BellRing Brands, Inc. (BRBR) Q1 2020 Earnings Call Transcript

BellRing Brands, Inc. (BRBR)
Q1 2020 Earnings Call
Feb 07, 2020, 10:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to BellRing Brands' first-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 6897520. [Operator instructions] It is now my pleasure to turn the floor over to Matt Mainer of BellRing Brands for introductions. You may begin.

Matt Mainer -- Investor Relations

Thank you. Good morning, and thank you for joining us today. With me 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 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.

Darcy Davenport -- President and Chief Executive Officer

Thanks, Matt, and thank you all for joining us this morning. As most of you know, the first quarter of fiscal 2020 was our first quarter as a publicly traded company. I'm happy to report that we had an excellent quarter and a strong start to the year. I will begin today's discussion by giving an overview of our first-quarter performance and then provide an update on distribution, marketing, and innovation.

Finally, I will give some insight into our 2020 guidance. Paul will then discuss our financial results and outlook in more detail before we open it up for your questions. During our first quarter, the convenient nutrition category remained strong, continuing to be a tailwind for us. As reported by Nielsen, the category was up 5.2% versus the same period a year ago, with the total liquid subcategory of 7.1%.

Macro trends like mainstreaming of proteins, convenience, and snacking continue to fuel the growth. Turning to our performance. We had a strong first quarter with net sales hitting an all-time high of $244 million, up 31% driven by Premier Protein shakes. Adjusted EBITDA grew by 43%, driven primarily by higher sales and gross margin.

Although significantly better than a year ago, it is in general -- it is generally in line with our expectations. Premier ready-to-drink shakes, which represents 80% of our portfolio, was up 50% in sales and consumption was up 28% in tracked channels driven equally by volume and distribution gains. The difference between shipment and consumption is mainly due to customer and building inventory in advance of new year promotions, as well as, pipeline fill related to new distribution. In addition to these drivers, our growth also benefited from the lapping of capacity constraints in the prior year.

Lastly, we had two exciting launches during the quarter in our 30-gram shake line. Pumpkin Spice, our first limited edition, which we tested in eCommerce and Cafe Latte, which is our first shake launch with caffeine. Pumpkin Spice was a successful test and Cafe Latte has already become our third best-selling flavor in several accounts where it is sold. We continue to be pleased with the results of our flavor strategy.

Dymatize, our second-largest brand continues its successful diversification into eCommerce and food, drug, mass. We had a strong eCommerce sales quarter and secured additional FDM distribution commitment. Dymatize sales are down in the quarter. However, this is mainly due to lapping a significant pipeline fill in the prior year.

So, we remain encouraged by the brand's momentum. Our international business had a strong quarter as well, up 16% in net sales driven by Premier Protein shakes mainly in Canada. Dymatize and PowerBar also contributed, both growing single digits. In the EU, all three brands had new distribution gains with PowerBar and Premier Protein making progress against our FBM expansion strategy.

I'm happy to report that from an operational standpoint, our shake [Inaudible] network is performing well. We have inventory and capacity flexibility to aggressively drive demand and execute on our growth plans. As we have discussed, we have multiple strategies for continued growth and our near-term focus -- with our near-term focus on increasing household penetration, expanding distribution and driving innovation. We are making significant progress on all three fronts.

We launched our Premier Protein national marketing campaign in January, including for the first time, national television and increased promotional displays in most of our major accounts. We are pleased with the early brand indicators and the in-store and execution. In fact, we have already seen a two-point increase in market share since the launch of the advertising, as well as, a lease in Google organic search, clearly indicating that we are breaking through with consumers. From a distribution standpoint, shake PDPs increased 34 points or 7% in the quarter, with gains in Cafe Latte across multiple accounts, as well as, an expanded space on our base labors.

We also gained an additional SKU this quarter in one of our club accounts. We expect to further increase our shelf presence during the spring lease-up. From an innovation standpoint, I am proud of the capabilities we have built as an organization. We have many new innovations in the pipeline and some currently hitting the market.

For example, we are introducing our first shake line extension, Premier Protein with oats. It targets consumers looking for a more wholesome and balanced offering with 20 grams of protein, seven grams of fiber, and the benefit of oat. The line has three flavors that can be served cold or hot and started shipping in January. Our step-up in innovation has been a deliberate strategy and we expect it to be a competitive differentiator in years to come.

Now I'd like to come back to our outlook. Last evening, we reaffirmed our full-year guidance. Our performance to date gives us a bias to the high side of our range. However, the cadence is a bit more backloaded than our initial outlook, but I want to provide some additional color.

