Welcome to BellRing Brands Second Quarter 2022 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 800-934-7879. No passcode is required. 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 2022 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. .

increasing household penetration, expanding distribution, launching innovation, expanding internationally and, when appropriate, M&A.

Since our IPO, we have made such great progress against each one of these organic strategies that we have outpaced our shake capacity, as well as the capacity in the North American aseptic shake co-manufacturing network.

As a result, we are dramatically accelerating our multiyear capacity expansion plan that will support our company's long-term strategy. You saw last night, we raised our outlook for the year. Our first half results, combined with increased confidence in our shake supply chain, drove this increase.

We feel confident in our ability to deliver our second half results. And as our capacity constraints begin to ease over the next several quarters, we expect to resume our historical shake volume growth rates.

Our co-manufacturing partners are producing at the levels we need to deliver the year, and our planned production is expected to increase every quarter through the next several years. This planned expansion will return unit volume growth to double digits in fiscal 2023.

However, as anticipated, for the balance of fiscal '22, we will see a decline in volume compared to a year ago as we rebuild inventory. Remember, in the back half of last year, we drew down inventory to an unsustainable level to satisfy the step-up -- step change in demand.

I'm highlighting this because the underlying growth of the category and the company's unit volume growth will continue to diverge for the next two quarters. We have a great growth story that is currently constrained by our capacity. We feel good about our progress this year.

And while certainly not finished with our planning process, we expect that '22 back-half revenue and EBITDA run rate is a reasonable proxy for 2023. Now, turning to Q2 category and brand highlights.

The convenient nutrition category continues to see strong growth, with ready-to-drink beverages and ready-to-mix powders, both growing dollars 13% versus a year ago. Even though, most major competitors have taken price, volumes continue to be strong, with RTD ounces growing 8%.

Premier Protein continues to demonstrate tremendous strength, despite our need to pull back promotion, marketing and reduce our SKUs in order to dampen demand. Premier Protein repeat rates and velocities have held steady, demonstrating our high consumer loyalty.

Our trailing 52-week consumption is up 20%, which is on pace with category growth, despite the recent six months of capacity constraints. Impressively, Premier Protein's Q2 shake consumption was only down 2%, even though we lapped significant New Year promotions and strong advertising support in the year ago period.

Retailers have largely held our shelf space, through this period of lower supply, given our category-leading velocities. We saw a brief sequential decline in shake TDPs this quarter, as retailers work through remaining inventory of the temporarily discontinued Tetra SKUs.

Since then, our TDPs have stabilized, and we expect them to remain at these levels for the balance of the year, until we begin building TDPs again in fiscal '23. I continue to be impressed by the strength and the resilience of the Premier Protein brand.

Dymatize had another terrific quarter, with US consumption up 46% across tracked and untracked channels. All key channels saw double-digit growth and brand velocities remain strong. Our newest Dymatize ISO100 flavors, Dunkin', Cappuccino and Mocha Latte, drove excitement and velocities for the brand.

Pebbles and Dunkin' together, are driving nearly half of Dymatize's growth. I'm encouraged by our progress so far this year. New capacity is coming along as expected, and we are confident the brand will reaccelerate when we are fully in stock. Dymatize is on fire and appealing to mainstream athletes.

We have successfully taken price on both businesses to offset commodity increases and seen literally elasticity to date. We have two high-growth, complementary brands that have strong mainstream appeal and significant upside. All in all, we feel confident about our long-term outlook and the building blocks we have in place to get there.

Thank you for your time and support. I look forward to updating you on our progress next quarter. I'll now turn the call over to Paul..

Thanks, Darcy, and good morning, everyone. Our second quarter financial results were strong, with sales of $315 million and adjusted EBITDA of $51 million. Net sales grew 12% over prior year and for the second quarter in a row, were led by Dymatize, which was up 55%, while Premier Protein grew 7%.

Adjusted EBITDA was up 21% over prior year, with margin of 16.1%. Premier Protein net sales were driven by higher average net selling prices, reflecting reduced promotional activity and prior year price increases. Recall that while we face capacity constraints, we have temporarily reduced tetra shake SKUs on promotion and marketing.

This resulted in expected volume declines for Premier Protein in the quarter. Dymatize net sales outpaced volume growth of 25%, benefiting from higher average net selling prices, which reflected October price increases and a favorable mix. Strong velocities and distribution gains drove volume growth.

