Paul Rode

Thanks, Darcy. Good morning, everyone.
I'm pleased to share our fourth-quarter results came at the high end of our expectations. Net sales for the quarter were $556 million and adjusted EBITDA was $117 million. Net sales and adjusted EBITDA both grew 18% over the prior year with adjusted EBITDA margin of 21%.
Starting with brand performance, Premier Protein net sales grew 20% primarily driven by strong volume growth for both RTD shakes and powders. RTD shake sales grew 21% boosted by organic growth and distribution gains as well as a 1% benefit from our price increase taken late in Q4.
Shipment dollar growth outpaced consumption dollar growth with shipments benefiting from load ends of new distribution and Q1 promotions as well as replenishment of food channel shelf gaps. Dymatize net sales increased 4% this quarter on 7% higher volume. Strength in the international business continued in Q4 with double-digit sales group. This was partly offset by domestic headwinds with softness and distribution losses primarily on specialty and food weighing down overall brand growth.
Gross profit of $205 million, grew 32% with an increase in margin of 400 basis points to 36.9%. Gross profit included higher unrealized mark-to-market gains on our commodity hedges versus prior year and production attainment fees received from shake co-manufacturers. Excluding these impacts, gross margins increased 250 basis points compared a year ago, primarily from net input cost deflation as we lap elevated protein costs in the prior year.
Excluding one-time cost in the prior year period, SG&A expenses as a percentage of net sales increased 320 basis points, more than half of which was driven by higher marketing spend as expected. Advertising promotions been rose to 4.5% of net sales as we increased marketing support across our portfolio. Operating profit of $112 million grew 44% and was positively impacted by lapping $7 million of accelerated amortization recorded in the prior year.
Turning to full-year 20 -- fiscal '24 results. Net sales were just shy of $2 billion, up 20% over the prior year. Gross profit of [$707] million grew 33% with margins up 360 basis points over 2023. This growth was driven by cost inflation partly offset by higher promotional activity.
SG&A expenses were $285 million, and when excluding one-time items, increased 160 basis points as a percentage of net sales. Marketing spend increased 60 basis points versus prior year and was 3.1% of net sales this year. Adjusted EBITDA grew 30% to $440 million with a margin of 22.1%, an increase of 180 basis points.
Before reviewing our outlook, I would like to make a few comments on cash flow and liquidity. We generated $40 million in cash flow from operations in the fourth quarter and $200 million for the year. As expected, shake inventory levels increased in the fourth quarter driven by incremental production volumes, putting us in a strong inventory position at the end of the year.
In fiscal 2025, we expect to further build shake weeks supply at optimal levels most notably in Q1. As a result, our cash flow in fiscal '25 is expected to be similar to fiscal '24. As of September 30, net debt was $769 million and net leverage was 1.7 times. With our EBITDA growth and strong cash flow generation, we anticipate net leverage will remain below 2 times in fiscal '25.
With respect to our share repurchases this quarter, we bought roughly 700,000 shares at an average price of $55.97 per share or $41 million in total. For the fiscal year, we repurchased 2.6 million shares at an average price of $56.12 or $147 million in total. Our remaining share repurchase authorization is $175 million.
Turning to our outlook, we expect fiscal '25 net sales of $2.24 billion to $2.32 billion and adjusted EBITDA of $460 million to $490 million. Our guidance applies strong pipeline growth of 12% to 16% and adjusted EBITDA growth of 5% to 11% with healthy adjusted EBITDA margins of 20.8% at the midpoint.
We expect dollar and percentage sales growth to be weighted to the first half of the year while adjusted EBITDA growth will be weighted to the second half. From a brand perspective, we expect mid-teen sales growth for Premier Protein driven by volume gains, shake list price increased benefits, and continued category tailwinds.
Key drivers of Premier Protein's volume growth include distribution gains on new and existing products, increased promotional activity, and organic growth. [Expanded] formats and pack sizes along with innovation drive new distribution growth this year.
Net sales growth in the first half of fiscal '25 benefits from lapping low shake supply in the prior year while the second half faces a modest headwind as we lap trade inventory loads in the prior year. We expect low- to mid-single digit sales growth for Dymatize in fiscal '25 driven by volume. Fiscal '25 adjusted EBITDA margins are expected to decline [130] basis points at the midpoint but at 20.8% still above our long-term algorithm of 18% to 20%.
Gross margins are expected to be moderately pressured by higher protein and other input costs. Significant inflation will weigh on our powder margins in fiscal '25 after experiencing very favorable protein rates in '24. On shakes, our price increase taken in fourth quarter of '24 is expected to largely offset inflation which gradually increases throughout the year. SG&A as a percentage of net sales is also expected to be a modest headwind to margins as we increase marking for Premier Protein, particularly in the first half compared to a year ago.
Turning to our first quarter forecast. We expect net sales growth north of 20% with Premier Protein the main driver. Dymatize [and all there] is expected to grow low- to mid-single digits. Premier Protein growth is lifted by distribution gains, promotions, and organic growth as well as our shake price increase. We expect shipment dollar growth for Premier shakes to be relatively in line with consumption growth.
First quarter adjusted EBITDA margins are expected to be meaningfully lower than prior year as higher SG&A expenses partially offset by a modest increase in gross margins. On SG&A, we're expecting a significant step-up in advertising promotion span from very low levels a year ago as we kick off our Premier Protein nationwide campaign late in the quarter. Gross margins compared to prior year benefit from our recent pricing action on shakes offset partially by input cost inflation.
In closing, we are encouraged with our strong performance in fiscal '24. Our long-term outlook remains bright and we look forward to delivering another above algorithm year in fiscal '25.
I will now turn it over to the operator for questions.

