernible] retailer that reset shelf. And so obviously, we'll get the full year benefit of that reset as well, including -- and then in our first quarter, we have some innovation that's also shipping out. So we kind of get into Q2 and beyond. Some of that innovation will start shipping. Q2 obviously is a very data pulse period for us of advertising. So we're stopping for advertising, stepping up our merchandising, stepping up our promotional events, especially in FDM. And so those are the reasons we think that that sales and consumption will accelerate as we move into Q2 and beyond with additional innovation hitting later in the year. So those are the big pieces for the reasons for why we believe that consumption will accelerate as we move throughout the year.

Our next question comes from Thomas Palmer with JPMorgan.

I wanted to maybe bridge a little bit more on your EBITDA margin, down around 280 basis points year-over-year. You noted, I think, around 80 basis points from tariffs and your comments suggest maybe another 80 basis points for stepped-up advertising. So when we're kind of thinking through the remaining 120 basis points, maybe a little help kind of bridging like SG&A leverage, excluding advertising, inflationary pressure, excluding tariffs? And then maybe thinking through some of the cost savings that you noted.

So as you've highlighted, we're calling for our EBITDA margins to be down about 280 basis points compared to a year ago. And as you mentioned, about 80 basis points of that is tariff. From a line item perspective, we expect gross margins to be down, that's the lion's share of that decrease. And then SG&A, we would expect to be modestly down with advertising an 80 basis point headwind, and then there's offset partially by some G&A leverage. When you look at within gross margins, we were calling for inclusive of tariffs, a low to mid-single-digit inflation headwind. Much of that is on way proteins, which is the input cost on our powders, which we are taking pricing for late in Q1. So obviously, that will start to get offset as we move into Q2 and beyond. On our shake business, we do have a little bit of a step up in Q1 and then inflation is pretty flat to slightly up as you kind of go through the year on shakes. And so the puts and takes are, we have some additional inflation, especially on our powder business, which were pricing. On our shake business, we have some modest inflation as we go through the year, but we also have cost savings initiatives that are more impactful in the second half of the year. So one of the things I want to point out here is that if you look at our margins for kind of by quarter, the first half obviously has -- we're lapping a very, very strong margin first half last year. We had gross margins nearly 35%. And so that's -- so as you look at kind of the headwinds throughout the year, the first quarter has the biggest headwind on a margin perspective versus a year ago. Q2 also has a sizable headwind but less in Q1. And then as we get to the second half, things are actually fairly similar versus a year ago from a mortgage perspective. So it's really the first half where we have the biggest headwind related to margins. And it's, again, largely driven by inflation, but also our stepped up promotions as well.

Our next question comes from Peter Grom with UBS.

So I wanted to go back to the market share discussion and a follow-up to Andrew ante's question. And I guess specifically on what you are seeing from the in surgery brands. And I guess -- do you think they have the potential to see maybe similar market shares to what the category of leaders are at today? And I ask this more around the debate around what the competitive landscape looks like. I think some point to the potential that because this industry could be similar to what we see in energy drinks, where you have a duopoly versus maybe some others where you have 5, 6 brands or similar shares. So Darcy, I know you mentioned that you think against some of these brands are going to go away, but maybe you can take the other side of it, I'm curious if you think any of these insurgent brands have potential to become more real competitive threat over time?

I mean I'll just you guys have been along with our journey, and I think you even see it with our major competitor. It takes a long time to build a national network national supply chain. And so I think that from a -- I think it's -- I mean you can some of these insurgent brands can do well in one retailer. But I think expanding out, and we've done it. This is kind of -- in many ways, this is our playbook, right? Like we started in Club, we expanded outside of it. It is incredibly complicated. So it is complicated to -- it's a complicated supply chain the expertise that you need to have the sophistication around expanding and being able to service multiple different channels simultaneously as well as the back end of -- on the co-man side. And then even if you're self-manufactured, that's a whole another piece. So I am assuming we are assuming that, of course, there are going to be a couple of these insurgent brands that probably make it. But it is going to take a while. And I think that what we're seeing, but I think there will be many more that don't. And that -- and I just do not want to underestimate the move from one kind of club customer to go national is very complicated. It takes multiple years, and it's a different skill set. So yes, I think that ultimately, I think this category is going to consolidate around kind of the most successful brands, a handful of them. And I clearly think that's going -- that's obviously going to include us as a #1 brand.

Our next question comes from Alexia Howard with Bernstein.

Can I ask about pricing expectations, price versus volumes embedded within your guidance. You're obviously taking a list price increase on Dymatize with the rest of the portfolio, do you expect promotional activity step-up to actually bring pricing downwards? And does that cadence vary through the year?

Yes. So for -- I'm not breaking into brand. So for Premier Protein, we would expect a modest kind of a low single-digit headwind related to pricing. So that incorporates our stepped up trade investments, offset by we expect some favorable mix. So there is a low single-digit headwind we're expecting on our shake business, which obviously is the biggest part of our business. On Dymatize, we're taking a price increase on powders, but we expect mix to play a big part of this because we now have RTD shakes and Dymatize, and those are at a much lower price per pound than powder. So throw was off a really funky mix. So net overall for total boring would expect a low single-digit headwind overall with Premier similar and then Dymatize, even though we're taking a price increase, it may look like it's negative because of just mix.

Our next question comes from Matt Smith with Stifel.

Darcy, following up on the discussion or Paul, around higher promotional activity over the next year. We've seen a step-up in promotional intensity from insurgence in recent weeks. As you look forward, do you expect premier promotional activity to be moving higher more on a frequency or a depth basis? And do you expect that to be focused in certain channels? It sounds like maybe club promotion should be similar relative to the prior year once we get past the first quarter?