We had a strong Q1 and January consumption is off to a great start, with Premier Protein shakes growing 48% in tracked channels and nontracked growing even faster. However, we have become aware of changes within our customers' promotional calendars, which will shift revenue from Q2 to Q3 and four, slightly heavier to Q4. With this change, in addition to our planned step-up in marketing and promotional spend, we expect our net sales and EBITDA to be a bit more backloaded than previously anticipated. Overall, I am pleased with our performance during our first quarter as a publicly traded company.

I'm excited about our new advertising and innovation hitting the market and I look forward to updating you next quarter. Thank you for your continued support. And I'm going to now turn the call over to Paul.

Paul Rode -- Chief Financial Officer

Thanks, Darcy, and good morning, everyone. As Darcy mentioned earlier in her remarks, we had a good first quarter and the results were generally in line with our expectations. Net sales grew 31% to $244 million and adjusted EBITDA increased 43% to $58.6 million, delivering an EBITDA margin of 24%. Our overall net sales growth was driven by Premier Protein, with net sales and volume increasing 45% and 38%, respectively.

This increase was fueled by growth for our ready-to-drink shakes, including distribution gains in FDM, club, and eCommerce. In addition, our shake growth benefited from the lapping of capacity constraints in the first quarter of 2019, which negatively impacted our prior-year net sales. Dymatize net sales and volume declined 10% and 4%, respectively, driven by lapping a significant customer pipeline fill in the prior year. We continue to expect Dymatize's performance to be stronger in the second half of the year.

PowerBar net sales and volumes declined 12% and 28%, respectively, as we continue to see the impacts from our portfolio optimization strategy in North America. We expect to cycle the effect of this reduced PowerBar distribution in the second half of fiscal 2020. Turning back to consolidated results. Gross profit increased 39% this quarter, with gross margin of 210 basis points to 37.4%.

Gross margins benefited from higher net selling prices, favorable product mix, and lower freight offset partially by higher raw material cost. SG&A expenses as a percentage of net sales increased 40 basis points to 15% driven by higher warehousing costs, marketing spend, and incremental public and stand-alone company costs. Adjusted EBITDA for the quarter was $58.6 million, an increase of 43%, with adjusted EBITDA margin of 24%, an improvement of 190 basis points. Our cash balance is approximately $30 million, resulting in net debt of $750 million and net leverage of 3.5 times.

Our net leverage target remains 3.0 times and we plan to reach that in fiscal 2021. Turning to fiscal 2020 guidance, we continue to expect fiscal year 2020 net sales and adjusted EBITDA to be $1.0 billion to $1.05 billion and $192 million to $202 million, respectively. However, as Darcy mentioned earlier, we are expecting a shift in customers' promotional calendars for Premier Protein shakes, which will move anticipated revenue out of Q2 and into the second half of the fiscal year. This revenue timing shift coupled with incremental Q2 investments behind our national TV advertising campaign will cause both net sales and adjusted EBITDA to be higher in the second half versus the first half of the fiscal year.

With that, I would like to turn the call back over to the operator for questions.

Questions & Answers:

Operator

[Operator instructions] And your first question comes from the line of Ken Goldman with JP Morgan.

Ken Goldman -- J.P. Morgan -- Analyst

Mike, good morning, and thank you for the question. So, the moment, Darcy, that you mentioned the revenue shifting into the second half, the stock took a little bit of a leg lower. Can you add a little bit of color into the timing change in terms of the promotion, what happened? Do you think it's sort of just standard fare in terms of, hey, sometimes customers decide to move things into a different quarter? Just help us, if you can, understand a little bit more of what happened there?

Darcy Davenport -- President and Chief Executive Officer

Sure. Hi, Ken.

Ken Goldman -- J.P. Morgan -- Analyst

Hi.

Darcy Davenport -- President and Chief Executive Officer

Yeah. So, this -- I believe that we highlighted this last quarter that we often see changes in the promotional calendar, and sure enough, we did this year. There is -- so the move is from Q2 into Q3 and four, heavier in Q4. But we see this -- most competitors, I think, would see this a similar thing, and we as well, as standard fare.

Ken Goldman -- J.P. Morgan -- Analyst

So, it's nothing atypical, it's just something that you think you've seen in the past. Is that a fair way of describing it?

Darcy Davenport -- President and Chief Executive Officer

Correct.

Ken Goldman -- J.P. Morgan -- Analyst

Something similar?

Darcy Davenport -- President and Chief Executive Officer

Correct.

