Bellring Brands, Inc.: Form 10-Q for the period ended Jun 30, 2022

The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and capital resources of BellRing Brands, Inc. (formally known as BellRing Distribution, LLC) (“BellRing”) and its consolidated subsidiaries. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included herein, our audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, and the “Cautionary Statement on Forward-Looking Statements” section included below.

OVERVIEW

On October 21, 2019, BellRing Intermediate Holdings, Inc. (formerly known as BellRing Brands, Inc.) (“Old BellRing”) closed its initial public offering (the “IPO”) of 39.4 million shares of its Class A common stock, $0.01 par value per share (the “Old BellRing Class A Common Stock”) and contributed the net proceeds from the IPO to BellRing Brands, LLC, a Delaware limited liability company and subsidiary of Old BellRing (“BellRing LLC”), in exchange for 39.4 million BellRing LLC non-voting membership units (the “BellRing LLC units”). As a result of the IPO and certain other transactions completed in connection with the IPO (the “formation transactions”), BellRing LLC became the holding company for the active nutrition business of Post Holdings, Inc. (“Post”). Old BellRing, as a holding company, had no material assets other than its ownership of BellRing LLC units and its indirect interests in the subsidiaries of BellRing LLC and had no independent means of generating revenue or cash flow. The members of BellRing LLC were Post and Old BellRing.

During the second quarter of fiscal 2022, Post completed its previously announced distribution of 80.1% of its ownership interest in BellRing to Post’s shareholders. On March 9, 2022, pursuant to the Transaction Agreement and Plan of Merger, dated as of October 26, 2021 (as amended by Amendment No. 1 to the Transaction Agreement and Plan of Merger, dated as of February 28, 2022, the “Transaction Agreement”), by and among Post, Old BellRing, BellRing and BellRing Merger Sub Corporation, a wholly-owned subsidiary of BellRing (“BellRing Merger Sub”), Post contributed its share of Old BellRing Class B common stock, $0.01 par value per share (“Old BellRing Class B Common Stock”), all of its BellRing LLC units and $550.4 million of cash to BellRing (collectively, the “Contribution”) in exchange for certain limited liability company interests of BellRing (prior to the conversion of BellRing into a Delaware corporation) and the right to receive $840.0 million in aggregate principal amount of BellRing’s 7.00% senior notes maturing in 2030 (the “7.00% Senior Notes”).

On March 10, 2022, BellRing converted into a Delaware corporation and changed its name to “BellRing Brands, Inc.”, and Post distributed an aggregate of 78.1 million, or 80.1%, of its shares of BellRing common stock, par value $0.01 per share (“BellRing Common Stock”) to Post shareholders of record as of the close of business, Central Time, on February 25, 2022 (the “Record Date”) in a pro-rata distribution (the “Distribution”). Post shareholders received 1.267788 shares of BellRing Common Stock for every one share of Post common stock held as of the Record Date. No fractional shares of BellRing Common Stock were issued, and instead, cash in lieu of any fractional shares was paid to Post shareholders.

Upon completion of the Distribution, BellRing Merger Sub merged with and into Old BellRing (the “Merger”), with Old BellRing continuing as the surviving corporation and becoming a wholly-owned subsidiary of BellRing. Pursuant to the Merger, each outstanding share of Old BellRing Class A Common Stock was converted into one share of BellRing Common Stock plus $2.97 in cash, or $115.5 million total consideration paid to Old BellRing Class A common stockholders pursuant to the Merger. As a result of the transactions described above (collectively, the “Spin-off”), BellRing became the new public parent company of, and successor issuer to, Old BellRing, and shares of BellRing Common Stock were deemed to be registered under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), pursuant to Rule 12g-3(a) promulgated thereunder.

Immediately following the Spin-off, Post owned approximately 14.2% of the BellRing Common Stock and Post shareholders owned approximately 57.3% of the BellRing Common Stock. The former Old BellRing stockholders owned approximately 28.5% of the BellRing Common Stock, maintaining their effective ownership in the Old BellRing business prior to the Spin-off. As a result of the Spin-off, the dual class voting structure in the BellRing business was eliminated.

