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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 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 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 are 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 RTD shakes and the 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 RTDs, 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, club. 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 focus 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 1/3 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 the 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 hit 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 buy rate 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 improves 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 aisle 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 indulgence 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's performance to date. Momentum continues to build, and it recently gained distribution in club. The second line, Almondmilkshakes, our first nondairy protein offering launched in late June. These shakes made with real almond milk deliver great-tasting nutrition without artificial colors, flavors or sweeteners. Early results are promising and mark 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 sells 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 and 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 trade inventory 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 costs 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 is 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 our powders and shakes with headwinds from elevated whey, 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 a 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 '26 input costs. As you may recall, we previously discussed potential headwinds to our fiscal '26 cost of goods sold with the higher tariffs impacting our dairy protein sourced from New

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

Darcy, 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, sure. 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 you're 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 later. 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 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, Darcy, 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, if there's something else in there.

Sure. Well, 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 pallet. 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 it 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 upper end.

And then on your second question regarding our supplemental schedule, Slide 9. So yes, you're correct. We expected consumption to slightly outpace 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 deload in Q4. We think it's purely timing.

Our next question comes from David Palmer from Evercore ISI.

Evercore ISI Institutional Equities, Research Division 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, the -- 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 -- 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 in 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, 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 pallet, several other competitors also gained 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 carts 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 happen 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, our 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 another one kind of a different way. With industry capacity in a better spot and that maybe 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 as some of these other brands launch, they would probably have some heavy promo efforts behind that and if you have several launching maybe at 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. So 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. Yasmine Marani Deswandhy 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 still had some out of stocks that we were lapping. This -- we then added promotion. We started with club promotions, then we added FDM promotion. This is the first year we added back 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, 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 are 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 the questions, I think, on the numbers have sort of been addressed to the extent that they can. So maybe just asking, obviously, there's 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 question. Okay. Value proposition, why do consumers love Premier? Approachable positioning, fantastic taste and flavors and great nutritionals. It's like the trifecta. A key part of fantastic taste is this kind of thicker milkshake decadent consistency and a wide variety of flavors. So consumers are drinking this product, our products every day. They get tired of chocolate and vanilla. They want to try root beer 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 thick decadent 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. And 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 there -- 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 milkshake. So our consumer loves that thicker decadent and shake type experience because it fills them up. And so going to like a thinner product is 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 even some -- the backbone of some of our innovation strategy.

Our next question comes from Peter Grom from UBS.

A lot of questions on the top line. 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, exiting the year with some margin pressure here, and I know we'll get building blocks 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 ahead?

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 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 our input costs. 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 inflation 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 whey proteins will be elevated and 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 -- or 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 is one piece. And then what was the third question?

On marketing spend.

Do you want to take that?

Sure. Yes. So Matt, yes, 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 that -- 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 indulgence, that line and whether -- how incremental you're seeing 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 kind of a different subsegment of the category. And then if I could just throw in a follow-up maybe for Paul. Any 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. Indulgence. 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 in Q4, we'll be expanding indulgence into kind of more the rest of mass as well as other food channels 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 indulgence 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 the -- 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 paydowns on our 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. So 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, 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, 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 to 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 4Q consumption relative to what your expected curve was 3 months ago?

Yes. So I'll 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 more -- it was less actually volume. It was more on the pricing side. So I kind of -- you 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 got a couple of months benefit there. one was promoted. And then what offset what reverses -- 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 are 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-filtered 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 filtered milk appeal more strongly? Are you seeing more new households coming into the category through filtered milk relative to MPCs at this point? If you could just speak to how you view segmentation in ready-to-drink going forward aside from the loyal premier 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 are 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 type of protein that actually the products are made in.