Yes, I think that's me, right, Paul. Yes. So you're exactly right. We're expecting to see a little bit of a step-up of promotion in '26. And yes, I think, it's interesting that just October, especially in the club channel is usually not a high promotion time period, and it was a little bit more, and it's coming from the insurgent brands. So from our standpoint -- and also, I would just say that just remember that this category is actually fairly low promotion compared to many categories. It's just about -- it's about 25% to 30% sold on deal. So just keep that in mind as you're thinking about just this category kind of in the macro. But as far as our business, we are going to see a little bit of uptick in promotion mostly as we talked about, our emphasis, specifically in FDM as we are getting out of the aisle, as I've talked to you guys before, the key is for us is getting out of the aisle to get that trial, to get that -- and then with our 50% repeat, we get the repeat. So that's a big emphasis. That's why we brought on the brokers. Why we have a new internal team focused on this, around singles and entry-priced multipacks. So because of that, when you have that merchandising, you usually have to do some sort of TPR. So we are going to see a little bit of a step-up of promotion that comes along with that expanded merchandising.

Our next question comes from Yasmine Deswandhy with Bank of America.

So I just had a quick one on longer-term strategy. So you guys walked away from the PowerBar business a couple of years ago. And considering that the convenient nutrition category is expanding outside those traditional products. Have you given any thought into, say, going back into bars or expanding into breakfast offerings like waffles, pancakes and cereal. I guess I'm just asking as well because given the recent -- the press release of the recently announced [ Fortis ] appointment, highlighted David's finance M&A background. So I also don't know if there's -- has there been any change in your capital allocation priorities, particularly around M&A and your product portfolio as well.

Why don't I hit the portfolio piece and Paul, you can hit capital allocation. So from a portfolio standpoint, we really -- we believe in our category, specifically ready-to-drink shakes and secondarily, powders. We think that there is a ton of opportunity. I talked about in my prepared remarks just around this demand landscape study that we did. A key part of that demand landscape study was to evaluate and make sure that there was going to be a ton of room to grow, and there were many years of strong growth kind of a ton of white space that we could capture. So it confirmed that. So we love this category. We think there's a lot of opportunity. We have a great brand to compete. Now having said that, we also do participate in some of these -- we have a great brand that we have we have learned that can travel to heavier traffic aisles. We are competing in some of these other areas, but we're doing it through licensing. So if you -- we actually have a frozen pancake, we have a frozen waffle. We have a dry pancake mix. We have a serial, and we're actually expanding some of those, but we do it through licensing because we want -- I want this organization laser-focused in what we believe is the biggest opportunity, which is ready-to-drink shakes and powders. So no, we do not have any plans to go back into bars. It's a highly competitive area, low barriers to entry, et cetera. So -- but we love the area that we in and we think there's a lot of upside, and I'll pass it over to Paul for capital allocation.

Yes, thanks, Darcy. Yes, on capital allocation, I would say that our priorities haven't shifted really that much. Obviously, our first priority is always investing in the business. And as we talked about, we are making investments this year within trade and promotions continue to drive this business. Outside of that, because we generate really strong cash flow, we're not expecting to change our asset-light model. We have low CapEx. Obviously, that provides us a lot of cash flow that we can obviously allocate from recently, and we still think is the most attractive is share repurchases. We've obviously lean into share repurchases. And so that's still our near-term priority, but M&A, we're always looking at M&A. We're looking all the time. We get pitch things all the time. And so we'll definitely definitely keep an eye on M&A, and it's something I think that is becoming -- I wouldn't call it near term, but it's more kind of in the mid- to longer-term priorities for us. And yes, David, coming to the Board obviously brings a lot of strength in that area. So that's great for us. And so yes, M&A is something we're always looking at. And if we find the right opportunity, we start would go after it.

Yes. And on the Board side, we're really happy to have David on board. I think he brings a great skill set, and we're always looking at expanding and improving the skill set on our board. Our Board has been incredible over the years, and we just want to continue to make it better and increase the skill set. And I think David does that.

Next question comes from John Baumgartner with Mizuho Securities.

I'd like to ask about RTD category segmentation. Fairlife Core Power, they've established that Premium segment in ultrafiltered milk. But now we've seen two legacy competitors relaunched with ultrafiltered, some of the newer entrants, the [ insurgents, ] private label, they're adopting ultrafiltered. So I'm curious, Darcy, the category is making the shift with ultrafilter becoming more of a standard recipe? Is it tied to raw materials availability? Is it due to the license to move more premium? Is there a specific consumer you sense they're chasing? Just curious your thoughts there on that recipe shift? And how might this shift position from year differently relative to history?

Yes. Yes, I think that -- the category is maturing. I think that it is -- when we did our demand landscape study, I think that what became very clear and our head of innovation, I will quote her, and she described the landscape is like there's different stokes for different folks. Meaning some -- when the category is more nascent, kind of everybody kind of wanted the same thing. But as it expands, there are different preferences. And so for instance, some people want fixed shakes. Some people want thinner shakes. Some people want dairy shakes, some people want [ plant. ] So I think what's the good news for us is that our core 30-gram shake addresses the biggest consumer needs, but it doesn't address every consumer need. And so as we now are kind of growing up, we hit with the 30-gram with our core offering, we hit the biggest one, but now we're launching innovation to go after some of these other needs. And like -- I mean, I think a good example of that is, so when you're talking about ultra-filtered milk, that is an innovation. It's a thinner offering. It's more of a beverage. Ours is more of a thicker shape. Ours is more of a meal replacement. So I think that starts explaining why there's actually not that much interaction between the two. It's going after kind of a different consumer, different occasion. We launched almond milkshake, that's a nondairy. We knew that was an opportunity. We think it's a smaller opportunity than the dairy side of things, but it's an incremental opportunity. And I think our numbers that we're getting from almond milkshake, even though it is early, are showing exactly that, 50% incremental, we're getting to new people. So that is a key aspect of our innovation strategy is really going after make sure that our 30-gram core business is strong. We always are looking at making it better. We're always looking at bringing in news and flavor innovation, et cetera. But at the same time, we also are going after of these other incremental consumer needs with other innovation.

Our next question comes from Jon Andersen with William Blair.

We talked a lot about the [ insurgent ] brands this morning. And Darcy, you mentioned you expect over time there to be a bit of a shakeout, which makes sense to me with some winners and some meeting the thresholds. But in your kind of experience, how long would you expect in a process like that to kind of take or to play out. And the reason I ask is because it seems like the competitive dynamic that is weighing a bit today, it could remain difficult until that kind of shakeout period -- shake out of that kind of plays out more broadly in the market.