Ken Goldman -- J.P. Morgan -- Analyst

OK. Thank you. And then a quick follow-up on Dymatize. I think you -- if I were to go back and look at my notes from before the IPO.

I think management was looking for a little bit of a better performance by now for Dymatize. Can you just give us a little more color as to whether it's been a little disappointing or whether that's a timing shift as well? Any help there would be appreciated, too.

Darcy Davenport -- President and Chief Executive Officer

Yes. So, I don't think it's necessarily disappointing. I believe that we still expect the business to rebound from -- last year, there was an inflection point where it was declining and we were lapping some of the declines in specialty and we started seeing an increase in both eCommerce and SGM. The one thing that we are lapping a large pipeline build in one of our -- in a club customer last year.

So, because those volumes are very large, it's a tough comp. So, we still expect the year to land in a positive direction and we're already -- we're seeing some good distribution wins in FDM. So again, our diversification strategy is absolutely going the way we expect. And mostly, this is just a timing thing, some volume going from Q1 to Q2.

Paul Rode -- Chief Financial Officer

Correct.

Ken Goldman -- J.P. Morgan -- Analyst

Great. Thanks so much.

Darcy Davenport -- President and Chief Executive Officer

Sure.

Operator

Your next question is from Andrew Lazar with Barclays.

Andrew Lazar -- Barclays -- Analyst

Good morning, everybody.

Darcy Davenport -- President and Chief Executive Officer

Good morning

Paul Rode -- Chief Financial Officer

Good morning.

Andrew Lazar -- Barclays -- Analyst

I guess, first off, I want to make sure I heard you right, I think you said that in January for Premier, for the ready-to-drink shakes, our consumption was up 48% in tracked and then faster in nontracked. If I heard that right, I'm just trying to get a sense of if that was in line with what you had expected consumption would do? Or it sounds like a bigger number than I would have expected, but I don't know if it was in line with how you thought about it. And then second would be, it may be too early, but if you can talk a little bit about the -- or from what you've seen so far around the incrementality of some of the new flavors/products that you're putting out there? Thank you.

Darcy Davenport -- President and Chief Executive Officer

So for the consumption in January, it is -- we're very pleased with the number. It's nice to see the progressive increase from -- we are at about 17% in Q4. Now -- and then in Q1, we were at 28%, and then, to see January hitting at 45%. We're definitely pleased to see that movement.

I will say, based on expectations, I do think it's a little bit better than our expectations. However, we're doing a lot of things we've never done before. So, I think that we were -- as you know, we've never done national television. We've been pulling back from -- for the -- really, the last two years on promotion, as well as, mass marketing.

So, this is the first time in years that we've actually been able to press the accelerator. But yes, we're very pleased with the consumption results.

Andrew Lazar -- Barclays -- Analyst

Great. And then, any incrementality? Yeah.

Darcy Davenport -- President and Chief Executive Officer

Regarding -- yeah. Regarding incrementality. We are still seeing incrementality with our flavor strategy. We are now up to -- Cafe Latte will be our eighth flavor in the line and the way we evaluate incrementality is looking at chocolate at -- the effect of chocolate and vanilla, our base flavors.

It's a little difficult, honestly, to evaluate that right now because we're lapping the two-flavor strategy. So, we are seeing a decline in chocolate and vanilla currently. But that is more a reaction to the fact that they were the only ones being sold a year ago.

Andrew Lazar -- Barclays -- Analyst

Right.

Darcy Davenport -- President and Chief Executive Officer

So, it is messy right now. I will just be honest. However, having Cafe Latte be the No. 3 flavor in the line where it's sold in several of our accounts is really encouraging.

Andrew Lazar -- Barclays -- Analyst

Thanks very much.

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Operator

Your next question is from Chris Growe with Stifel.

Chris Growe -- Stifel Financial Corp. -- Analyst

Hi, good morning.

Darcy Davenport -- President and Chief Executive Officer

Good morning.

Chris Growe -- Stifel Financial Corp. -- Analyst

Hi, I had a question first, if I could. And then, just to better understand the phasing of EBITDA then between the first half and second half. And as you probably know, Post was able to give a little bit more color around the percentages, we already were more second-half loaded. Should we be, obviously, even more second-half loaded? Can you give any relative size of first half or second half? I guess, a question for Paul.

Paul Rode -- Chief Financial Officer

Sure. Yeah. So, I think the way we're thinking about it is, yes, we're seeing some shift in promotional timing, which would push a little bit more revenue than we had initially anticipated toward the second half. And so, I think the short answer to your question is, yeah, I would think that based on, I think, what's out there.

