Welcome to BellRing Brands Second Quarter 2020 Earnings Conference Call and Webcast. Hosting the call today from BellRing Brands are Darcy Davenport, President and Chief Executive Officer; and Paul Rode, Chief Financial Officer. Today’s call is being recorded and will be available for replay, beginning at 1:30 p.m. Eastern time.

The dial-in number is 800-585-8367 and the passcode is 7392288. At this time, all participants have been placed in a listen-only mode. It is now my pleasure to turn the floor over to Jennifer Meyer, Investor Relations of BellRing Brands for introductions. You may begin..

Good morning, and thank you for joining us today for BellRing Brands’ second quarter fiscal 2020 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 afterward, we’ll have a brief question-and-answer session.

The press release that supports these remarks is posted on our website in both the Investor Relations and the SEC filings section at bellring.com. In addition, the release is 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. I want to start by acknowledging this unprecedented time and thanking all the BellRing employees. I’ve been blown away by the dedication, flexibility and focus our organization has exhibited during this stressful time.

I’m proud to say that protecting our employees has been our number one guiding priority. A special thanks to the frontline employees who work in our German plant and in our network of co-manufacturing and logistics partners. They’re invaluable to our success.

Last evening, we were pleased to report record sales of $258 million, up 19%, and adjusted EBITDA of $43 million. Performance exceeded our expectations, and I’m encouraged by the progress against all of our growth strategies.

Because of our loyal consumers, strong product offerings and stable supply chain, we are able to reaffirm our full year guidance. This morning, I will share some category observations, brand highlights, progress against our growth strategies, and end with our outlook.

I’d like to start with the broader category and the impact of COVID-19 on consumer behavior. During our second quarter, the category remained strong, up 6.5% as measured in Nielsen, while the liquid subcategory grew 11%. As with most categories, all convenient nutrition product forms experienced COVID-related pantry loading in March.

You’ve have likely seen the Nielsen data showing declines in April. We attribute the decline to pantry deloading, a reduction in on-the-go consumption and a channel shifting to online. Pantry deloading, which our research says is the majority of the April decline will soon end. However, we expect the other two dynamics to continue.

Since channel shifting is not a reduction in consumption, but rather a change in measurement from tracked to untracked, I will go directly to the on-the-go usage dynamics. To understand this, let me first share the category usage breakdown, focusing on ready-to-drink shakes.

Research says approximately 64% of shake consumption occurs at home and 14% is consumed at work or school. Given shelter-in-place orders, we believe these two usage occasions are both now occurring in the home and have grown. The remaining on-the-go occasions occur when traveling, commuting or at fitness centers in gyms.

We believe this on-the-go consumption has declined in April and will continue at a lower level, so long as shelter-in-place orders exist. However, we expect the long-term effect of COVID-19 to be positive for the category because of the increased trial gains through the stock-up period. Now to our brands.

Representing 80% of our portfolio, Premier Protein shakes consumption was up 33% in tracked channels, and double that in untracked. We experienced strong organic growth, as a result of increased marketing and promotions, including our national advertising campaigns, new products and the lapping of capacity constraints.

Premier Protein’s tracked consumption followed a similar path as the category with a spike in mid-March and a decline in April. As a reminder, Premier Protein’s distribution is fairly equally split across tracked and untracked channels.

So, equally as important, Premiere’s April performance in untracked channels was incredibly strong, growing over 50%, with eCommerce growing close to 200%. In summary, Premier Protein’s April consumption remained strong despite the COVID category headwind. Now to our growth strategy.

Our first national television advertising campaign launched in January, and across all media platforms generated over 1 billion impressions this quarter. We experienced significant increases in awareness, dollar share and website traffic. But most importantly, our household penetration surpassed our annual goal, increasing from 5.3% to 6.6%.

Based on these results, we see television as a key driver for future new households. Distribution continues to be a major driver. This quarter we added significant distribution across untracked channels including clubs, in both us and Canada, and eCommerce. Within tracked channels in the latest 13 weeks, we are growing 79% in food and 84% in drugs.

We expect further distribution gains in the back half of the year. Our new products are also performing well. Café Latte is exceeding our expectations and is now our number two fastest selling flavor. Protein with Oats is also off to a great start, performing in the top 40% of the category where it is sold. Now, to our smaller brands.