Yes. I mean it's a great question. I think that we're seeing it right now, obviously, we're seeing brands that are not making the thresholds. I think what I think I would zoom out a little bit. So I think the reason why even in Steve's very first question, just about our view of the category these insurgent and kind of crossover brands, they're getting a lot of attention. They only represent 10% of the category, and there are a lot of them. So -- and I think that remembering, and I think that what is important is where the growth is coming from, it's coming from the leading brands, bringing in more households and then also sourcing volume from those decline legacy brands, which are not insignificant. 30% of the market share is in these kind of declining legacy brands. So what's happening is that, yes, there's going to be some churn in the surgeon kind of crossover brands. Some are going to make it, some of them are going to not. There's always going to be new news. It's an exciting category. I mean you see it in energy. There's always like this group that kind of starts turning. But like if you zoom out the leading brands, which have established, which has -- they have high -- let's just talk about Premier, #1 household penetration, #1 repeat, national supply chain that we've built over years and years and years. We have -- we're now invested, we have capacity. We're now investing in the brand, we're leaning in, we're partnering with retailers to figure out where in the store that this category should be, and how it should be merchandised, and how to maximize it. They're choosing us to do that. So the leading brands are just going to -- they're going to keep on winning. There's going to be churn around the [ insurgent ] brands. And then the legacy brands are going to be the ones, I think, that continue to be -- they have been shared donors for years, and they're going to -- and that is just -- it's kind of accelerating. So your question around how long is it going to take? I mean, I think there's going to always be this kind of churn of [ insurgent ] brands. And I think it's an exciting category. We watch it for sure. But I think that there will -- I think the focus in my mind is -- and they're actually sourcing some volume from the declining legacy brands. So -- but I think the focus is that we definitely expect there to be a consolidation and the most successful brands are the ones that are going to really propel forward.

Our next question comes from Robert Moskow with TD Cowen.

This is Jacob Henry on for Rob. Just one question for me. I think I heard you guys mention that your fifth pallet at the large club customer is transitioning out. I'm just wondering if you have any insight into when, and why that's happening.

Yes, it was always going to be -- it was always going to be a temporary skew. So it went in -- it's coming out in Q2. So it will phase out.

And I'm not showing any further questions at this time. And as such, this does end today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Good day, and thank you for standing by. Welcome to the BellRing Brands, Third Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jennifer Meyer, Investor Relations for BellRing Brands. Please go ahead.

Good morning, and thank you for joining us today for BellRing Brands Third Quarter Fiscal 2025 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 -- will 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 sections 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 this morning. We delivered another impressive quarter, continuing to demonstrate our leadership position. Paul will go into more detail about the quarter's performance and how we expect to end the fiscal year. I plan to use my time today to remind you of our company's unique value proposition and why we believe in our continued success. I have 3 key messages.

The first, the ready-to-drink shake category is on fire with a long runway of growth. Second, Premier Protein's demand and brand fundamentals continue to show exceptional growth. And last, we're building on our brand momentum, positioning ourselves for many years of future growth.

Let's get started. As you know, our company's core focus is ready to drink shakes. It is no secret that this category remains one of the fastest-growing categories in the entire store. It has incredible momentum with meaningful long-term potential. Protein is at the center of many macro trends, including health and wellness, popularity of functional beverages increases in GLP-1 usage and the constant consumer desire for convenience. Ready-to-drink shakes are thriving because they fit so well with the evolving lifestyles and values of today's consumers.

RTDs grew 16% this quarter, with 70% of that growth coming from volume. 1 in 2 households now consume our TD shakes and a category added 5 penetration points in the past year. This was the second highest household penetration increase of any category, only behind prebiotic sodas. It is worth noting that Premier Protein contributed approximately 1/4 of that growth, more than any other brand in the category. Retailers have seen this category's potential and are getting behind it. Many leading retailers turn to us for guidance on how to accelerate their growth. As the category leader, we serve as the official category captain in several key retailers and advise many others. We provide thought leadership on aisle location, assortment, merchandising solutions and signage. And retailers are taking action. They're adding more space for RTVs testing higher traffic aisle locations and expanding displays in and out of the aisle, all in service of accelerating awareness of the category among their shoppers.

Concurrently, they are deemphasizing less productive and, in many cases, declining subsegments and brands, which are weighing on their growth. Further adjustments of these underperformers remain a meaningful opportunity for the category. Success attracts competition. So it is not surprising to see new protein RTDs enter the category, especially in its biggest channel cloud. The increased interest, especially from large established CPG companies further validates the long-term consumer relevance and staying power of this category. And in a low household penetration category, competition is good. It brings expanded shelf space increased marketing spend, heightened focused on innovation and a drive to delight consumers, all with the net effect of increased household penetration and category growth.

We continue to believe the category is in the early stages of growth. At 52% household penetration, it trails mature CPG categories, which are often at 80% to 90%. The convenient nutrition category has a third or less of the space of similar sized categories in the food channel, a compelling argument for more space. The combination of expanded distribution, new households and increased buy rate of existing users will propel this category for years to come. The convenient nutrition category will look vastly different in 5 to 10 years from now and Premier Protein is positioned well to lead that evolution.

My second message, Premier Protein's demand and brand fundamentals continue to show exceptional growth and strength. Premier Protein, with RTD market share of 25% is the #1 brand in RTD segment as well as the #1 brand in the broader convenient nutrition category. Our consumption grew 19% in Q3. Volume gains drove approximately 60% of this growth. The brand had an all-time high in household penetration and remains the leader in the RTD category, reaching 21.6% of consumers.

Most encouragingly is that our loyalty and by rig have remained strong, among the highest in the category. Retailers look to us for thought leadership and as a proven brand. We are the #1 velocity brand with the overwhelming majority of our products in the top 1/3 of the category. Our brand continues to win incremental shelf space with Premier Protein shake TDPs up 34%. Premier Protein continues to be the go-to brand within the RTD category because of its mainstream appeal, unbelievable taste and category-leading loyalty.

The third and final message, we've built strong momentum and we are now taking it to the next level, positioning ourselves for many years of future growth. Key enablers will be increased brand support, distribution expansion, both in and out of the aisle and innovation.