Gross profit of $87 million was flat to last year, with a decrease in gross profit margin to 27.6%. The margin decline resulted from higher dairy protein costs, increased freight and higher than expected logistics inefficiencies, which were partially mitigated by higher net selling prices.

We saw improvements on logistics cost in the latter part of the quarter, which continued into the third quarter as inventories were better balanced across the network. We estimate these inefficiencies were roughly a 200 basis point drag on the second quarter gross margin.

SG&A expenses of $49 million included $10 million of separation costs related to the spin-off from Post. Prior year SG&A expenses included $0.8 million of restructuring and facility closure costs. Both items were treated as adjustments for non-GAAP measures.

Excluding these items, SG&A decreased $9 million and was favorable 460 basis points as a percentage of sales, driven primarily by reduced marketing. We generated $27 million in cash flow from operations in the second quarter. We expect working capital increases in the second half as we rebuild our RTD shake inventory levels.

Before outlining our updated guidance for 2022, I want to review the changes to our capital structure that went into effect upon closing of the spin-off from Post. On March 10th, Post distributed 78 million shares of BellRing common stock to Post shareholders. Our share count has now increased to 136 million shares outstanding.

Post retained 20% of its interest in BellRing, which translates to 19 million shares or 14% of our shares outstanding. At the time of the distribution, BellRing paid $2.97 per share to the legacy BellRing shareholders, which included Post, for a total cash outlay of $405 million.

In connection with the close of the spin-off, we issued $840 million of new 7% senior notes due March 2030 and borrowed $109 million under our new revolving credit facility. The combined new debt of $949 million was used to pay off the entire legacy $520 million term loan, fund the $405 million share repayment and pay transaction-related fees.

As of March 31, net debt was $879 million. Net leverage was 3.6 times, down from the pro forma spin-off closing target of four times. Turning to our outlook. We raised our fiscal 2022 guidance for net sales of $1.39 billion to $1.43 billion and adjusted EBITDA of $258 million to $268 million.

Compared to prior year, our updated guidance implies top line growth in the second half of 13% to 18% and EBITDA growth of 12% to 20%. As indicated last quarter, we expect sequential sales growth in Q3 and Q4, reflecting the incremental pricing actions and new capacity.

For Premier Protein, we expect second half net sales growth to come from pricing actions, offset partially by lower volumes. As Darcy mentioned, in the second half of fiscal 2021, we saw significant inventory reductions of shakes, as shipments outpaced production driven by strong category and brand growth.

This is an expected headwind to shake volumes in the second half, with the third quarter being the toughest volume comparable against prior year. We expect increases in second half margins as recent pricing actions flow through and offset inflation. We expect inflation to step up each quarter in the second half, driven primarily by dairy proteins.

Second half EBITDA is expected to be roughly split across Q3 and Q4, growing significantly from prior year. In closing, we are encouraged by our first half performance and are well-positioned heading into the second half. I will now turn it over to the operator for questions..

[Operator Instructions] And we will take our first question from Andrew Lazar with Barclays..

Great. Thanks very much. Good morning Darcy and Paul..

Good morning..

Good morning..

I guess, Darcy, based on your outlook for the capacity ramp, around when would you expect that we would start to see increases in TDPs and flavor variants as well as in-market commercial activities start to sort of move higher? And have you seen anything in terms of competitive activity on the shelf for consumer behavior in the category that would impede Premier from restoring TDPs back ultimately to the brand's high watermark given the capacity that you ultimately have coming online? Thanks so much..

We expect TDPs -- so in the last couple of months, as I said in my prepared remarks that TDPs stabilized in the last two months, basically February and March. And we expect those to maintain for the rest of the year until the first half of 2023, where we really start to drive TDPs again and reintroduce the temporarily disco-ed flavors.

In response to when we're going to start driving demand with marketing and promotions, that will then get layered in. Current plan is that will get layered in, in the back half of 2023, starting with marketing in Q3 and then promotion in Q4. So really, if you think of 2023, we begin layering in the demand-driving activities.

And then your -- I think the third question there about competitive activity that could impede us. .

Yes.

Any changes you've seen that would impede Premier getting back or restoring TDPs to sort of where the high watermark was given all the capacity you have coming online?.

Nothing that has dramatically changed from a competitive standpoint that would impede us. You can go to any retailer pretty much right now, and you will see out of -- you'll see rising prices and across the competitive set as well as capacity constraints. And it just depends on -- it almost changes which competitor it happens to.