Immediately prior to the Spin-off, Post held 97.5 million BellRing LLC units, equal to 71.5% of the economic interest in BellRing LLC, and one share of Old BellRing Class B Common Stock, which represented 67% of the combined voting power of the common stock of Old BellRing. Subsequent to the Spin-off, Post owned 14.2% of the BellRing Common Stock, which did not represent a controlling interest in BellRing. BellRing incurred separation-related expenses of $0.9 million and $13.2 million during the three and nine months ended June 30, 2022, respectively, in connection with the Spin-off. These expenses generally included third party costs for advisory services, fees charged by other service providers and government filing fees and were included in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Operations.

The terms “our”, “we”, “us” and the “Company” generally refer to BellRing Brands, Inc. and its consolidated subsidiaries during the periods both prior to and subsequent to the Spin-off unless otherwise stated or context otherwise indicates. The term “Common Stock” generally refers to Old BellRing Class A Common Stock and Old BellRing Class B Common Stock during the periods prior to the Spin-off and to BellRing Common Stock during the periods subsequent to the Spin-off. The term “Net earnings available to Common Stockholders” generally refers to net earnings available to Old BellRing Class A common stockholders during the periods prior to the Spin-off and to net earnings available to BellRing common stockholders during the periods subsequent to the Spin-off.

We are a consumer products holding company operating in the global convenient nutrition category and are a provider of ready-to-drink (“RTD”) protein shakes, other RTD beverages, powders and nutrition bars. We have a single operating and reportable segment, with our principal products being protein-based consumer goods. Our primary brands are Premier Protein and Dymatize.

COVID-19

The COVID-19 pandemic has caused and continues to cause global economic disruption and uncertainty, including in our business. We continue to closely monitor the impact of the COVID-19 pandemic and remain focused on ensuring the health and safety of our employees and serving customers and consumers. Our primary categories returned to growth rates in line with their pre-pandemic levels during the fourth quarter of fiscal 2020 and have remained strong in subsequent periods.

As the overall economy continues to recover from the impact of the COVID-19 pandemic, input and freight inflation and labor and input availability are pressuring our supply chain. Lower than anticipated production and delays in capacity expansion across the broader third party contract manufacturer network have resulted in low shake inventory volumes and missed sales. Service levels and fill rates remain below normal levels, and certain products have been placed on allocation. These factors are improving but expected to persist throughout fiscal 2022 and into fiscal 2023 and are dependent upon our contract manufacturer partners’ ability to deliver committed volumes, add capacity on expected timelines, retain manufacturing staff and rebuild inventory levels. Raw material, packaging and freight inflation has been widespread, rapid and significant, and has put downward pressure on profit margins. As a result, we have taken pricing actions on nearly all products. For additional discussion, refer to “Liquidity and Capital Resources” and “Cautionary Statement on Forward-Looking Statements” within this section, as well as “Risk Factors” in Item 1A of Part II of this report.

RESULTS OF OPERATIONS

dollars in millions

Net Sales

Net sales increased $28.0 million, or 8%, during the three months ended June 30, 2022, compared to the prior year period. Sales of Premier Protein products were up $20.8 million, or 7%, driven by higher average net selling prices. Average net selling prices increased in the three months ended June 30, 2022 due to targeted price increases and decreased promotional spending. These positive impacts were partially offset by volume decreases of 9%, which were primarily the result of supply constraints and reduced demand-driving activity. Sales of Dymatize products were up $7.3 million, or 17%, driven by higher average net selling prices. Average net selling prices increased in the three months ended June 30, 2022 due to targeted price increases and favorable product mix. These positive impacts were partially offset by volume decreases of 28%, which were driven by elasticities due to inflation-driven price increases, reduction in trade inventory and lapping prior year promotional activities. Sales of all other products were down $0.1 million.

Net sales increased $85.2 million, or 9%, during the nine months ended June 30, 2022, compared to the prior year period. Sales of Premier Protein products were up $46.8 million, or 6%, driven by higher average net selling prices. Average net selling prices increased in the nine months ended June 30, 2022 due to decreased promotional spending and targeted price increases. These positive impacts were partially offset by volume decreases of 7%, which were primarily the result of supply constraints and reduced demand-driving activity. Sales of Dymatize products were up $39.9 million, or 36%, on flat volumes. Average net selling prices increased in the nine months ended June 30, 2022 due to targeted price increases and favorable mix. Sales of all other products were down $1.5 million.