Starting with brand support. As a reminder, in late December, we launched our first media campaign since 2021, and results show a strong ROI. In July, we introduced our second wave of media, which features our updated packaging. The new packaging, which started to roll out in July brings a modern look that improved discoverability at the shelf and raises our appeal to younger consumers. Consumer and retailer feedback has been overwhelmingly positive.

In addition to increasing brand support, we are boosting in-store investments via promotion, display and demos. We know from experience promotions and more importantly, the displays that come along with them, are key to reaching new households and growing our business. We are aggressively pursuing merchandising in IO and throughout the store. We have established a dedicated team in addition to a new broker partner to expand our merchandising and consumer touch points across the store. These include pallet displays, end caps and more recently, single-serve bottles and coolers.

Distribution continues to be a major opportunity. we generate 11% of the convenient nutrition category sales, but only a 4% share of shelf. In Q4, we will continue to gain TDPs on our core products, single-serve bottles, new innovation as well as a short-term incremental pallet position at a key club retailer. We spent the last 4 years developing a scalable, regionally diverse co-manufacturing network and now have the capacity to aggressively pursue distribution and take advantage of these valuable retail opportunities.

Lastly, we are accelerating our efforts around innovation. Recall, we launched 2 new shake lines this year. The first, our Indulgent line, targets an incremental consumption occasion while still delivering on the nutritionals that our consumers expect from the premier brand. We are pleased with this line performance today. Momentum continues to build, and it recently gained distribution clubs. The second line Almondmilk shakes, our first non-dairy protein offering launched in late June. These shakes made with real Almondmilk, deliver great-tasting nutrition without artificial colors, flavors or sweeteners. Early results are promising and marked our first step of many toward more wholesome offerings.

Our innovation pipeline is rich and is packed with both close in innovation that has made us successful, like flavor leadership, pack size and format expansion, as well as big-eye innovation, which will be more disruptive and focuses on incremental consumers and occasions. We are committed to bringing continued excitement to our consumers and retail partners for years to come.

In closing, the RTD category has strong momentum. Retailers are starting to really lean into this category. The Premier Protein brand is leading the charge as the #1 brand with scale and a ton of upside. Premier Protein sell 36 shakes per second. But the brand still has only 20% household penetration, clearly highlighting our consumer loyalty and a long runway for growth. I'm proud of our performance to date with another above-algorithm year. Our teams are energized by the momentum we've built and excited about the opportunity that is ahead of us. Our confidence in the long-term outlook for BellRing remains high.

Thank you for your interest in the company. I will now turn the call over to Paul.

Thanks, Darcy, and good morning, everyone. As Darcy mentioned, we had another good quarter. Net sales were $548 million, up 6% over prior year, and adjusted EBITDA was $120 million. Adjusted EBITDA margins were in line with our expectations at 22%. Both net sales and adjusted EBITDA were slightly ahead of our expectations with the primary driver a heavier-than-expected e-commerce promotion load-in for Premier Protein at Dymatize, which will deload in Q4.

Starting with brand performance. Premier Protein net sales grew 6% with volume and pricing both up 3%. Distribution gains and promotions were the main drivers of volume growth. Recall, we expected trade inventory changes to be a headwind to Q3 growth as we lapped prior year inventory replenishment and certain key retailers lowered their weeks of supply. These reinventory changes went as expected with the e-commerce load in a partial offset and together were a high single-digit headwind to growth. As a result, shake consumption dollar growth of 19% meaningfully outpaced shipment dollar growth in the quarter.

Dymatize net sales increased 5% this quarter, lifted by strong growth for international and domestic RTD shake sales. Adjusted gross profit, which excludes mark-to-market adjustments on commodity hedges, was $192 million and grew 3% from prior year. Adjusted gross profit margin of 35.1% decreased 130 basis points. Third quarter margins faced moderate year-over-year pressure from input cost inflation and incremental trade and to a lesser extent, packaging redesign cost and the lapping of nonrecurring cost favorability in the prior year period.

SG&A expenses were $145 million and included a $68 million provision for legal matters related to our Joint Juice brand, which was discontinued in 2023. Excluding this provision, which was treated as an adjustment for non-GAAP measures, SG&A expenses were $76 million, a decrease of 40 basis points as a percentage of net sales, driven by leverage on G&A. A&P spend was 3% of net sales relatively flat compared to prior year.

Regarding the Joint Juice litigation, a settlement in principles reached during the quarter and remains subject to court approval. See our press release and 10-Q for further details on this litigation, which dates back to 2013. We expect payment on the matter sometime in fiscal 2026.

Before reviewing our outlook, I would like to make a few comments on cash flow and liquidity. We generated $40 million in cash flow from operations in the third quarter and $92 million year-to-date. We continue to expect our cash flow in fiscal '25 to be in line with fiscal '24, with strong operating cash flow generation in the fourth quarter. As of June 30, net debt was $971 million and net leverage was 2x. We anticipate net leverage will end the year below 2x.

With respect to our share repurchases this quarter, we bought 1.3 million shares at an average price of $65.07 per share or $83 million in total. Year-to-date, we have acquired 3.8 million shares or approximately 3% of our outstanding shares. As of June 30, our remaining share repurchase authorization was $197 million.

Turning to our outlook. We tightened our fiscal '25 guidance with our midpoint for both net sales and adjusted EBITDA unchanged. Our outlook for net sales is now $2.28 billion to $2.32 billion, with adjusted EBITDA of $480 million to $490 million. Our guidance implies strong top line growth of 14% to 16% and adjusted EBITDA growth of 9% to 11% with healthy adjusted EBITDA margins of 21% at the midpoint.

Inclusive of the previously mentioned e-commerce timing shift, we expect net sales to grow 14% at the midpoint in the fourth quarter. Premier Protein is the main driver of overall growth with Dymatize and all other expected to grow mid-single digits. Premier Protein is lifted by distribution gains and incremental promotional activity as we return to historical promotional levels. This was partly offset by lower net pricing.

Consumption dollar growth for Premier RTD shakes is expected to remain strong in the high teens to low 20s for the quarter. Regarding fourth quarter adjusted EBITDA, we expect margins of approximately 19% at the midpoint. Compared to last year, we expect significantly lower gross margins, partially offset by meaningful SG&A leverage. For gross margins, higher promotional spend and input cost inflation are the main drivers of the decline. Protein cost headwinds will step up in the quarter for both of our powders and shakes with headwinds from elevated way, the primary input on our powder products continuing into fiscal '26.