So that is just a clear indication that this capacity constraint phenomenon is affecting everybody, and it's affecting everybody whether you are co-man-ed or even self-manufactured. So no, nothing from a competitive perspective that should impede us on with our reintroduction plan. .

Great. Thanks for your time..

Thank you..

We will take our next question from Ken Goldman with JPMorgan. Your line is open..

Hi. Good morning. I wanted to dig in a little bit on the back-half guidance. The consensus estimate for the third quarter top line, $383 million. It implies a pretty sizable step-up in terms of both the one year and three year growth rates versus 2Q.

I realize you don't want to give specific numbers, but the Street's modeling sales dollar is growing much higher from 2Q to 3Q than from 3Q to 4Q. Paul, I noticed that you called out a tougher volume comp in 3Q as well.

So I guess what I'm trying to get at is, is there any sense you could give us sort of that cadence between 3Q and 4Q? And how comfortable you are with where the Street numbers are right now?.

Yes, sure, Ken. I'll take that. So if you look at what's driving growth in sales from Q2 to Q3, the one thing I'll point out is, obviously, there's significant pricing actions that are taking place in really late second quarter, really early into the third quarter.

So we've taken double-digit price increases on our Dymatize powder business, and we've taken mid-to-upper single-digit increases on our shake business. So some of the step-up is clearly from Q2 to Q3 was related to pricing actions. But overall, we're relatively comfortable with the growth rates that you outlined. .

Okay. Thank you. And then wanted to follow-up by asking about operating expenses which SG&A plus amortization that is, which came in much lighter than what the Street had expected this quarter.

So I wanted to ask, to what degree was SG&A in terms of dollars lower than you might have thought going in? Or was it really just the Street kind of mismodelling, which it may seem a little bit from our perspective if it's the latter? But I guess, the real question is, how do we think about SG&A dollar progression from here? It seems to us that consensus is modeling a nice step-up in 3Q and 4Q from the first half.

I'm not quite sure if that's in line with how you're thinking about things as well. .

Yes. So I don't think about SG&A with amortization as much, but if you strip the amortization piece out. So SG&A in the first half was -- if you strip out the separation cost of about $12 million, ends up right around 12% of net sales.

I would -- we are expecting that the second half is largely in line with that SG&A as a percent of sales, perhaps slightly higher. But that would obviously imply that SG&A dollars grows as sales grow, but from a sale -- but in SG&A percentage perspective, I would expect that to be largely in line..

Great. Thank you so much..

We will take our next question from Pamela Kaufman with Morgan Stanley. Your line is open..

Hi. Good morning. I know it's still early and you're in the middle of fiscal 2022. But in the prepared remarks, you suggested that growth for 2023 can look closer to the back half outlook for this year, which, at the midpoint, implies about 15% growth.

So, is it fair to think about next year being an above-algorithm year? And can you kind of break down the drivers that give you confidence around the stronger outlook?.

Yes. So, I will say that, we did put it in our prepared remarks, but we are also -- I'm going to caveat it and just say, we are early. We're still planning for 2023. But you are exactly right that, we looked at the back half as being a good proxy. And we have always said that, we are constrained this year.

And so next, as we -- and it takes a while longer than all of us want to build capacity. And so -- but when we have it, we fully expect to be able to get back to kind of historic growth rates, which are right in line with what you talked about. So I think that, that is where we are. We also have pricing that will benefit the first half as well.

So I think that, what you laid out is exactly where we think it can be, above algorithm, because we will no longer be -- we will be less constrained than we were in 2022..

Great. Thank you. And then just on Dymatize, obviously, you're seeing very strong growth.

Can you talk about what channels you're focused on building distribution in? Where you see further growth opportunity? And what are you observing across repeat rates and velocity, particularly in untracked channels, which we have less visibility around?.

Sure. I think what's interesting about Dymatize is that, we are seeing growth across all channels, even the channels that historically had been softer, like specialty. So if you kind of zoom out over time, specialty had lost some volume to e-commerce. But what's nice to see is that, we're actually seeing growth across all.

And that's really because of our new flavors and our -- specifically Dunkin' and Pebbles have done remarkably well across all channels. So that's -- so when you look at distribution opportunities, the biggest distribution opportunity really is in mass channels. So more, think of food, drug, mass and club.