Yes, I think there's a little bit more movement into the second half than the first half, but not dramatically so. So, I think a little bit more on the revenue side. But yes, we do expect to see some movement.

Chris Growe -- Stifel Financial Corp. -- Analyst

And so --

Darcy Davenport -- President and Chief Executive Officer

And EBITDA should follow the revenue.

Paul Rode -- Chief Financial Officer

Yeah.

Chris Growe -- Stifel Financial Corp. -- Analyst

That's OK. Thank you, guys. OK. And then I just want to understand the -- like the shipment timing for the new products.

So Cafe Latte, I believe, did that ship last quarter? And then, oats is shipping this quarter, is that the way to think about it? I'm just trying to understand like the incremental shipment factor from those new products and the timing it's sort of the way that'll benefit the revenue growth.

Paul Rode -- Chief Financial Officer

Correct. Yeah. Cafe Latte did start shipping in the first quarter, and then, we are seeing protein with oats in the second quarter.

Darcy Davenport -- President and Chief Executive Officer

Yeah. So, just for specifics and Cafe Latte started shipping in October, and then, protein with oats began shipping in eCommerce in the beginning of January and is shipping in line on Q1. So, just earlier or late last week.

Chris Growe -- Stifel Financial Corp. -- Analyst

And would that line up with your expectations previously, and therefore, as we think about the revenue growth and the incremental nature of those incremental shipments, that's pretty well as expected?

Darcy Davenport -- President and Chief Executive Officer

As expected, the one thing that I would say is, as we gain distribution and watching it on the shelf that will obviously raise or lower our expectations. I do not -- I don't think that we expect the Cafe Latte pushing to No. 3.

Chris Growe -- Stifel Financial Corp. -- Analyst

OK. Gotcha. That's great. Thanks for your time.

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Operator

Your next question is from John Baumgartner with Wells Fargo.

John Baumgartner -- Wells Fargo Securities -- Analyst

Good morning. Thanks for the question.

Darcy Davenport -- President and Chief Executive Officer

Good morning.

John Baumgartner -- Wells Fargo Securities -- Analyst

I guess, first off, Darcy, just coming back to that revenue shift you noted for favoring Q4 because, I guess, calendar-wise, at that point, it's really getting away from peak consumption season for the category. Are you getting the sense all the retailers are maybe looking to build interest and consumption, maybe, counter seasonally? And I guess, I'm crossed up because you're not the first company in the category to mention changes in shipment timing and it seems to run almost counter to normalized patterns this year.

Darcy Davenport -- President and Chief Executive Officer

So, I think that retailers are experimenting with different timing to maximize their promotions. We've seen different retailers evaluate, again, different timing, different bundles, etc. So, absolutely, I believe that's happening. With regards to seasonality of the category.

The only seasonality we see is really -- we have about a 90 indexed in November, December, and then, that shoots up in Jan, Feb. But actually, back-to-school timing is actually a good time for the category. And I think, it mainly just follows foot traffic within the store.

John Baumgartner -- Wells Fargo Securities -- Analyst

OK. That's helpful. And then, just to follow-up on the volume strength for the shakes, both in measured and nonmeasured channels. I mean, that's included some fairly hard comps the last couple of months and it's also prior to the uptake in the advertising and the impressions in the market, which you would think would have even more of a benefit going forward.

So, I guess my question is, is there increasing chance that you can run pretty tight on capacity again, even with the advanced notice that you've had coming into the year? I mean I hadn't contemplated it, given the preadvanced notice you've given your suppliers and all. But I mean, how do you think about capacity now versus what your expectations were back in October?

Darcy Davenport -- President and Chief Executive Officer

It's a great -- it's a great question. I would say that we have two flexibility levers that give me confidence that we have plenty of inventory and capacity. The first is safety stock or shake inventory. We deliberately increased our inventory as we went into Q2 so we could absorb demand increases.

And then, the second is just the [Inaudible] network and we do have the ability to surge higher if needed. So with those two levers that we feel confident that we can, again, surge inventory and manage that increase of demand. Now, I mean if suddenly the business is tenfold higher. I think that's probably a good issue to have.

John Baumgartner -- Wells Fargo Securities -- Analyst

Great. So, anything short of a tenfold. OK. Sounds good.

Thank you very much.

Operator

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

Ken Zaslow -- Bank of Montreal -- Analyst

Good morning, everyone.

Darcy Davenport -- President and Chief Executive Officer

Good morning.

Paul Rode -- Chief Financial Officer

Good morning.