In addition, Fourth quarter gross margins are negatively impacted by packaging redesign costs and the lapping of onetime favorability, which combined are 100 basis point headwind. SG&A dollars are expected to decrease significantly compared to a year ago with lower A&P spend and reduced G&A expense.

Wrapping up with an update on tariffs, we are monitoring the latest developments and potential implications to our fiscal 2016 input cost. As you may recall, we previously discussed potential headwinds for our fiscal '26 cost of goods sold with the higher tariffs impacting our dairy protein source from New Zealand and the EU. Based on the policy communicated last week, the overall tariff impact for BellRing has increased slightly with 15% tariff rates and active for those countries. While we are evaluating ways to mitigate these costs, we continue to expect a low single-digit impact for our fiscal '26 total cost of goods sold with no tariff impact on our fiscal '25 results.

In closing, we are pleased with our year-to-date performance. Our long-term prospects remain bright, and we are well positioned to close out the year.

I will now turn it over to the operator for questions.

[Operator Instructions] Our first question comes from Andrew Lazar from Barclays.

So as you listed a bunch of reasons why you remain confident in the long-term potential of both the convenient nutrition category and Premier Protein's role within it. I think I remember last year on the fiscal 3Q call, I think you broadly addressed some expectations for the coming year. And I was wondering if you'd be able to -- admittedly on a preliminary basis, provide some initial color on your thinking for fiscal '26.

Yes. So it is really too early to talk about '26. We're deep in our planning process. Historically, we have talked a little bit about '26 on this call. But candidly, it is a lot easier to estimate demand when your capacity constrained versus -- and we're not now. So we are -- we kind of have to follow the planning process a little more religiously. So -- there are a couple of uncertain variables. Obviously, we just started one of our biggest promotions with club, and we have another one leader. So we want to see how those go as well as we've -- we're still assessing some -- what happens with tariffs. So there are just a few pieces.

Overall, we feel great about the long-term opportunity of the business for all the reasons that I went through in my scripted remarks, I really think that -- not only are we unconstrained from a capacity standpoint. Our metrics are fantastic. And I really feel like we're at a tipping point with retailers that they're really getting behind the category, and we're leading the charge. So I feel great about the opportunity just in the middle of our planning process, and we'll have more information in our next call.

Our next question comes from Kaumil Gajrawala.

A couple of -- just a couple of questions. The first is third quarter came in maybe a little bit better than expected when adjusting for some of the destocking issues. And -- but you've narrowed your guide as opposed to maybe coming in at the higher end, given all of the statistics and all the things that you talked about the same of the momentum that you have. So just curious why narrowing as opposed to maybe pushing towards the higher end? And then maybe I don't have the scales correct on your Slide 9, but consumption being kind of in line with shipments for 3Q. I might have expected consumption to be much higher given there was some destock in the third quarter. So I just want to understand if I'm just seeing that wrong or if there's something else in there?

Sure. I'll start with your first question and then pass it to Paul for the second. So with any quarter, there are many puts and takes, but they're all pretty minor. So I'll just walk you through some of the puts and takes just to give you a sense. Yes, Q3 consumption was slightly higher than we expected, mainly it was actually pricing because of mix, less volume. But let's call that a couple of million dollars benefit. So that's one piece.

The second piece was we gained -- I said this in my prepared remarks, we gained a short-term club palette. So that added a couple -- about 2 months benefit. One was promoted. So that -- we call that about $10 million benefit. So what offset that was when we gained that short-term club pallet, several other competitors gained short-term space as well. So we're assuming this increases some competitive pressure in club and that reverses the first 2 gains. So again, this is -- these are small numbers. It's only about 2% of our quarter, but that is the reason. So we've got some ups and some downs but that is the reason why we ended up lowering our brand.

And then on your second question, regarding our supplemental schedule, Slide 9. So yes, you're correct. We expected consumption to slightly outpaced shipments more than it did. They came in more in line. And the primary driver is the e-commerce heavier-than-expected load-in that we saw in the third quarter. So that is masking the deload to some degree that we saw in club and other retailers. On the last call, we called out obviously an expected deload in the quarter. That played out exactly as we expected. We feel good about where our trade inventory levels are for those key customers -- but that's the main reason is, yes, we expected it to be slightly lower as well, meaning consumption over shipments, and it was masked a bit by this e-commerce load in that we expect to fully load below in Q4. We think it's purely timing.

Our next question comes from David Palmer from Evercore ISI.

I just want to follow up on Andrew's question because obviously, not commenting on it, given all the mixture of increased competition, but also your distribution, innovation, marketing drivers. There's a lot of things for us to consider here. And obviously, the category remains vibrant. I wonder, is your long-term targeted 10% to 12% a good starting point for us to be thinking about in the high single-digit type category growth. And -- do you think you'll be gaining share this year -- this next year? Or do you think that that's maybe not as much in the cards? And just any sort of proportions comments that would speak to how we should be thinking about the category and your growth within the category would be helpful.

Yes. I mean I think we feel great about the opportunity still. I think we still feel good about our long-term algorithm. I think that, in general, many of the all the things that we've laid out kind of our -- in our investor presentation are very relevant. I think that -- it's a hot category, everything I said in my scripted remarks. It's a hot category. We're the #1 player. We are -- when you're -- we -- I talked a little bit about the inevitability of increased competition. And I think that it is actually really good for the category. And so I think that all of -- we're seeing some real momentum with our retailers. I think this is the first time I've talked about us being category captains. This has been a strong push for the last year. And it's really nice to see and it's -- and we're having some big impact.

And so all of these things -- and then, of course, our innovation. And this is the first year we've launched 2 new lines in 1 year. And it's really starting to gather some movement. We're getting on shelves. It's the velocities are turning where we started. So there's just a lot of pieces. And I think that, that is why we just -- we need a couple more months to work through it. So we can give you a good number.

Our next question comes from Megan Clapp from Morgan Stanley.