And the latter two being probably the biggest opportunity, just because that's where powders are the most successful. But we have upside in specialty and e-commerce as well. So if -- when we talk about household penetration, Dymatize has less than 1% household penetration. So, really, the distribution opportunity is tremendous.

From a repeat rate and velocity standpoint, very strong. Usually -- right -- e-commerce, we are the number two brand on e-commerce, specifically. And we are one of the leaders in specialty, very strong velocity. So, overall, a lot of opportunity on this brand..

Thank you..

We will take our next question from Chris Growe with Stifel. Your line is open..

Hi. Good morning..

Good morning..

Hi. I just had a question for you to make sure I understand the second half. And in terms of building inventory, it sounds like that's your own inventory you're trying to build, as you get more capacity.

Or is it retailer inventory? I guess, what I'm ultimately trying to get to is, to achieve, call it, mid-teens growth, you'll have pricing for Premier, you'll have Dymatize growth. It would seem like you need some Premier volumes to grow in there, but I think you're saying they're going to be down in the second half.

Is that -- am I reading that correctly?.

Yes. We expect volumes for Premier to be down in the second half. And so again, it's largely pricing action. So we've taken pricing action on Premier and again in hitting the -- in April -- late March into April. It's a single-digit increase, but it's more than it was in the last time. So that's a driver.

And also keep in mind that we're continuing not to promote for Premier in the second half. And so that's obviously a pricing benefit well. So there's significant pricing benefit to Premier in the second half. And then for Dymatize, we've taken our second double-digit price increase.

So the second half will have the benefit of both of our double-digit price increases that we've taken one in October and one in March, April and so there's a lot of pricing benefit to Dymatize as well some volume growth expectations for Dymatize in the second half..

Okay. Thank you. The just a quick question on the gross margin ,there's, obviously a lot of factors going on there from cutting back on promotion, and you had, I think, some unique factors this quarter in terms of the gross margin.

But -- and the other thing I wanted to ask, I think you mentioned that input costs were going to be up across the second half of the year. We have started to see whey and nonfat dry milk roll over a little bit.

Is there an expectation that, that will start to benefit you, maybe in fiscal 2023, or is that -- do you have hedge positions maybe that keep you from realizing it in the second half of the year?.

Yeah. We would not expect much benefit at this point from any significant decreases in protein for second half. We're largely covered at this point. We have a little bit of variable. We're about 90% covered. We have a little bit of variable pricing that could benefit, but it's fairly nominal. So really, it's more of a fiscal 2023.

And to your point, we have seen -- there are some signs. And they're early signs. But there are some signs that the milk proteins and really the dairy proteins are starting to top off and come down. But they've been somewhat bouncing up and down for the last couple of weeks, but there are signs.

But to answer your question, we would expect it to be largely a 2023 benefit..

Okay.

And then just to round it out, Paul, on the gross margin, just the -- again, the reduction in promotional spending, for example, although volumes likely down, I guess, just to think about the gross margin, is it more like the average of the first half, or more like the first quarter, I guess, to kind of better understand where that could shake out for the year?.

You mean from a gross margin percent?.

From gross percentage, yeah, okay..

Does that make sense?.

Okay. Thanks a lot..

Yeah..

I appreciate your time..

We will take our next question from Ben Bienvenu with Stephens. Your line is open..

Hey thanks. Good morning everybody..

Good morning..

So I've got two questions. The first is just on the debt reduction. You seem to be ahead of schedule. Obviously, the business is performing well.

Is it your intention that if the business performs well, you intend to just take that incremental cash and pay down debt at a more rapid rate than promised when we sold the prospectus prior, or how are you thinking about where you'd like debt level to be?.

Yeah. Certainly, our priority is to de-lever. We've got -- we have $109 million that was pulled on the revolver at the end of March. And so our expectation is continue to pay down on that revolver. So yeah, our goal is -- our priority is to de-lever. As far as being ahead of schedule, you're correct. We're at 3.6 times at the end of March.

And yes, we're expecting to get down to low-threes by the end of this fiscal year. So yes, we're progressing well..

Okay. Great. And then, you pointed out in your slides the strength of the ready-to-drink liquids category broadly. But you also, I think, characterized everyone in the industry as having capacity issues as well.

So do you think the category is the growth that we can see is understated? And the growth there is understated in the same way that yours is, or how would you characterize kind of comparing -- contrasting the situation you are in with competitors?.