Ken Zaslow -- Bank of Montreal -- Analyst

Just two quick questions. One is, you kind of said to the higher end of your guidance, both on sales and EBITDA. Could you talk about what is actually driving that? And what is the increased confidence, particularly given that there's a shift to the fourth quarter?

Darcy Davenport -- President and Chief Executive Officer

Yes. I think it's a combination of a very strong Q1. And then, the early reads of both the new products, as well as, the advertising, very early, but we're feeling good about where we are. Also, as we talked about earlier in the call, the consumption is -- we're pleased with where the consumption is in January.

Ken Zaslow -- Bank of Montreal -- Analyst

And the second one is, in terms of capacity, just to double-check, you're not seeing any other building or any other capacity, co-package capacity expansion across any of the Premier type of products out there. Is that a valid comment?

Darcy Davenport -- President and Chief Executive Officer

I would answer this twofold. The first is, there was a -- there has been a ton of expansion throughout the last few years. And so, there is a start-up curve. So, the existing network is now, I would say, over the hump of the start-up curve and now is performing very efficiently.

OK. That's the first piece. The second piece is -- I don't think I'm comfortable in this setting to talk about new lines, etc. But I think there is some growth in the network that is happening.

Ken Zaslow -- Bank of Montreal -- Analyst

Great. I appreciate it. Thank you.

Darcy Davenport -- President and Chief Executive Officer

Yeah. Thank you.

Operator

Your next question is from Bill Chappell with SunTrust Robinson.

Grant O'Brien -- SunTrust Robinson Humphrey -- Analyst

Hi, this is actually Grant on for Bill. Thanks for taking the question. Had one on the consumer base, now that you guys have lapped the capacity constraints in the year-ago period, are you seeing kind of the consumers that left the category come back? Are you seeing new consumers come into the category? Just trying to get a little bit more detail on the breakout of the volume growth this quarter.

Darcy Davenport -- President and Chief Executive Officer

So, we haven't completely lapped the two-flavor strategy yet. So, we are -- if you're looking at consumption and this is actually good for you guys to know. So, as you look at consumption, we reintroduced the new flavors, basically, last year between February and April. So, all of the new flavors would be back on the shelf for the most part in April.

So, we are still lapping that and -- but back to your question around new consumers, we do believe that we have regained all -- any of the locked consumers. We actually, during that period of time, lost less consumers than we ever would have thought. They actually went to chocolate and vanilla and it's more of a testament to the loyalty to the brand as opposed to necessarily a loyalty to a flavor. And I think even more is that we saw our household penetration go from 5% for the brand now to 5.8%.

That -- percentage-wise, it's pretty good jump, although, still a small number and highlighting how much room for growth there is.

Grant O'Brien -- SunTrust Robinson Humphrey -- Analyst

Got it. Thank you. And then, just had a quick one on Dymatize. Is there any way you guys could quantify the timing of promotion impact on growth in the quarter, maybe a consumption number there would help, too.

Thank you.

Paul Rode -- Chief Financial Officer

So the -- you're talking about us lapping the promotion in the prior year. What was the impact of that to their --

Grant O'Brien -- SunTrust Robinson Humphrey -- Analyst

Correct. Correct.

Paul Rode -- Chief Financial Officer

Yeah. It is most of the decline.

Grant O'Brien -- SunTrust Robinson Humphrey -- Analyst

Got it. Thank you very much.

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Operator

Your next question is from Bryan Spillane with Bank of America.

Bryan Spillane -- Bank of America Merrill Lynch -- Analyst

Hey, good morning, everyone.

Darcy Davenport -- President and Chief Executive Officer

Good morning.

Paul Rode -- Chief Financial Officer

Good morning.

Bryan Spillane -- Bank of America Merrill Lynch -- Analyst

So, I guess I had -- just had two questions related to maybe the impact of the advertising that you've run here early in the year. I guess two things. One, given that it seems like it's having an effect, right, in terms of market share. Any thoughts about how maybe you approach back-to-school differently in terms of maybe spending more advertising around the back-to-school timeframe?

Darcy Davenport -- President and Chief Executive Officer

I still -- even though I'm pleased with the results so far. I still would say it's early.

Bryan Spillane -- Bank of America Merrill Lynch -- Analyst

OK.

Darcy Davenport -- President and Chief Executive Officer

But we are evaluating it. So, we are going to continue to watch it. Again, a few weeks in, the results -- there's been a nice bump to the business, as well as, like I said, some of the digital indicators like Google search, which is nice, but we're still watching. And also, the advertising goes for the next -- through Q2.

So, we will evaluate the results, and then, assess our strategy going forward.