Dymatize’s domestic business had a strong quarter, up 13%, led by eCommerce. However, both Dymatize and PowerBar’s international businesses, which represent 7% of BellRing, suffered as a result of COVID, toward the end of the quarter. We expect these declines to continue through Q3 until stores reopen.

I was particularly pleased with our performance of our supply chain this quarter. Even with the unexpected demand spikes and overloaded logistics networks, our supply chain executed best-in-class service. Our shake capacity expansion plans remain on track, and we continue to have inventory flexibility to execute our growth plans.

Now, I’d like to come back to our outlook. We exceeded our expectations for our first two quarters and have strong momentum against our growth strategies. In summary, better-than-expected, Premier Protein performance is offsetting softness on our international businesses, which puts us in a good position to reaffirm our full year guidance.

I’m incredibly proud of our Company. Through all of this volatility and uncertainty, our Company, our brand promise, and our business proposition has never been stronger. I will now turn the call over to Paul..

Thanks, Darcy, and good morning, everyone. As Darcy mentioned in her remarks, the second quarter exceeded our expectations. Net sales grew 19% to $258 million, and gross profit increased 11.6%. Adjusted EBITDA was $43 million, down 12.5%, which reflects our planned incremental marketing and promotional investments behind Premier Protein.

Our overall net sales growth was driven by Premier Protein with the net sales and volume increasing 26% and 27%, respectively. Premier Protein saw great growth, driven by distribution gains in club, FDM and eCommerce, and benefited from higher promotional and marketing activity when compared to the prior year.

In addition, pantry loading related to COVID contributed to the growth for the brand in the quarter. Dymatize net sales declined 2%. Strong eCommerce growth in excess of 50% as consumers shifted purchases online was outweighed by declines for international and the club channel as we lap prior year promotions.

PowerBar net sales and volumes declined 20% and 27%, respectively with lower international volumes and the impacts from our portfolio optimization strategy in North America. Turning back to consolidation results. Gross profit increased 12% this quarter with gross margin declining 220 basis points to 34.3%.

As anticipated, the majority of gross margin decline related to higher input costs, primarily milk-based proteins, which we expect to continue through the second half. Higher levels of trade promotions also weighed on gross margins, which was partially offset by lapping the prior-year shake price increases.

SG&A expenses as a percentage of net sales increased 330 basis points to 18.4%. This increase was driven by strategic increase in marketing spend of nearly $10 million, incremental public company cost, and approximately $2 million in accounts receivable credit reserves.

We expect SG&A to be lower in the second half as we lap the impact of the second quarter marketing campaign. Adjusted EBITDA for the quarter was $43.4 million a decrease of 12.5%, with adjusted EBITDA margin of 16.9% Before reviewing our outlook, I would like to make a few comments on cash flow and liquidity.

We saw an increase in net working capital in the first half of the year, which was largely caused by COVID and timing-related items on vendor payment and marketing spend. COVID-19 caused a spike in sales in March, which resulted in higher than expected customer receivables.

We expect the operating cash flow to improve in the second half of fiscal 2020 when compared to the first half as some of the working capital timing reversed. In fact, in April alone, we generated approximately $25 million in cash. Regarding liquidity, we ended the quarter with approximately $77 million of cash on hand.

As a precautionary measure to preserve flexibility in light of the uncertainty resulting from COVID-19, we borrowed $65 million. We believe we have sufficient liquidity to satisfy our business needs. As of March 31, net debt was $735 million and net leverage was 3.5 times.

Our net leverage target remains 3 times and we plan to reach that in fiscal 2021. Turning to our outlook. We continue to expect fiscal year 2020 net sales to be $1.0 billion to $1.05 billion, and adjusted EBITDA of $192 million to $202 million.

The first half 2020 came in stronger than expected, largely resulting from COVID-related pantry loading for Premier Protein, which we expect to reverse in the third quarter. I want to emphasize that while COVID has not changed our full year expected results, it has changed the quarterly guidance.

We expect to favor the second half over the first and the pull-forward from Q3 to Q2 reverse that. Likewise, within the second half, we expect the Q3 to favor Q4 and for the same reason, that too has reversed.

Despite the lingering impacts of COVID, we expect the second half to deliver strong double-digit top-line growth, driven by growth for Premiere Protein, and we remain confident in our full year guidance. With that, I’d like to turn the call back over to the operator..

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

Darcy, I wanted to start off maybe with some of your comments on household penetration. BellRing still has among the lowest helpful penetrations of really almost all the brands that we cover, and yet obviously the highest repeat rate, I think even in the nutritional shake category.