Maybe I wanted to ask the competition question maybe a little bit differently. And Darcy, you touched a bit on it in your prepared remarks, but I'd love to just hear your updated thoughts in terms of how you're evaluating the single-serve opportunity and kind of your desire to move the brand into the mainstream beverage aisle as a way to reach new customers, maybe as competition is getting a little bit more fierce, if that's an okay word and kind of your main club channel.

Sure, Megan. I'm going to start with the club competition because I think there's some context that might be helpful. And then I'll end with just our efforts around where we want to be in the store, what's important and then lastly single serve. So if I don't hit all those points on, tell me. Okay.

So let me -- first with the kind of club situation because it's kind of unique. So when we gained the short term, I mentioned that when we gained our short-term club palette, several other competitors also gain some space. So one of our key club retailers decided to increase the RTD and powder floor space in Q3 and for a short-term basis. It's a temporary expansion to fill spots previously meant for tariff-impacted categories. So it's a little bit unique. It's supposed to last until the end of the calendar year. So it is -- we gained some space, but also some competitors gained some space because they had all this new space to fill. So it's a little bit of a unique scenario, and I think that's what I think people are -- we're seeing the increased competition.

I will say that I was in a club store this weekend. And it is really -- it is great for the category. When I was walking around I bet you 60% to 70% of the parts in the store had high protein shakes in the cart, which -- and people it's completely mainstreamed. And so I truly believe that the competition is good for the category. And I think that this is sort of a unique situation where the competition is, especially in that channel is kind of increasing for a short period of time because of this unique situation and then will come down a little bit. So it's a little different in other channels where you have to wait for resets, and those just happened a little more slowly. So that's one piece that I think is important context.

The second piece is just our conversations with retailers about where we want to be in the store and the opportunity. And what I would say is the guidance we are giving retailers is it's less about where you are in the store. We want to be in high-traffic area. And the category needs to be distinctive from the rest of the store, meaning it needs to be -- have strong signage, you need to clearly see that it's convenient nutrition. It has to have education on -- to help consumers understand what products they should try -- and then these kind of displays outside of the aisle are very important to disrupt consumers in their kind of normal shopping behavior.

We are actively -- so in addition to the work we're doing with our retailers around expanding the category, potentially moving the category, merchandising it better and displaying it throughout the store. We are -- I think the singles are singles efforts is going to be a big focus next year, which will be around displays throughout the store of singles. Some of those will be ambient because we know that, that works very well. Some of them will be in coolers. We've had some success in food accounts where we're getting in coolers, which is nice. So I think that next year we'll be focused on that -- we believe that -- I mean, this will be the first year that we're focused on it. So -- and then I think the next step would be getting after that DSD opportunity. There is -- and then -- and really, you need the DSD opportunity for convenience.

Our next question comes from Jim Salera from Stephens.

A lot of questions on competition already. And if you'll indulge me in asking the other one kind of a different way. With industry capacity in a better spot and that may be opening the door to newer upstart brands coming into the category. Can you offer any thoughts on how we should think about promotional cadence going forward? Just conceptually, I think it would make sense at some of these other brands launched, they would probably have so heavy promo efforts behind that and maybe have several launching, maybe a kind of a sequential cadence, it might end up where the promotional calendar for the category as a whole is pretty packed for a year. Can you -- just any thoughts around -- does that mean that you need to increase or extend your promotional cadence? Do you feel that maybe other brands are going after different customers? Just any details you can offer about how we should think about that going forward?

Yes. I think our promotional cadence has been pretty consistent. I think now, obviously, last quarter, we up-leveled -- we announced that we up-leveled our Q4 club promotions. And that really got us back to what we used to do before capacity constraints. So when you look at the quarter Q1 for us, that's October, November, December. That's a low promotional period historically for the category as well as for us. The biggest promotional period is that January, February, March, that will continue being it. It's when most new people enter into the category. And then there are some usually small -- some minor promotions in Q3 and then another kind of big promotional period in the back-to-school, back to sports time frame, which is our Q4.

So I don't expect -- I think that is -- that has been the promotional kind of cadence ever since I've been in the category. And I think that is, and that's really just -- it's following the consumer behavior. And that's -- this last year -- or this year '25, was our first year of kind of full promotion. And like I said, getting back to what we used to do pre capacity constraints. So I think that will be the same going forward.

Our next question comes from Yasmine Deswandhy from Bank of America.

So I just wanted to follow up on Andrew's question earlier and maybe phrase it a little differently. Obviously, understanding that you won't get into details about next year until later this year. I think in the past, you've alluded that on algo growth could be in the books for next year, at least on top line. You'll be lapping this year's innovation, incremental promotions. You've launched 2 new lines this year. So I'm not asking for any numbers, but just kind of qualitatively, how much confidence do you have in achieving that on algo growth? And what are the qualitative things that we should consider for next year just on top line?

Yes. I think we feel good about it. I think that this is -- if you think of the last several years we have been lapping capacity constraints in some way. So I think that we have been adding incrementally different demand drivers. We started off adding back our full line. We still had -- even as close as last year, we had we still had some out of stocks that we were lapping. This -- we then added promotion. We started with club promotions and we added FDM promotion. This is the first year we added back our marketing, our marketing drivers. So I think this, in '25 is the first year that we had all of our demand drivers. So as we go on to '26 and beyond, we are kind of back to normal.

And so I think that as you look at that, I think that we have said that our kind of long-term commitment is 10% to 12% top line at 18% to 20% margins. So I think that, that is the expectation. And -- but I think that when you look at it, when you zoom out and you remember what we've been doing for the last several years, I think it gives good context to where we are going forward. And like I said, I think that -- I think what is exciting about what's going on is when you have an explosive category and you're the #1 player, if you look at any other category that grew high-growth category, the #1 player definitely benefits, and we're seeing that.

And that's why we think it's really important to be category captain and help really mold the future and really go after these incremental displays and being able to put our fingerprint on the assortment and -- or at least be able to give them thought leadership so we can give them guidance about where the consumer is going and how we can help.

Our next question comes from Brian Holland from D.A. Davidson.