Operating Profit

Operating profit increased $16.0 million, or 31%, during the three months ended June 30, 2022, compared to the prior year period. This increase was primarily driven by higher net sales, as previously discussed, and reduced advertising costs of $5.6 million. In addition, prior year operating profit was negatively impacted by $11.8 million of accelerated amortization related to the discontinuance of the Supreme Protein brand. These positive impacts were partially offset by higher net product costs of $39.5 million due to unfavorable raw material and freight costs.

Operating profit increased $36.4 million, or 32%, during the nine months ended June 30, 2022, compared to the prior year period. This increase was primarily driven by higher net sales, as previously discussed, and reduced advertising costs of $19.6 million. In addition, prior year operating profit was negatively impacted by $29.9 million of accelerated amortization related to the discontinuance of the Supreme Protein brand. These positive impacts were partially offset by higher net product costs of $107.3 million due to unfavorable raw material, freight and manufacturing costs and costs related to the separation from Post of $13.2 million.

Interest Expense, Net

Interest expense, net increased $6.4 million during the three months ended June 30, 2022, compared to the prior year period. This increase was primarily due to higher outstanding principal amounts of debt and a higher weighted-average interest rate compared to the prior year period. The weighted-average interest rate on our total outstanding debt increased to 6.7% for the three months ended June 30, 2022 from 4.8% for the three months ended June 30, 2021, driven by the issuance of our 7.00% Senior Notes during the second quarter of fiscal 2022.

Interest expense, net decreased $0.8 million during the nine months ended June 30, 2022, compared to the prior year period. This decrease was primarily due to increased net hedging gains (compared to losses in the prior year period) of $3.0 million recognized on interest rate swaps, partially offset by higher outstanding principal amounts of debt and a higher weighted-average interest rate compared to the prior year. The weighted-average interest rate on our total outstanding debt increased to 5.9% for the nine months ended June 30, 2022 from 5.5% for the nine months ended June 30, 2021, driven by the issuance of our 7.00% Senior Notes during the second quarter of fiscal 2022. See Notes 14 and 12 within “Notes to Condensed Consolidated Financial Statements” for additional information on our debt and interest rate swaps, respectively.

Loss on Extinguishment and Refinancing of Debt, net

During the nine months ended June 30, 2022, we recognized a $17.6 million loss related to the termination of our credit agreement entered into on October 21, 2019 (as subsequently amended, the “Old Credit Agreement”). This loss included (i) a $6.9 million write-off of unamortized discounts and debt extinguishment fees, (ii) a $6.1 million write-off of unamortized net hedging losses recorded within accumulated other comprehensive income or loss related to the Term B Facility and (iii) a $4.6 million write-off of debt issuance costs and deferred financing fees. There were no losses recognized during the three months ended June 30, 2022 related to the extinguishment or refinancing of debt.

During the three and nine months ended June 30, 2021, we recognized losses related to refinancing fees incurred in conjunction with the refinancing of our Term B Facility of $0.1 million and $1.6 million, respectively.

See Note 14 within “Notes to Condensed Consolidated Financial Statements” for additional information on our debt.

Income Tax Expense

Prior to the Spin-off, Old BellRing held an economic interest in BellRing LLC which, as a result of the IPO and formation transactions, was treated as a partnership for United States (“U.S.”) federal income tax purposes. As a partnership, BellRing LLC itself was generally not subject to U.S. federal income tax under current U.S. tax laws. Generally, items of taxable income, gain, loss and deduction of BellRing LLC were passed through to its members, Old BellRing and Post. Old BellRing was responsible for its share of taxable income or loss of BellRing LLC allocated to it in accordance with the amended and restated limited liability company agreement of BellRing LLC and partnership tax rules and regulations.

Subsequent to the Spin-off, we reported 100% of the income, gain, loss and deduction of BellRing LLC for U.S. federal, state and local income tax purposes.