Bryan Spillane -- Bank of America Merrill Lynch -- Analyst

And then maybe second, somewhat related is just as you're seeing the increase in consumption here early in the year. How have you fared in terms of in-stock levels, and also, just being in stock with the most popular SKUs? So, just how you've -- has there been any sort of static around that as you've gone through January and early Feb?

Darcy Davenport -- President and Chief Executive Officer

I think it's fairly normal on the existing flavors. We -- in FDM, we always have in-stock issues. Honestly, it's -- those are the things that we go back to our retailers and explain why we need more phasings of the existing flavors. That is at an extreme when you don't have history, like on the new flavors, such as Cafe Latte.

So, we've seen a fair amount of out of stocks at where we have Cafe Latte. But I think over time, retailers see it and they adjust.

Bryan Spillane -- Bank of America Merrill Lynch -- Analyst

OK. Great. Thank you.

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Operator

Your next question is from David Palmer with Evercore ISI.

David Palmer -- Evercore ISI -- Analyst

Hi, good morning. I know it's early to talk about out-years. But if the new products this year have good repeat, and I know that's an assumption, but you've typically had a pretty good repeat for your products. How should we think about '21 in terms of that being -- is that going to be more of a year like this one, where we'll look back on 2020 and say, that's a typical year, '21 will be comparing against a fairly typical year and that you'll have similar amounts of innovation, marketing, and spending, even the timing of the new products.

Or will -- are -- or is there something unusual about this year, just like the one you're lapping last year? And then, I have a follow-up.

Darcy Davenport -- President and Chief Executive Officer

I think 2020 is more typical. This isn't -- that you're going to say this is about as obvious as it comes. But 2020 is more typical than 2019. And I think from an innovation standpoint, I mean, we have a strategy right now of ramping up innovation.

So, I think that -- but there's only so much that the retailers can handle and an organization can handle. So, yes, in general, I would say 2020 is a typical year that you can use. Now, having said that, if our marketing efforts surprise us in a positive way, I could see pushing -- putting more spend on advertising.

David Palmer -- Evercore ISI -- Analyst

Thank you, and I guess, related to that if you are going to be doing more on the marketing side and perhaps even pursuing new areas of product extensions in the innovation pace that costs money. I wonder on the leverage side of that, it costs money to have co-packers, and certainly, have co-packers waiting for you. How should we think about the leverage in the model as you get to greater scale? Do you -- can -- is there even leverage within this co-packing model, such that you can have a bit of a flywheel back into marketing?

Paul Rode -- Chief Financial Officer

So, I mean from an overall leverage perspective, I mean, I think, as we've talked about previously, I mean, we have a target leverage of 3 times and we think we can get into that range in the next fiscal year or so. But we feel like, within our current model, we can -- and you mentioned it's an asset-light model. We can continue to invest behind our marketing and our R&D within reason without having to go to get the debt or to increase our leverage to do that. We feel like we could do that within the confines of our business model as it is.

David Palmer -- Evercore ISI -- Analyst

I mean, I guess and just to clarify, what I'm really talking about is, we're a little under 20% EBITDA margins currently. Can you reinvest in marketing and have that EBITDA margin continue to creep up into the 20s, say, and find leverage in the model, even while as you reinvest in marketing, assuming the new products work. Thanks. I'll pass it on.

Paul Rode -- Chief Financial Officer

Oh, sorry, I misinterpreted. Yes. So, I think that's a good point. I think we can -- I think there's a couple of ways for us to think about it.

I think as our business grows and we gain scale, we do think there can be additional gains on the EBITDA margin side, but we also see this as a high-growth business that we want to continue to invest behind. And so, we will continue to do that so that we drive top-line growth. And so, as we looked at our long-term algorithm, we talked about an 18% to 20% EBITDA margin. So, I think that would imply that we would continue to invest behind our brands to continue driving that top-line double-digit growth.

Darcy Davenport -- President and Chief Executive Officer

Yeah. I think our long-term algorithm assumes that we will reinvest in the businesses.

David Palmer -- Evercore ISI -- Analyst

OK. Thank you.

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Operator

Your next question is from Jason English with Goldman Sachs.

Jason English -- Goldman Sachs -- Analyst

Hey, good morning, everyone.

Darcy Davenport -- President and Chief Executive Officer

Good morning.

Jason English -- Goldman Sachs -- Analyst

Thank you for sliding me in. Congratulations on a good start to the year. A couple of quick questions for me. The program you shift, the promotional shift with the retailer you're talking about.

Are they shifting out the program for the entire category or have they just swapped to your brand out for another competitive brand?