Yeah. So I think if you look at the growth of the ready-to-drink category, we saw pretty -- a step change in growth last year around this time, about April. It's been -- pre-pandemic it was around 5% to 6% growth. And then, we got up to -- we've been consistently in the double-digits, even as high-teens. It's now come down a little bit.

So now this quarter was 13%. So we think because we are -- we think that it's going to continue high single-digits, maybe low double-digits, because of a combination of -- that many competitors like us are pulling back promotion. We are also having some sporadic out-of-stocks from several competitors.

So a long way to answer your question is I do think it's a little bit lower than it could be. And -- but I also would just temper that with, we are lapping some pretty big increases in household pen -- of new people entering into the category last year at this time..

Best of luck..

And we'll take our next question from Bill Chappell with Truist Securities. Your line is open..

Thanks, good morning..

Good morning..

Good morning..

I guess, first question on Dymatize, you said half the growth coming from the Pebbles and the Dunkin' flavors.

Is this kind of -- do you expect competitive responses? Is this kind of a flavorization of the category that's going on, or just these particular flavors really kind of hit home with consumers?.

Combination. So flavor excitement has -- and the idea of licenses has been around in the specialty side of the world. So I think of Vitamin Shoppe, GNC, et cetera. And what is, I think was really well done by the team here is finding the right licenses for mainstream. And that's where I think Pebbles is perfect as well as Dunkin'.

So what I think you'll see more of is it's about finding the right license to match the equity, to match the channels. And I think these were home runs. .

Got it. And then there have been some, I guess, some noise inter-quarter over the past few months about potentially moving from your protein to the convenience store channel or in a different form or fashion.

Any update on that, that you can share with us?.

We still think it's a big opportunity. It's just not near term. It -- we have -- we've talked to you guys about all the distribution opportunity. Right now, we're focused on capacity for -- that is the first and foremost thing we need to hit on. Then we feel like there is a fair amount of low-hanging fruit just rebounding in the channels that we are.

And then there's upside in the channels where we are, specifically around TDPs, et cetera. Then we start thinking about these new opportunities in white space distribution, absolutely an opportunity. We see it, but it's down the road. .

Great. Thanks so much..

Thanks..

We will take our next question from John Baumgartner with Mizuho Securities..

Good morning. Thanks for the question. First off, Darcy, I guess coming back to Dymatize and the growth there. You mentioned the strength across channels. Obviously, a lot of it is brand specific and execution-related.

But if we just step back, to what extent do you see structural changes in that athlete segment that sort of underpin the long-term opportunity? I mean there seems to be a generational shift with EAS going away, metrics not being what it used to be.

And it seems as though the segment is looking for new leadership, whether it's innovation, brand investment.

I mean to what extent would you agree with that? And how do you think about building Dymatize and going after the opportunity differently than you've done with Premier over the past decade? Is it really just more of a licensing thing?.

No, I think it's much bigger than licensing, and I agree. So if you look at -- if you step back and look at the category, we are seeing the growth in the overall convenient nutrition category come from two places. It's every day, which is where Premier lives; and its sports where Dymatize is.

So those are the two areas that are -- during the pandemic, actually adult nutrition also was in there for obvious reasons. But now we're seeing the growth coming really from every day in sports. So one thing, there are more people that are getting back. The pandemic was kind of sedentary for all of us.

And so there is just a new interest and excitement for getting back to exercise regimens. And so I think that's one structural shift. I also do not think that's temporary. I think that is a kind of long-term trend. So that is one thing from just a structural shift.

And then when you think of the brands, yeah, it used to be -- sports nutrition used to be, if you go into GNC or Vitamin Shoppe, it was all really intimidating and masculine and big black powder tubs. And now it's completely different.

There is a, influx of women into sports nutrition; b, I mean, just looking at how a few years ago, we rebranded Dymatize from the traditional masculine black tub to the white kind of much more approachable look and feel, still very clearly going after the athlete, but now it's more about mainstream athletes instead of only bodybuilders, for instance.

So -- and I think we're seeing that across the category, and it's a perfect place for Dymatize to be..

Great. And I guess just to build on that as a follow-up. You touched on it a little bit. But in the Nielsen data, there seems to be a bifurcation in that the sales of the deprivation segments, whether it's meal replacement, weight loss. Those sales are down, but specialty and sports are continuing to grow.