Our effective income tax rate was 24.2% and 18.4% for the three and nine months ended June 30, 2022, respectively, and 8.1% and 7.3% for the three and nine months ended June 30, 2021, respectively. The increase in the effective income tax rate compared to the prior periods was primarily due to (i) the Company reporting 100% of the income, gain, loss and deduction of BellRing LLC in the periods subsequent to the Spin-off. and (ii) during the nine months ended June 30, 2022, certain separation-related expenses incurred in connection with the Spin-off that were treated as non-deductible and (ii) the Company reporting 100% of the income, gain, loss and deduction of BellRing LLC in the periods subsequent to the Spin-off.

In accordance with Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes,” we recorded income tax expense for interim periods using the estimated annual effective income tax rate for the full fiscal year adjusted for the impact of discrete items occurring during the interim periods.

LIQUIDITY AND CAPITAL RESOURCES

We expect to generate positive cash flows from operations and believe our cash on hand, cash flows from operations and possible future credit facilities will be sufficient to satisfy our future working capital requirements, research and development activities, debt repayments and other financing requirements for the foreseeable future. Our asset-light business model requires modest capital expenditures, with annual capital expenditures over the last three fiscal years averaging less than 1% of net sales. No significant capital expenditures are planned for the remainder of fiscal 2022. Our ability to generate positive cash flows from operations is dependent on general economic conditions, competitive pressures and other business risk factors. If we are unable to generate sufficient cash flows from operations, or otherwise to comply with the terms of our credit facilities, we may be required to seek additional financing alternatives. Additionally, we may repurchase shares of our common stock. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

On March 10, 2022, in connection with to the Transaction Agreement, we issued the 7.00% Senior Notes to Post as partial consideration for the Contribution in connection with the Distribution. Post subsequently delivered the 7.00% Senior Notes to certain financial institutions in satisfaction of term loan obligations of Post in an equal principal amount.

On March 10, 2022, in connection with the Transaction Agreement, we entered into a credit agreement (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), which provides for a revolving credit facility in an aggregate principal amount of $250.0 million (the “Revolving Credit Facility”), with commitments to be made available to us in U.S. Dollars, Euros, and United Kingdom Pounds Sterling. The outstanding amounts under the Credit Agreement must be repaid on or before March 10, 2027.

Additionally, on March 10, 2022, with certain of the proceeds from the debt financing transactions described above, BellRing LLC repaid the aggregate outstanding principal balance of $519.8 million on the Term B Facility and terminated all obligations and commitments under the Old Credit Agreement.

During the nine months ended June 30, 2022, we borrowed $109.0 million under the Revolving Credit Facility and repaid $25.0 million under the Revolving Credit Facility. The available borrowing capacity under the Revolving Credit Facility was $166.0 million as of June 30, 2022.

During the nine months ended June 30, 2022, prior to the Spin-Off, we repurchased 0.8 million shares of Old BellRing Class A Common Stock at an average share price of $23.36 per share for a total cost of $18.1 million, including broker’s commissions. In connection with the Spin-off, 0.8 million shares of Old BellRing Class A Common Stock held in treasury stock immediately prior to the Merger effective time were cancelled pursuant to the Transaction Agreement. On May 23, 2022, our Board of Directors approved a $50.0 million share repurchase authorization with respect to the shares of BellRing Common Stock. Our prior share repurchase authorization for Old BellRing Class A Common Stock was no longer applicable subsequent to the Spin-off. During the nine months ended June 30, 2022, subsequent to the Spin-off, we repurchased 0.1 million shares of BellRing Common Stock at an average share price of $22.96 per share for a total cost of $2.4 million, including broker’s commissions.

The following table shows select cash flow data, which is discussed below.

dollars in millions

Operating Activities

Cash provided by operating activities for the nine months ended June 30, 2022 was $11.4 million compared to cash provided by operating activities of $145.9 million for the nine months ended June 30, 2021. This decrease was primarily driven by unfavorable working capital changes of $128.9 million, which were driven by an increase in inventory and fluctuations in the timing of purchases and payments of trade payables. Inventory increases were driven by input cost inflation, increased powder finished goods due to rebuilding inventory from supply-constrained levels at prior fiscal year end and increased raw material levels. Additionally, tax payments (net of refunds) increased by $10.9 million. These negative impacts were partially offset by a $17.3 million decrease in interest payments due to the shift in timing of interest payments related to the 7.00% Senior Notes as compared to the Term B Facility in the prior year period.