Darcy Davenport -- President and Chief Executive Officer

I'm not sure if we have that information. We know that they have moved -- like I said, they're experimenting with different bundles, as well as, timing. So, I'm not sure if -- yeah, I don't know if I have that specific information.

Jason English -- Goldman Sachs -- Analyst

OK. Well, a higher order. Can you discuss what you're seeing on the competitive landscape? Well, obviously, it's a focus for simply can foods recently in the shake space. We've seen Quest push in, we're seeing Pure Protein, we're seeing equate on a label side, a lot of activity.

And obviously, the investment behind some of the brands during the quarter still. There's a lot of activity out there. What are you seeing in terms of impact to your business? And if we think about the competitive landscape more holistically, this helps them on the shape space had been fragmenting, it looks like it was beginning to reconcentrate, but it's -- with the amount of activity, it looks like we could be on the customer, but notice there's been a bit of a refragmentation cycle. Is that fair? I'm sorry.

I know there was a lot in there. I almost start rambling to that question.

Darcy Davenport -- President and Chief Executive Officer

Well, I'll do my best to answer it, and then, let me know if I missed something. So, the category is -- I mean, as you guys know, it is attractive and competitive and have been competitive for years. Obviously, I still maintain that the bar category is even more competitive than shakes. But we have seen an uptick in competitive activity, again, for the last couple of years.

I think what is encouraging is that for the last two years, we've, in essence, as a brand had to watch because we didn't have the ability to press the accelerator. And what is nice now is that we can now kind of play our hand and we can get back in there, launch national advertising, accelerate our innovation, push for promotions and displays, which we know drives the business. So, to answer your question about how it's affecting our business. We have not seen a tremendous impact from a competitive standpoint on our business.

I think it goes to the fact that we have a unique brand. We've built a strong following with high repeat and loyalty, and we still have a very low household pen. And so, we have room to grow.

Jason English -- Goldman Sachs -- Analyst

Makes sense. Thank you.

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Operator

Your next question is from Robert Dickerson with Jefferies.

Robert Dickerson -- Jefferies -- Analyst

Thank you very much. So a couple of quick questions. I guess first question is going back to the spring reset and digging into what that is. You know, I'd say, the number of categories that are fairly large and a little bit more growthy over the past couple of years.

We, as outward observers, have heard and seen the retailers, at times, maybe resetting this shelf or taking a little bit longer to reset the shelf than maybe historically done because maybe they're looking to expand overall square footage. Like you said, maybe, there's a bundling piece they're testing. So, I sit here now and I looked at your stock performance on the day, which is obviously pressured. But kind of want to give the opportunity too, to say, OK, well, there is a little bit more shift into the back.

Sometimes that shift can be perceived as a negative. And sometimes, though, the negative is not correct because is there a possibility that the shift has something to do with just ongoing retailer support of a subcategory within food, some of which operates in the health and beauty aid section that's actually done very well. And now, the retailers actually say, OK, well, we want to support this more so, but we need to step back. We might need more time.

There's more competition and we need to figure out how to really reset the shelf. Not just in club but kind of across channels.

Darcy Davenport -- President and Chief Executive Officer

So, I do not view the shift as negative. I actually think for our business specifically, just because we have come off an odd year, where we had capacity constraints. I think every month the brand -- I think we gain confidence in the retailers' eyes because they see that we're one of the most productive SKUs on the shelf. So, I believe that we will have a more successful spring reset than we did fall reset.

So, I don't believe that the back half comment is at all negative.

Robert Dickerson -- Jefferies -- Analyst

OK.

Darcy Davenport -- President and Chief Executive Officer

I actually think that it could actually be positive because it takes time for a lot of our advertising to set in. And the other thing that is unique about this category is, many categories have one time of the year that the entire nation resets, that is not this category. It is a rolling reset. So, I mean, I think, I estimated that it's about 50% in the fall, 50% in the spring, but that does change.

Robert Dickerson -- Jefferies -- Analyst

OK. Perfect. Great. And then, I guess, just to touch on cash usage this year.

Obviously, there are a number of moving parts since having gone public. But just asset-light model, good free cash flow generation. We haven't really touched on that much today in the call. How should we all be thinking about cash usage going forward, if in fact, you don't need to really put it into capacity?

Paul Rode -- Chief Financial Officer

Yeah. So, I mean, this is as you mentioned, we're an asset-light model. It's a strong cash-generating business and we expect that to continue. We did have negative operating cash in the first quarter.

That's not atypical for us because we tend to have heavy shipments in the month of December, which drives our receivable balances higher. And so, that tends to cause a little bit of a cash outflow. But we're still expecting strong cash flow for the year. Obviously, with cash taxes and interest expense, which combined are in the neighborhood of about $80 million.