Is that sort of what you're seeing on an all-outlet basis right now? And if it is, might next year be sort of the year with the category, you see a bit of a shakeout certainly underperformers as we get into a post sort of COVID trend environment?.

Absolutely seeing that trend, and absolutely think it's going to continue..

Great. Thank you..

Thanks..

We will take our next question from Bryan Spillane with Bank of America..

Thanks, Operator. Good morning, everyone. Maybe just to follow up on John's question. Darcy, I guess now that you've got the flexibility, right, with capital allocation.

If you start thinking about how BellRing can be acquisitive, if you could just touch on like what's the platform, right? Like what does BellRing bring maybe to a target asset that it could -- BellRing could help with? And then the second, I guess, following-up on John's question, is it really -- is there more opportunity in active nutrition, so powders pre-workout, post-workout versus -- replacement?.

From an M&A perspective, our stance hasn't changed. We've got our hands full with capacity. We have two brands that have -- we don't want to do anything that could possibly interrupt or dampen our focus on that opportunity because we think it's the biggest one in the category. So just like kind of stop there.

And so I think that M&A, even in my prepared remarks, I say when the time is right. And I think right now, the time isn't right. I think we will continue to focus on the organic opportunity.

I do think that these two brands can have the license to really take advantage of all of the trends, especially around mainstreaming both ready-to-mix and ready-to-drink. So most of the time, M&A strategy is, because you don't have the brands that can take advantage of the trends, and that is just not us.

So I think that we will have more of a build strategy as opposed to a buy strategy..

Okay. Great. And then maybe just to follow-up on that. So if M&A is kind of back seat and you're going to start to generate cash, I mean, I understand there's still some debt reduction.

But just what are the other options to cash? Would you consider repurchasing shares, dividends? Is there any consideration given the capacity lumpiness over the last couple of years of actually maybe putting more CapEx in and owning some plants? So just kind of curious what the other priorities are for the cash?.

Yes, I'll take the capital allocation and Darcy, if you want to touch on the owning facilities. But yes, our priorities, as you said, it's to delever. Share repurchases is certainly part of our capital allocation strategy. And so those will be the two priorities, and as Darcy touched on, M&A behind that..

And from a perspective of owning facilities, we always look at it. Right now, we like our approach, which is -- I think I've talked to you guys about kind of this spectrum of influence or control. And we keep moving. On the far left, you have small brands, co-man, that have very little influence; and then on the right, it's self-manufacturing.

And what we keep doing is moving toward the right-hand side towards self-manufacturing. So we're increasing our influence, but still maintaining our asset-light model, which has worked very well for us, and we really like. So, if you -- we started with dedicated co-mans. That increased our influence.

Now we have a partnership with Post Holdings, which is also dedicated. But obviously, we have a strong relationship with Post. So each one of these, we're moving that way to increase our influence, but still maintaining our asset-light model..

All right. Thanks, Darcy. Thanks, Paul..

Thanks..

And we will take our final question from Ken Zaslow with Bank of Montreal. Your line is open..

Hi, good morning everyone..

Good morning..

Do you think your pricing will catch up with your current inflation rate?.

Yes. We believe our second half pricing is going to more than offset the inflation, yes..

So if, for example, whey or milk or other things happen, you wouldn't give back your pricing, right?.

So as we get into next year, if the underlying protein costs come down, then, obviously, we'll have to decide the right strategy for that, which could include reinvesting back into promotional activity, reinvesting back into marketing activity.

So no, we're not -- our strategy is not to give price back, but there will be options that we'll be assessing as we get to that point..

And then my last question is, what have you seen with elasticity?.

No elasticity to date. Obviously, we just took the beginning, basically April, the next round, so watching closely, but nothing to date. I think one interesting thing about elasticity is we are, again, zooming out.

We are seeing consumers move channels, not dramatically, but seeing some increased growth rates in some of the value channel -- more value channels, like club and mass.

And so I think that's -- we're watching, and I think that's an interesting -- it's kind of an interesting -- it's not elasticity, but it's a behavior -- consumer behavior change, which makes sense. But from a pure elasticity standpoint, no, we haven't seen anything..

But how does that actually affect your business? Is that negative, neutral, positive? If somebody changes, where they go to buy your product, does it matter? Just how do you frame it? And then I'll leave it there..

Yes, very positive for us because of our channel mix..

Interesting. Thank you, very much..

Thanks..

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day..