Investing Activities

Cash used in investing activities for the nine months ended June 30, 2022 increased $0.4 million compared to the corresponding period in the prior year resulting from an increase in capital expenditures.

Financing Activities

Nine months ended June 30, 2022

Cash used in financing activities for the nine months ended June 30, 2022 was $127.7 million. We repaid the outstanding principal balance of the Term B Facility of $609.9 million, repaid $25.0 million under the Revolving Credit Facility, and paid $115.5 million to Old BellRing Class A common stockholders pursuant to the Merger. In addition, we paid $11.9 million of debt issuance costs, debt extinguishment costs and deferred financing fees related to the issuance of the 7.00% Senior Notes and the Revolving Credit Facility, and paid $20.5 million, including broker’s commissions, for the repurchase of Common Stock. We received $550.4 million of cash from Post in connection with the Spin-off, which was partially offset by cash distributions to Post of $3.2 million related to quarterly tax distributions pursuant to BellRing LLC’s amended and restated limited liability company agreement prior to the Spin-off. Additionally, we borrowed $109.0 million under the Revolving Credit Facility.

Nine months ended June 30, 2021

Cash used in financing activities for the nine months ended June 30, 2021 was $105.0 million. BellRing LLC drew an aggregate of $20.0 million under BellRing LLC’s revolving credit facility under the Old Credit Agreement (the “Old Revolving Credit Facility”), repaid $55.0 million on the principal balance of the Term B Facility and repaid $50.0 million on the Old Revolving Credit Facility during the period. In addition, BellRing LLC had net cash distributions of $17.5 million to Post, which included tax distributions to Post pursuant to BellRing LLC’s amended and restated limited liability company agreement and state tax withholdings payments on behalf of Post.

Debt Covenants

The Credit Agreement contains customary affirmative and negative covenants for agreements of this type, including delivery of financial and other information; compliance with laws; maintenance of property; existence, insurance and books and records; inspection rights; obligation to provide collateral and guarantees by certain new subsidiaries; delivery of environmental reports; participation in an annual meeting with the agent and the lenders; further assurances; and limitations with respect to indebtedness, liens, fundamental changes, restrictive agreements, use of proceeds, amendments of organization documents, prepayments and amendments of certain indebtedness, dispositions of assets, acquisitions and other investments, sale leaseback transactions, changes in the nature of business, transactions with affiliates and dividends and redemptions or repurchases of stock. Under the terms of the Credit Agreement, we are also required to comply with a financial covenant requiring us to maintain a total net leverage ratio (as defined in the Credit Agreement) not to exceed 6.00 to 1.00, measured as of the last day of each fiscal quarter, beginning with the fiscal quarter ending June 30, 2022. We were in compliance with the financial covenant as of June 30, 2022, and we do not believe non-compliance is reasonably likely in the foreseeable future.

The Credit Agreement provides for potential incremental revolving and term facilities at our request and at the discretion of the lenders or other persons providing such incremental facilities, in each case on terms to be determined, and also permits us to incur other secured or unsecured debt, in all cases subject to conditions and limitations on the amount as specified in the Credit Agreement. In addition, the indenture governing the 7.00% Senior Notes contains customary negative covenants that limit our ability and the ability of our restricted subsidiaries to, among other things: borrow money or guarantee debt; create liens; pay dividends on, or redeem or repurchase, stock; make specified types of investments and acquisitions; enter into or permit to exist contractual limits on the ability of our subsidiaries to pay dividends to us; enter into new lines of business; enter into transactions with affiliates; and sell assets or merge with other companies. Certain of these covenants are subject to suspension when and if the 7.00% Senior Notes receive investment grade ratings.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our critical accounting policies and estimates are more fully described in our Annual Report on Form 10-K for the year ended September 30, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on November 19, 2021. There have been no significant changes to our critical accounting policies and estimates since September 30, 2021.

RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS

See Note 2 within “Notes to Condensed Consolidated Financial Statements” for a discussion regarding recently issued and adopted accounting standards.