But, I’m trying to get a sense of -- it’s very early and it’s probably very hard to really get too much out of the actual data at this point.

But maybe any anecdotal thoughts or evidence around what you’re seeing in terms of shopper behavior from those folks that are sort of new to the brand and likelihood that some of those remain sort of sticky to the brand going forward, given the repeat rates? And sort of what you can do, if anything differently, to make sure you’re really converting those people? And then, I just got a follow-up..

Sure. Yes, you’re exactly right. Our repeat and loyalty is among the highest in the category. And what we have seen historically, and we expect to continue to see is when we get people to try because of the 50% repeat, they will repeat.

What we often see is, if they try in smaller pack sizes, for instance, in food, drug, Walmart, et cetera, then what happens, they start consuming the product every day, and then they want to start buying bigger packs.

And so, we’ve often seen this sort of cycle with our channels, as we’ve -- as our consumers become kind of adaptive into the franchise. So, we expect to see that same phenomenon with these new buyers that are entering in recently..

Yes. Thanks for that.

And then, there’s been some discussion that in addition to some of the recent shopper behavior shifts that you mentioned, like the on-the-go piece and all of that, which I certainly understand that maybe shopper behavior, even in the store during the sort of panic buying phase has been a little different where consumers have been going in, shopping the center of the store, and then getting out as quickly as they can and maybe bypassing some other areas that they might otherwise have gone to, like the pharmacy section and what not, where a lot of your shakes are sold.

I don’t know if you’re seeing much evidence of that.

And if so, does any of that help you ultimately when all this passes in terms of debate and argument with retailers about getting your product more into the mainstream arm?.

Yes. It’s a great question. And obviously, with everyone else, we -- this is a dynamic situation. We are seeing shopping trips down as everyone is, and we’re seeing rings up. However, what’s interesting, we see that as a factor. We just don’t see the traffic being the most important, most critical factor.

What we -- one of the key things that we looked at was different retailers shelve convenient nutrition products in different places.

So, in the past couple of years, they -- several retailers have shelved some nutrition bars in the granola aisle and those -- and whether it’s placed in a granola aisle or in the pharmacy, we’re still seeing the same declines in April.

So that to me tells me it’s really less about traffic in certain parts of the stores and more about the on-the-go usage..

Thanks so much..

Yes. Thank you..

Your next question is from Chris Growe with Stifel..

Hi, good morning..

Good morning, Chris..

Good morning. I hope you’re well. Thank you. I just wanted to ask a quick question if I could, just to better understand the quarter flow there.

I guess, as I’m thinking about the differences between consumption and shipments in the quarter, do you foresee them in the third quarter, like a larger inventory kind of restocking occurring there? How does it interact with the fact that the consumers pantry deloading as well.

So, I’m just trying to get a better sense of how Q3 plays, I guess, relative to Q4 and how that retail destocking Q3..

Yes. We definitely think that the second quarter pantry loading for -- primarily for Premier will largely deload from our retailers in the third quarter. That’s our expectation..

Say that again, Paul.

Is there inventory reloading in the third quarter?.

Do you mean at all -- yes. So, we….

At retail..

Yes. We look at two pieces, right, that retail we believe -- our customers will deload from some of the inventory that they bought late in March, because obviously the consumption pull-through hasn’t been quite as strong in April, as Darcy alluded to, until we see the other side of that, the deload.

I think, from a consumer perspective, I think there’s been some deloading at the kind of pantry level. But, we’re starting to see that I think more stabilize.

I don’t know, Darcy, if you want to add on that at all?.

Yes. I think that we saw the spike -- the consumer spike in the middle of March. And then, many of our retailers then replenished. So, they took in big orders toward the end of March. And so, many of our retailers had higher-than-normal inventories, at the end of March.

And that’s why we said that there’s going to be kind of a reversal between Q3 and Q2..

Okay. Thank you for that. Makes sense. And then, just a quick question for you on your -- just it sounds like that supply chain operated very well. It’s not your supply chain, or to say, your -- the manufacturing is not yours, if you will, it sounds like third parties.

Are there incremental costs during this kind of environment that you have to bear during this time? Just trying to get a sense of like how that may affect the Q2 and in fact how that could affect the business going forward?.

They are not incremental costs. We did experience some slightly higher transportation costs during kind of that height toward the end of March. But, it was nominal, and we don’t expect any further increase in cost..