A lot of questions. I think on the numbers have sort of been addressed to the extent that they can. So maybe just asking -- obviously, there have been a lot of questions about the competition as well. I'm just curious, Darcy, if you could sort of frame for us how you think about the value proposition of Premier Protein. And for context, Obviously, we have new innovation, and this is a category that has and will continue to bring a lot of innovation to market. And so as that evolves, as consumer taste and preferences evolve, the positioning of Premier Protein, the value proposition of that product vis-a-vis some of the other products and macros that are out there available to the consumer. What gives you the confidence from that standpoint that you can hold or grow your share going forward?

Sure. Great -- great question. Okay. value proposition. Why do consumers love Premier? Approachable positioning, fantastic taste and flavors and great nutritionals, like the trifecta. A key part of fantastic taste is this kind of thicker milk shake decadent consistency and a wide variety of flavors. So consumers are drinking this product, our product every day. They get tired of chocolate and vanilla. They weren't -- to try rootbeer float and pumpkin spice and lemon bar and all of these other things that are super exciting. They will not sacrifice taste for anything. So that is the value proposition. That is what has made Premier so successful and will continue.

What we have and when we kind of map out -- we've done a lot of work on where the white space in the category is and kind of where the biggest growth potential big buckets are. And I think that we feel that there's opportunity in -- and again, without going into kind of our innovation strategy. But like we think that -- we are in a great space in that when we map out what consumers want, most -- and I have exact percentages, but most want [indiscernible] shakes that fill you up. Some want kind of thinner products that are -- that can be consumed sort of more as a beverage. Most want kind of this idea of around 30 grams of protein, let's call it, 20 to 30 grams of protein. Some want higher or lower. Most want sweet, some want sweet.

So I'm giving you this most some because it starts mapping out what the future of this category is going to be. The beauty of a kind of young category is it starts with a few brands and then the -- and a few products. And then it starts expanding into -- you go after the most and then you start expanding different line extensions and even other some brands going after some of the other pieces. And so I think that some of the new -- I mean, I'll use ultra-filtered milk as an example. From a product standpoint, it is much thinner. It's much more like high-protein milk, whereas our product is much more of a milk shake. So our consumer loves that thicker detonate shake type experience because it fills them up. And so going to like a thinner product, there's not a great trade for a loyal Premier consumer.

However, there's an opportunity for that. And so I think that's how we're kind of looking at the innovation. But we feel like we're in a great place because as we look at -- there are a lot more of those people who are looking for great tasting, approachable positioning great nutritionals and that's part of our marketing campaign, that's part of getting out of the aisle that's part of all -- even from the backbone of some of our innovation strategy.

Our next question comes from Peter Grom from UBS.

Thanks, operator. Good morning, everyone. A lot of questions on the top line. And so maybe just some questions on profit. So Paul, I think you mentioned that the fourth quarter gross margin is going to be under significant pressure. Is there any way you can put some guardrails on that? And then I guess related, obviously, eating the year with some margin pressure here, and I know we'll get building last to '26 in a few months. But can you maybe just help us understand of these headwinds you're dealing with in the fourth quarter, what do you view as transitory versus what should linger as we look at.

Sure. So from a Q4 perspective, you're correct, we expect EBITDA margins to decline about 300 basis points versus a year ago. We do expect SG&A dollars to be lower. So it's significant leverage on SG&A greater than 300 basis points. So it's really gross margins that are declining from there. And the biggest pieces -- there are 2 biggest pieces, which are promo. So we're layering on, obviously, promo compared to a year ago, especially in club. So that is the biggest headwind, I guess, to last year. And then we are seeing some inflation on proteins and input cost. Proteins do step up from the third quarter, and it's a headwind to the fourth quarter for both shakes and powders.

And then one last piece, which is a lesser impact is that we do have some one-timers in the quarter on gross margin, which is related to the packaging redesign costs that we've called out previously, and then we are lapping some favorability of some nonrecurring costs. So that's about 100 basis point headwind. So again, promo and COGS are the biggest pieces. I called out in my prepared remarks that on whey protein in particular, which is the input cost on our powder business. For both Dymatize and Premier. We do expect that headwind to continue into fiscal '26. So we continue to expect that way proteins will be elevated. It will be a headwind to next year. And so we're looking at, obviously mitigating efforts on that.

And then really, again, not getting into '26 much at this point, but tariffs, I think, is the other piece as we go into next year that we've called out, and I mentioned it again in my prepared remarks that we do expect some cost headwinds from tariffs to impact us in fiscal '26. We won't be able to fully mitigate them by just changing suppliers or changing ingredients. So there will be some headwinds that we will work on. But we also have a number of opportunities, we think, to pull cost out of our products out of our supply chain. So that's a big effort for '26 that we're working on. And then I do expect we would see some G&A leverage as we continue to grow the top line. So those are kind of the bigger pieces as we think through '26.

Our next question comes from Matt Smith from Stifel.

Darcy, you talked about the competitive environment. Maybe in the more near term, can you provide more details about your expectations for the fall shelf reset -- and as the category enters this new wave of competition, how do you measure success from here from a market share perspective? And has the view of the required level of A&P for BellRing changed in this new -- in this more competitive environment.

We feel good about the fall resets, so we'll be continuing to expand distribution TDPs on Premier Protein, both like -- so single-serve. We're getting more expansion of single-serve than our core products as well as our innovation. So -- and I mentioned that temporary incremental pallet in club. So feel great about the fall resets that are coming up. So that was one piece.

The market share -- this is the beauty of a growing category and a low household penetration category. If you actually look at our market share over time, we've actually grown very well and had a pretty stable market share. And so I think that we expect, I think, that it is not -- our growth isn't predicated on increasing market share necessarily. We can actually be quite successful in just holding market share. So I think that, that is one piece. And then what was the third question?

About marketing spend.

Do you want to take that?

Sure. Yes. So Matt, we -- from a marketing spend perspective, we have called out previously that we would expect over time to increase our marketing spend from where it's been. As Darcy said, this year, we layered on promotional activity, but we do think that going forward, again, I don't think we're talking about big changes, but we would expect that we could lean a little bit further into marketing spend as a percent of sales. But mostly that should get offset as we get G&A leverage as well. But to answer your question, yes, I would think that our A&P spend would slowly go up over time.

Our next question comes from Jon Andersen from William Blair.