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

Forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, are made throughout this report, including statements regarding unanticipated developments that negatively impact the BellRing Common Stock. These forward-looking statements are sometimes identified from the use of forward-looking words such as “believe,” “should,” “could,” “potential,” “continue,” “expect,” “project,” “estimate,” “predict,” “anticipate,” “aim,” “intend,” “plan,” “forecast,” “target,” “is likely,” “will,” “can,” “may” or “would” or the negative of these terms or similar expressions elsewhere in this report. Our financial condition, results of operations and cash flows may differ materially from those in the forward-looking statements. Such statements are based on management’s current views and assumptions and involve risks and uncertainties that could affect expected results. Those risks and uncertainties include, but are not limited to, the following:

• our dependence on sales from our RTD protein shakes;
• our ability to continue to compete in our product categories and our ability to retain our market position and favorable perceptions of our brands;
• disruptions or inefficiencies in our supply chain, including as a result of our reliance on third party suppliers or manufacturers for the manufacturing of many of our products, pandemics (including the COVID-19 pandemic) and other outbreaks of contagious diseases, labor shortages, fires and evacuations related thereto, changes in weather conditions, natural disasters, agricultural diseases and pests and other events beyond our control;
• our dependence on a limited number of third party contract manufacturers for the manufacturing of most of our products, including one manufacturer for the substantial majority of our RTD protein shakes;
• the ability of our third party contract manufacturers to produce an amount of our products that enables us to meet customer and consumer demand for the products;
• our reliance on a limited number of third party suppliers to provide certain ingredients and packaging;
• significant volatility in the cost or availability of inputs to our business (including freight, raw materials, packaging, energy, labor and other supplies);
• the impact of the COVID-19 pandemic, including negative impacts on the global economy and capital markets, the health of our employees, our ability and the ability of our third party contract manufacturers to manufacture and deliver our products, operating costs, demand for our on-the-go products and our operations generally;
• our ability to anticipate and respond to changes in consumer and customer preferences and behaviors and introduce new products;
• consolidation in our distribution channels;
• our ability to expand existing market penetration and enter into new markets;
• the loss of, a significant reduction of purchases by or the bankruptcy of a major customer;
• legal and regulatory factors, such as compliance with existing laws and regulations, as well as new laws and regulations and changes to existing laws and regulations and interpretations thereof, affecting our business, including current and future laws and regulations regarding food safety, advertising, labeling, tax matters and environmental matters;
• fluctuations in our business due to changes in our promotional activities and seasonality;
• our ability to maintain the net selling prices of our products and manage promotional activities with respect to our products;
• our high leverage, our ability to obtain additional financing (including both secured and unsecured debt) and our ability to service our outstanding debt (including covenants that restrict the operation of our business);
• the accuracy of our market data and attributes and related information;
• changes in estimates in critical accounting judgments;
• economic downturns that limit customer and consumer demand for our products;
• changes in economic conditions, including as a result of the ongoing conflict in Ukraine, disruptions in the U.S. and global capital and credit markets, changes in interest rates, volatility in the market value of derivatives and fluctuations in foreign currency exchange rates;
• risks related to our ongoing relationship with Post following the Spin-off, including our obligations under various agreements with Post;
• conflicting interests or the appearance of conflicting interests resulting from certain of our directors also serving as officers or directors of Post;
• risks related to the previously completed Spin-off, including our inability to take certain actions because such actions could jeopardize the tax-free status of the Distribution and our possible responsibility for U.S. federal tax liabilities related to the Distribution;
• the ultimate impact litigation or other regulatory matters may have on us;
• risks associated with our international business;
• our ability to protect our intellectual property and other assets and to continue to use third party intellectual property subject to intellectual property licenses;
• costs, business disruptions and reputational damage associated with information technology failures, cybersecurity incidents and/or information security breaches;
• impairment in the carrying value of goodwill or other intangibles;
• our ability to identify, complete and integrate or otherwise effectively execute acquisitions or other strategic transactions and effectively manage our growth;
• our ability to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002;
• significant differences in our actual operating results from any guidance we may give regarding our performance;
• our ability to hire and retain talented personnel, employee absenteeism, labor strikes, work stoppages or unionization efforts; and
• other risks and uncertainties included under “Risk Factors” in this report, in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022, filed with the SEC on May 6, 2022, and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, filed with the SEC on November 19, 2021.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

The COVID-19 pandemic has resulted in significant volatility and uncertainty in the markets in which the Company operates. At the time of this filing, the COVID-19 pandemic has not had, and the Company does not currently believe will have, a significant impact on its exposure to market risk from commodity prices, foreign currency exchange rates and interest rates, among others. For additional discussion, refer to “Liquidity and Capital Resources” and “Cautionary Statement on Forward-Looking Statements” in Item 2 of Part I of this report, as well as “Risk Factors” in Item 1A of Part II of this report.