And you had no capacity issues in the quarter, you don’t foresee them, is that fair to say?.

Happy to say, we did not have capacity issues..

Okay, great. Thanks so much for your time..

Thank you..

Your next question is from Ken Goldman with JPMorgan..

Hi. Good morning. Thank you, everybody. Two for me. First, I wanted to ask, Darcy, are you able to take advantage at all of lower dairy costs? I know there’s some lag obviously between when you can buy and when the costs are.

But, I’m just curious if there’s -- if it’s possible for you to sort of help us out understand in terms of the timing and the degree to which this might be able to help you in the back half of the year, if at all?.

I am actually going to let Paul answer that..

Yes, thanks. So, you’re right. We’ve seen dairy prices drop from -- we were expecting them to increase throughout the rest of the year and into next year. And with milk prices coming down because of COVID -- I mean that does put pressure on protein prices.

I will say that while the protein prices are indexed somewhat to not that dry milk, it’s not always completely in sync. And there are some times -- supply and demand within the milk proteins as well. So, it’s not always going to fully track milk, and we’re largely seeing that.

But, as far as our business and what we’ve baked into our guidance, we baked in second half that still has an increased protein cost as we cover out. I think, the opportunity really is more as we look into next year, where if protein prices do come down or don’t go up at the level that we expected, that will help our -- as we get into next year..

Okay. That’s clear. And then, my follow-up is, I know it’s hard to know these numbers and I know we’re in a very uncertain time, but it does seem like pantry loading was a big effect. And obviously you talked about the fact that there’s some inventory at retail that maybe has to unwind.

Is there any help you can give us in terms of quantifying how much you expect shipments to lag consumption in the third quarter? Even just sort of the rough justice would be very helpful, as we think about modeling..

Yes. So, I’ll take that one. As we look at -- as we look at our second quarter, we were largely heading on track with our expectations of high-single-digit, low-double-digit top-line growth. We ended up obviously around 19%. And so, from our perspective, that’s gap to COVID -- that’s the benefit that we got from COVID this quarter.

And we’re thinking is that that really largely [indiscernible] as we get into the third quarter. So, our retailers will deload..

Okay.

So, really we should just look at that gap in that period of time, and there’s nothing else beyond that that you think we should be factoring in?.

Yes. I think from a Premier Protein perspective, as I was thinking about the business, I was just focused on from Q3 or from -- yes, through Q3 and Q2.

For our international businesses, Dymatize and PowerBar, which are less than 10% of our total revenue due to the headwinds from that business in the third quarter, which will also impact our net sales as we think about Q3.

As we get into Q4, I think we feel that North America business will largely be tracking normally again and the international business will hopefully be recovering by then, but it’s probably slower recovery for them..

Your next question is from Pamela Kaufman with Morgan Stanley..

Hi. Good morning. I had a question on eCommerce growth. It was obviously very strong during the quarter. I think, you mentioned it was up over 200%.

Have you seen similar growth rates continue into April and May, and how does this compare to the pre-COVID trend?.

Yes, great question. So, during the quarter, we saw about 150% increase, and then, actually in April, we saw it go up to 200%. So, we’re actually seeing eCommerce growth increase over time. We -- historically, we’ve had our eCommerce business represent kind of high single -- mid-single-digits within our portfolio. It’s now about 10.

So, it is becoming a bigger part of our portfolio. And, I think, and my personal feeling is that we’ve known this trend has been happening. I think, it’s not a new trend. Obviously, COVID is accelerating that trend. And I think that it will be here to stay. I think, this is one of the lasting impacts of COVID after we are well-past the vaccine.

I think people are going to start getting used to a new way of shopping. And I think it’ll be -- it’ll continue being a bigger part of our business..

And then, within the tracked channel data, it seems that there’s been some uptick in private label share gains in the recent period.

Are you seeing any change in private label competition? And is there any concern about potential down-trading in the category?.

Yes. For us, private label in convenient nutrition is still relatively small. So, it’s still single digits. It is increasing slightly. So, it’s about middle single digits. Now, it’s about up 7%, 8%. In liquids, it’s about 8% or 9%. So, it’s increasing, but still relatively small portion of the category.

There are certain retailers that are heavy in private label, but most, actually don’t have private label within convenient nutrition. We’re watching it, especially given recession discussions. And -- but, what we’ve found is even when there is a private label entrance, it doesn’t affect our business very much.