I had a question on innovation. I was wondering if you could talk a little bit more about Indulgent that line and whether -- how incremental you're seeing in that business in terms of attracting an additional occasion or occasions? And then also on Almondmilk, it may be too early, but how the brand -- the Premier brand is translating in it's kind of a different subsegment of the category? And then if I could just throw in a follow-up maybe for Paul. Any -- a lot of talk about competition, obviously, and investment levels and focus -- any thoughts on changes to kind of your capital allocation priorities going forward?

Okay. So I'll start. Indulgent. So first of all, I would say that -- that's the one we have the most history on right now because it launched earlier in the year, and it's a really strong performance. I think that we launched it first in mass and it did very well, 3 out of the 4 flavors are in the top third. We actually got the fourth item in there because of that success. And the success in mass also translated into expanding distribution into other places. So -- and we're continuing, as I just talked about, the TDP gains will be expanding Indulgent into kind of more the rest of mass as well as other food channels include -- and also got it into club as well, a club account as well.

So feel really good about that. Strong incrementality. You asked about the whole concept of Indulgent was that it would be incremental from like an occasion standpoint, and that is exactly -- the numbers are showing that. About half of the sales are actually driven by category expansion. So that is exactly what we want to see. I think the bonus was that we actually are getting some new consumers. The design of it was incremental occasions. So having your own consumers buy more for a different occasion, so that is happening. I said 50%. But I think what's nice is the bonus is that we're actually getting some incremental consumers as well who just see the concept and they resonate to the concept. So that feels really good.

On Almond, exactly what you said. It's just too early. We just launched, really, we only have it right now in Amazon. We were saw they just had a promotion earlier or last month, it was included in that saw some good trial there. And now we're rolling out into other food and mass customers in the fall. We've got a test in mass, et cetera. So too early to tell, but I would say that on e-com, it's actually -- we're having good pickup. It's a personal family favorite in my household. So that goes a long way.

And on capital allocation, I would say no real change to our priorities. We will continue to balance kind of debt pay downs on a revolver and share buybacks, opportunistic share buybacks using our free cash flow, our strong free cash flow to -- on those items. I think M&A is still more medium to long term. We continue to focus on organic growth. I would say not any significant real changes to our capital allocation approach as we go forward.

Our next question comes from Steve Powers from Deutsche Bank.

Not to take us backwards. But Darcy, as -- I think if I had told you 3 months ago that consumption would have ended at 19% for 3Q. I think you would have said that indicated momentum that would likely yield better than the high teens, low 20s consumption that you're now calling for in 4Q. So can you just be a little bit more precise as to what may have temporarily inflated 3Q? And then conversely, what may be dampening 4Q versus kind of your expectations 3 months ago? And then if I could, just looking forward, I just want to be really clear, because I've heard different things. I've heard it's too early for '26. I've heard it's too soon in the call. But then I've also heard more recently, you said 10% plus is your assumption. So coming out of 4Q, given the current momentum, are you saying that next year is supposed to be a 10-plus percent growth year? Or are you not sure about that?

Okay. So Steve, can you go back to the first question just around? So you're asking about the consumption of Q3 being 19% and then the expectation of Q4?

Right. Because your call coming into the quarter in 3Q was mid- to high teens consumption growth. You came in at the high end of that, which implies momentum that I think would have -- all else equal put you towards the top end of your range, that's now -- we've kind of ratcheted down towards the midpoint of the range. So just what may have temporarily inflated consumption in 3Q and/or what is dampening consumption relative to what your expected curve was 3 months ago?

Yes. So just -- I'll go back to the kind of puts and takes I talked about at the beginning. First of all, the Q3 consumption, I mean, it was slight. I mean we were a little bit on the high side, but it more -- it was less actually volume. It was more on the pricing side. So I kind of talked about maybe it's a benefit of a couple of million dollars. We -- the other piece that was on the positive side for Q4 is we gained that short-term pallet. We've got a couple of months benefit there. One was promoted. And then what offset what reverse is, and this is -- these are assumptions, but what reverses those 2 gains is that when we got that short-term club pallet, several other competitors also gained short-term space. And so we're assuming that this increases the competitive pressures and reverses the 2 gains that I talked about.

Now these are small pieces. These are minor. These are -- we're all talking about 2% up, 2% down. So it's just not that extreme. But again, those are the puts and takes. As we go through a quarter, we have 1 million puts and takes, but those are the keys.

Okay. Okay. And then can you just -- because I'm getting questions from a lot of people like on '26, are you saying you don't know? Or are you saying 10% plus?

Yes. We are in the middle of our planning process. What I said about 10% plus is that's our long-term algorithm. That's our goal.

Our next question comes from John Baumgartner from Mizuho Securities.

Darcy, in your remarks, you mentioned innovation and the appeal of ultra filter milk in ready-to-drink has been proven at scale at this point. There's more competitors coming in with that formula. You touched on it a few moments ago. But just to keep with that line of thinking, setting aside the viscosity element of it, are there specific demographics where you're seeing filter milk appeal more strongly? Are you seeing more new households coming into the category through filter milk relative to MPCs at this point? If you could just speak to how you segmentation and ready-to-drink going forward, aside from the loyal from your consumers that are out there and whether you would consider launching an ultra-filtered format yourself for Premier.

Yes, John. So we see a pretty even like again, we don't really filter -- we don't -- no pun intended. We don't look at things through ultra-filtered milk versus MPC, but I understand what you're asking. Interestingly enough, we've done a fair amount of research on it just recently. And consumers actually don't know what ultra-filtered milk or MPC is. Like ultimately, the source of protein is not a key driver for purchase. Brands are actually the key driver for purchase. So even loyal consumers of ultra-filtered milk products, they actually don't know that it's ultra-filtered milk. So the brands and the taste and texture, that's actually what drives and the macros or actually what drives but what drives consumption and purchase and trial.

But having said that, when we're looking at new people coming into the category and if you were to look at ultra-filtered milk versus MPC products, they're about even. And again, I think that goes to consumers aren't distinguishing between the 2, but what they're coming in on is what flavors resonate with me, what brands resonate with me, what macro levels resonate with me. And so I think that even some packaging formats resonate with me. So those are the decisions that consumers are making they're not looking at the pro type of proteins that actually the products are made in.

The question-and-answer session is now closed. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.