Commodity Price Risk

In the ordinary course of business, the Company is exposed to commodity price risks relating to the purchases of raw materials. The Company manages the impact of cost increases, wherever possible, on commercially reasonable terms, by locking in prices on the quantities through purchase commitments required to meet production requirements. In addition, the Company may attempt to offset the effect of increased costs by raising prices to customers. However, for competitive reasons, the Company may not be able to pass along the full effect of increases in raw materials and other input costs as they are incurred.

Foreign Currency Risk

Related to Active Nutrition International GmbH whose functional currency is the Euro, the Company is exposed to risks of fluctuations in future cash flows and earnings due to changes in exchange rates.

Interest Rate Risk

Long-term debt

As of June 30, 2022, the Company had outstanding principal value of indebtedness of $840.0 million related to its 7.00% Senior Notes and an aggregate principal amount of $84.0 million outstanding under its Revolving Credit Facility. As of September 30, 2021, BellRing LLC had aggregate principal amounts of $609.9 million outstanding on its Term B Facility. There were no amounts drawn under the Old Revolving Credit Facility as of September 30, 2021. Borrowings under the Revolving Credit Facility bear, and borrowings under the Term B Facility and the Old Revolving Credit Facility bore, interest at variable rates.

As of June 30, 2022 and September 30, 2021, the fair value of the Company’s debt, excluding any borrowings under its revolving credit facilities, was $793.6 million and $613.8 million, respectively. Changes in interest rates impact fixed and variable rate debt differently. For fixed rate debt, a change in interest rates will only impact the fair value of the debt, whereas a change in the interest rates on variable rate debt will impact interest expense and cash flows. A hypothetical 10% decrease in interest rates would have increased the fair value of the fixed rate debt by approximately $13.9 million as of June 30, 2022. The Company did not have fixed rate debt as of September 30, 2021. Including the impact of interest rate swaps, a hypothetical 10% increase in interest rates would have had an immaterial impact on both interest expense and interest paid during each of the three and nine months ended June 30, 2022 and 2021. For additional information regarding the Company’s debt, see Note 14 within “Notes to Condensed Consolidated Financial Statements.”

Interest rate swaps

As of September 30, 2021, the Company had interest rate swaps with a notional value of $350.0 million. A hypothetical 10% adverse change in interest rates would have had an immaterial impact on the fair value of the interest rate swaps as of September 30, 2021. As of June 30, 2022, the Company did not hold any interest rate swaps. For additional information regarding the Company’s interest rate swap contracts, see Note 12 within “Notes to Condensed Consolidated Financial Statements.”

Evaluation of Disclosure Controls and Procedures

Management, with the Executive Chairman, Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of the Company, has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Executive Chairman, CEO and CFO concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to provide reasonable assurance of achieving the desired control objectives.

Changes in Internal Control Over Financial Reporting

There were no significant changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

In addition to the information set forth elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”), you should carefully consider the risk factors we previously disclosed in our Quarterly Report on Form 10-Q, filed with the United States Securities and Exchange Commission (the “SEC”) on May 6, 2022, as of and for the fiscal quarter ended March 31, 2022 (the “Second Quarter Report”) and in our Annual Report on Form 10-K, filed with the SEC on November 19, 2021, as of and for the year ended September 30, 2021 (the “Annual Report”). As of the date of this Quarterly Report, there have been no material changes to the risk factors previously disclosed in the Second Quarter Report or the Annual Report. These risks could materially and adversely affect our business, financial condition, results of operations and cash flows. The enumerated risks have been or may be heightened, or in some cases manifested, by the impacts of the COVID-19 pandemic and the ongoing conflict in Ukraine and are not the only risks we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business, financial condition, results of operations and cash flows.