I think, it goes back to our strong consumer and the loyalty and the repeat that we have, as well as our flavor strategy. When you have the private label, usually what you have is chocolate and vanilla, and in bars, chocolate peanut butter, but you don’t have that tremendous variety that our consumers expect from us..

Your next question is from Bill Chappell with SunTrust..

Just one question -- or I guess, first question on the guidance. I appreciate you keeping giving guidance, that’s a rarity right now. But, just trying to -- I understand that from a quarterly basis, the stock-up and then the destock kind of washes out in 2Q and 3Q.

But, where are we kind of offsetting that 14% of people who consume on-the-go, which is obviously going to be tamped down? Is that being offset by just new users that have come in to the market in the first six months or if there’s something else to kind of keep you maintaining guidance for the full year?.

Yes. So, the information I gave you was from a category perspective. Premiere is slightly different. So, if you think, as I talked in my prepared remarks, about 64% of the liquid category is consumed at home. Well, that’s actually 75% for Premier Protein. So, already, we have more consumption at home. But, you’re exactly right.

And what we’re seeing based on some surveys that we did is, there is actually -- consumers at home are actually consuming more. And so, what you have is, you have those people, those -- 80% or so, consuming more, and then -- and so that is -- and you have new consumers, and so that is slightly offsetting the on-the-go.

The other piece is, the on-the-go, the way we look at it is you have the stocking -- the deloading which we believe is close to over. Then, you have the on-the-go, which we think will last through the shelter-in-place. And then, you have kind of this ongoing on -- the conversion to eCommerce.

But we -- so, we see it really happening for the next couple of months. But, it’s not affecting Premier Protein as much as the overall category. I think, that’s an important point..

And one question on Dymatize, just to kind of understand. I mean, we are seeing, I guess Germany and some other countries started to open up, probably even faster than the U.S. So, didn’t know -- just trying to understand kind of how that plays out over the next few months..

Yes. Our assumptions are fairly conservative on that front. I would even say that from a Germany standpoint and an EU perspective, we assumed that the EU wasn’t going to open up as fast as it looks like it’s going to. But, from a Dymatize standpoint, as you all know, we were looking at a single-digit growth by the end of the year.

And unfortunately, due to the international business, we think it’s going to be a single-digit decline for the year. But, I do think it’s temporary and it’s -- and we expect that by Q4, if not before, that it will [indiscernible]..

Your next question is from Rob Dickerson with Jefferies..

I guess, kind of the direct question is on the deload for the past month or so, I guess, the kind of main question is what about on-the-go and the category and [Technical Difficult] look at the data trend. The data trends, let’s just say out there is really substantial, it’s pretty material at least in tracked channels.

And it doesn’t sound like it would definitely be that much different to non-tracked channels.

So, is it fair to say then if you think that deload is kind of coming to an end or it’s getting better that over the next couple months, when you’re in Q3 that we should just see that decline year-over-year hopefully get less bad as consumers deload and then whatever, 75% consumers that are consuming more at home, in theory that would be hopefully also helping to offset the decline in away from home or on-the-go?.

That is exactly how we’re thinking about it. .

And then, I guess, on the promotional side, kind of last quarter’s call and kind of ahead of COVID related shifts, kind of the conversation was fairly set around promotional timing. And sometimes that has to do with innovation, sometimes it doesn’t.

Are there -- have you sensed changes in the promotional calendar now from even a couple of months ago? And maybe how you think about kind of overall A&P spend as consumers are -- I mean, as they will be deloading and then also as they’re home watching television and consuming media in various ways? Thanks..

Yes. There are two pieces of that. One is any changes to our promotional calendar? And our promotional calendar is essentially the same as when we previously communicated. And then, the question about A&P spend and any changes there. Yes. I mean, we actually see this as an opportunity. We’ve had success with TV. There are more people at home watching TV.

And so, we’re actually on television again right now. And we are going to continue to look at that for the remainder of the year. And that was -- I will say that that was largely planned. And so, what we did is we moved it up a little bit, but for the most part it was largely planned and baked into our guidance..

All right, great. Thanks, Darcy..

Thank you..

Your next question is from David Palmer with Evercore ISI..

Thanks. Actually, just to follow up first on, on that point about advertising and promotion, and even your innovation coming into this year, you had planned to spend up a decent amount.