But we expect otherwise to generate strong free cash flow. Our capex, we continue to guide to $4 million of capex. So, we still expect strong cash generation for the year.

Robert Dickerson -- Jefferies -- Analyst

Yeah. I mean, I guess, I was kind of asking if we've heard from Post, right there. They're levered a little bit lower than historic standards for that company. For you, you're, I think, around 3 times, but also, still kind of under the auspices of Post.

So, I was trying to gain more color as to -- I think I've heard you say, yes, we already have an ongoing pipeline, thinking about kind of maximized leverage levels for you. And any appetite whatsoever for kind of near-term tuck-in or just overall acquisition activity would be great. That's it. Thank you.

Paul Rode -- Chief Financial Officer

Sure. Yeah. So our leverage currently is at 3.5 times. We do expect toward -- as we get into next fiscal year, that we can get down to our target of 3 times.

Yes, acquisition opportunities, we're always looking. I don't know if you want to touch on acquisitions?

Darcy Davenport -- President and Chief Executive Officer

Yeah. I think that what's fundamentally different between BellRing and Post is that we have a massive organic growth opportunity with Premier. And I think, we still believe that it is by far the biggest opportunity in the category. So, we are going to feed that and that is our focus.

Now having said that, as we look down the road, we will always be watching what's out there. And I think, toward the beginning -- at the end of 2020 and the beginning of '21, we'll be in a really good cash position to act on something that we find interesting and that would be synergistic with our other businesses.

Robert Dickerson -- Jefferies -- Analyst

Super. Thank you.

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Paul Rode -- Chief Financial Officer

Thanks.

Operator

Your final question comes from the line of Pamela Kaufman with Morgan Stanley.

Pamela Kaufman -- Morgan Stanley -- Analyst

Hi, good morning. So, I wanted to ask about your product innovation pipeline. I'm curious if Cafe Latte's early success influences the way that you're thinking about new innovation in terms of combining other functional benefits with the core product. And any update on the timing of your plant-based shake launch?

Darcy Davenport -- President and Chief Executive Officer

So from an innovation standpoint, we are constantly looking at different claims. We're looking at different types of protein. We're looking at even a different format. So -- and if you remember, it is a long development cycle.

So, the -- we -- it takes anywhere between 18 and 24 months to develop a shake. So, we already have several different paths that we are evaluating from an innovation standpoint. And I think that in this forum, I don't think I'm comfortable talking about specific innovation ideas. But just know that we have a whole group of people and they're looking at the trends and evaluating where we think the next place to mine is.

Pamela Kaufman -- Morgan Stanley -- Analyst

Thanks, and can you talk about the international opportunity for Premier? You mentioned the growth that it's experiencing in Canada. So, how far along are you in the launch in Canada and where else do you see opportunity for growth internationally?

Darcy Davenport -- President and Chief Executive Officer

We see Premier, as well as, PowerBar and Dymatize having a very large opportunity internationally. Our biggest market is Canada for Premier, but we are seeing some solid growth in the EU. We just launched in the U.K. for Premier and getting distribution in the FDM area and we are also launching in Mexico.

So, I think that across the board -- and we have a sizable international business for Dymatize, about 40% of the business is in international through distributors. And then, obviously, we have PowerBar, a very strong foothold in the EU. So overall, I think the -- I think the way I've talked about in the international opportunity is it takes time. It is absolutely a growth driver.

I think we're uniquely positioned because we have an office in Germany. And I think that that will be a growth driver, but it does take time to build it.

Pamela Kaufman -- Morgan Stanley -- Analyst

Thank you.

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Duration: 48 minutes

Call participants:

Matt Mainer -- Investor Relations

Darcy Davenport -- President and Chief Executive Officer

Paul Rode -- Chief Financial Officer

Ken Goldman -- J.P. Morgan -- Analyst

Andrew Lazar -- Barclays -- Analyst

Chris Growe -- Stifel Financial Corp. -- Analyst

John Baumgartner -- Wells Fargo Securities -- Analyst

Ken Zaslow -- Bank of Montreal -- Analyst

Grant O'Brien -- SunTrust Robinson Humphrey -- Analyst

Bryan Spillane -- Bank of America Merrill Lynch -- Analyst

David Palmer -- Evercore ISI -- Analyst

Jason English -- Goldman Sachs -- Analyst

Robert Dickerson -- Jefferies -- Analyst

Pamela Kaufman -- Morgan Stanley -- Analyst

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