If you had a crystal ball, maybe you wouldn’t have done that some of the spending or at least to that degree because you get the essentially free trial from COVID itself.

So, how are you thinking about the return on investment, and how much of that money is already spent? And also, just how -- given the fact that COVID does change the game, perhaps you want to lean into digital channels more or something else.

How are you adjusting how you go to market, promotion, marketing, and then what your retailers are essentially allowing you to do through this year?.

Sure. So, the ROI from an advertising standpoint, I mean, we started -- our plan was to focus our advertising during the New Year new you, when the most people enter into the category. I still think that was a sound decision. And I look at our metrics, and they are very positive. So, I think that as a big success.

As far as putting more in digital, our plan already has a very good combination of kind of linear TV as well as digital. So, the one area that we are pivoting is like many other CPG companies, we’re spending more time on social, eCommerce we’re pushing. But again -- and we’re adjusting our communication.

So, we’re adjusting on how we communicate to consumers, for instance, focusing more on at-home. And so -- an example of this is, we know that recipes resonate with our consumer well -- when we’re talking about on social. And so, those are the types of things that we want to get consumers more of.

Was there another question?.

No.

I mean, well, the only -- if there’s a retailer angle about how, just basically getting done what you wanted to get done, how that it might be changing with retailers?.

Yes. So, from a promotional standpoint, we have seen some slight delays in promotions and slight delays on resets. But we so far have not have not seen any canceled resets. And so, we are -- and actually, we’ve seen some opportunity here where we’ve actually executed incremental promotions with certain retailers.

So, it’s definitely a dynamic situation, but we have not seen a tremendous -- we haven’t seen cancellations, but rather movements..

And then, the second quick one is, we’ve heard there’s tetra pack shortages out there. Is that something you’re seeing in the marketplace? And, given the fact that you’re a scale player, I’m wondering if that might even be an opportunity where there might be players that don’t have enough supply out there? And I’ll pass it on. Thanks..

Yes. We are having no problems with supply on any of our packaging or ingredients..

Your next question is from Brian Holland with D.A. Davidson..

I wanted to kind of probe on the composition of your consumer, given that it’s such a large percentage, consuming the product at home. So, maybe the first question is -- and maybe this answers the question.

But, obviously, we’re seeing what’s happening in the tracked channels that gave you, but mentioned the 200% growth of consumption in eCommerce, 50% overall in non-tracked channels, so obviously club maybe doing a little bit softer than that.

But, is there a difference between the consumer that’s going into the club store buying your product and the track channel? So, maybe the folks who are consuming the product at home are buying more in club and the folks who are on-the-go are buying with the other channel.

Is that maybe the disconnect there?.

So, when you break down -- when you look at tracked -- I guess I -- although we -- the way I described it was tracked versus untracked, when you look at the channels for Premiere, what you start seeing is actually the channels and the retailers that are having success with Premiere are mostly those who have expanded distribution of Premiere or are supporting it with promotions.

So -- and that goes both on tracked as well as untracked. For instance, in April, food for Premier was up 31%, drug was up 18%. So, I think that it becomes more about the retailers who have -- retailers and the channels who have kind of gotten behind Premier and expanded distribution, and they’re able to offset the COVID headwinds..

And then, I just -- going into this, I thought the current dynamic might set up such that there would be pent-up demand as folks look to migrate back towards convenient nutrition. We’re hearing about more kind of indulgent type purchases spiking in this backdrop. So, folks maybe need to reduce or just kind of get back into a normal habit.

But it sounds like it’s the percentage of your core customer -- or maybe there is a lower percentage of your core customer that’s actually impacted by the current dynamic than maybe I would have thought.

So, is pent-up demand, is that something that is a real opportunity for you or maybe not as much if you’re -- if a few of your of your core consumers are really impacted by what’s happening right now, as far as the way they consume?.

No, I think that there will be pent-up demand. I think that -- so, if you look at the different need states within convenient nutrition, you see a couple areas, you see some areas like adult nutrition, which have done very well during this COVID time.

Obviously, they target an older individual, which may feel vulnerable during this time, specifically in the pandemic. So, they are buying a fair amount of products. Then, you’ve got the kind of diet side, which actually are declining, and mainly because consumers are at home stress eating, and they’re with their families.

Then, you’ve got the sports nutrition side of things that gyms are closed that aren’t more on-the-go. And so, those are suffering a little bit. And you think of those second two specifically, that absolutely will rebound. And I would expect will rebound in a bigger way.

And I think it’ll be great for the category, because I think you’ll have more people, more people coming to kind of the pharmacy section. And what’s unique about our brand is yes, we kind of live in this everyday nutrition need state, but we access and we -- all of the other needs states, so we will get our fair share..

I appreciate the insight. Best of luck..

Thank you..

Your next question is from Ken Zaslow with Bank of Montreal..

Just one question.

When I think about the longer term impact of COVID-19 and you get your business back, will your business be better, neutral or worse off, and why or why not?.

I believe that it’ll be better. I believe that especially during this -- there are two pieces. The first is, during this stock-up period, we know we got new households. Not only did we hear that from the survey, we saw it in the household trend.

And then, so I believe that the up -- I think, the down is temporary; and the up, actually, we got a new trial, which will then get those consumers to repeat and have a lifelong consumer. The second piece is, I do believe that after this, there is going to be pent up demand. And I think we’re going to have more traffic coming into our category..

So, would it be fair to say that your longer term growth rate, your top line sales growth could be up another 100 to 200 basis points for -- beyond 2020, 2021, 2022 and beyond? Is that a reasonable way of thinking about it? And at the same time, your cost structure does not get impacted given how you guys go to market?.

I don’t think I’m at this position -- I don’t think I’m in a position right now to really look at that long term. Right now, we -- I do believe there is upside, but we’re in the thick of it right now, Ken. So, I haven’t quite quantified it to really get a sense of how big the upside could be..

I really appreciate it. Stay safe..

Thanks, Ken. You too..

Your next question is from John Baumgartner with Wells Fargo..

Good morning. Thanks for the question..

Good morning..

Darcy, I wanted to ask big picture about the innovation pipeline. I mean, there’s an increasing amount of optionality across this category in terms of specialized products.

And I guess, given that new products are a part of your longer term growth plan, can you speak a little bit to that pipeline? How much activity you have there at this point, given the dislocations? And then, how you’re anticipating any net positives or net delays in that activity, resulting from this COVID environment? Thank you..

Thanks, John. Our innovation pipeline is unchanged from the COVID environment. I’m continuing to be so impressed by our R&D team and their creativity on how they’re getting things done. We still have that kind of skeleton crew in our lab, and they’re moving projects along.

Bigger picture on the innovation pipeline and how we’re looking at it? You can look at our successful launches this year around Café Latte where it had -- it’s the first time where we had a benefit, a benefit to our shakes with the added benefit of caffeine. So, we’re looking at that as an interesting way to go.

I think, where we want to take it is -- we want to take innovation is within liquids, is looking at incremental consumers and incremental needs space and incremental occasions. So, we will continue to launch products that go in all three of those directions..

Thank you..

Thank you..

Your next question is from Jason English with Goldman Sachs..

Hey. Good morning, folks. Thank you for taking my question..

Good morning, Jason..

I wanted to congrats, the idea of the notion of this pent-up demand and when we all emerge from quarantine and shelter in home, we’re going to have to have sort of a kick start, another new year’s resolution, if you will.

It’s an interesting notion and certainly, personally it resonates with me as I spent way too much time sitting behind a computer screen here at home right now and snacking too much.

Have you approached the retailers of this sort of concept yet? And is there any inertia underway at the tray right now to prepare for any sort of programming activation around that concept?.

To be honest, I think the retailers are just trying to get labor and get through this crisis. However, -- and making sure that they have resets on time and promotions on time. However, I think, a big time for the category -- the two biggest times for us and the category really is around New Year new you, as well as back-to-school.

So, I see the back-to-school timing as a very interesting time to reengage consumers. And most of the time the retailers will make kind of a big splash during that period of time..

That’s interesting.

Why do you think back-to-school resonates so much? I would have thought you would have said, the [indiscernible] kickoff this summer, like we see so many with other nutrition, weight management products?.

Yes. I think, it has to do with just the higher traffic in the stores. And because they’re really -- what’s unique about this category is with the exception of November and December being about a 9D index, and Jan, Feb, March being a higher index, for the most part, consumption is pretty stable.

So, then, it becomes, okay, when do you have the eyeballs in the store where you can get people’s attention. And I think that’s where the back-to-school comes..

There are no further questions at this time. Ladies and gentlemen, thank you for participating. This concludes today’s conference call and webcast. You may now disconnect..