Question and Answer Session

Operator

(Operator Instructions)
Andrew Lazar, Barclays.

Andrew Lazar

I guess first off, Darcy, I think you have done some trial runs in isolated geographies around increased marketing spend behind Premier. And that you would use those learnings to inform how you want to go about this the broader national campaign this year. If I have that right, maybe what are some of the key takeaways or learnings from those trials as it relates to the approach you're taking this coming year around the increase in advertising and consumer spend?

Darcy Davenport

Perfect Thanks for the question. You're right. We did a couple of things this quarter to prepare for our national campaign. We had three in market tests and then we also just did some additional creative testing. We're still waiting for the full results, but the early results would say that the in-market test met or exceeded our lift expectations, so that's great.
And then the second piece is on the creative testing, we saw some areas. It was -- they performed very well. But we saw some opportunities to improve the creative, which is in my mind, the best-case scenario is the existing -- what we have the existing creative performed at or above our expectations in market. But we also have some areas to tweak it and improve. So all in feeling really good. We have the time to tweak the creative a little bit. And then we'll hit the market later in Q1.

Andrew Lazar

Great. Thank you for that.
And then, I guess what is your current view on what the increase in capacity will look like in fiscal '25? I think as of last quarter, it was a mid-teen increase that was expected, I don't know if that's changed or not. And then are you closer to having to start to add maybe additional lines in either or both of the Greenfield production facilities because I know that takes some time to get those up and running.
Thank you.

Paul Rode

Yeah, Andrew. For fiscal '25, the production volumes that we're expecting are in the mid- to high-teens. Some of that is because we have -- as we touched on last quarter, we did get some incremental production which obviously benefited Q4 into Q1 and we expect that to continue on into the future. And so we really expect that our current network can support our growth really later into fiscal '26 to '27. So it's a little bit perhaps further out than we discussed previously on when we think we may need to look at additional lines. So we believe we can continue to get additional volumes from our existing network, which obviously for us is better because it's lower risk and it's easier for us to do, so a little change from last time but not dramatic.

Operator

Ken Goldman, JPMorgan.

Ken Goldman

I wanted to ask Darcy. Previously, you had indicated that this year's revenue growth 2025 might be near the top end of the longer-term algos, so maybe around 12%. Now, 12% is at the bottom of the range. Can you maybe walk us through what changed in the last few months that gave you incremental optimism that allowed you to feel a little more comfortable with the higher range at this time or was it previously just a case of, hey, maybe you were a little too early to be precise and now you have a little more clarity into how the year is going to unfold?

Darcy Davenport

Yeah, I think it's just the latter.
Our full plan wasn't finalized in August when we had our last call. And so we knew that it was rolling up strong and felt comfortable with the top end of our algorithm, but just as the planning process developed, we obviously saw more opportunity.

Ken Goldman

Makes sense.
And then for my follow-up. Paul, I mean, you gave some helpful information on the first quarter. I may have missed it, but I don't think we had enough puzzle pieces to get exactly to where you're thinking about for EBITDA dollars. Understanding that sales will be up 20% or more, but that the margin will be meaningfully lower. Any more clarity that you can give us on where you'd like us to net out on that bottom-line in terms of dollars or bottom-line growth would be helpful, I think just because of those major puts and takes there.

Paul Rode

Yeah. So yeah, we expect our first-quarter EBITDA margins to be meaningfully lower than a year ago. The biggest driver is on the SG&A line, which we expect a significant step up for our marketing. So our A&P, you may recall last year, our A&P was relatively on the low side at about 1.4%. So it was very low last year. We're expecting it to step up very meaningfully this year as we are marketing behind our brands, but also starting to do Premier national marketing towards the latter part of the quarter. So it's a very significant step up on the market -- on the SG&A line and we expect some additional headwinds on G&A. So it's a very significant step up for SG&A. And then our gross margins, we actually expect those to be moderately favorable as pricing for shakes does offset some of the inflation but net-net a pretty meaningfully lower EBITDA margin in Q1 versus a year ago.

Operator

Matthew Smith, Stifel.

Matthew Smith

Marketing stepped up in the fourth quarter and you called out higher marketing spend for the upcoming fiscal '25. Should we think of the 4.5% of sales from the fourth quarter as a goal post for the full year or maybe even higher than that with the roll out of the marketing campaign being more targeted in the fourth quarter?

Paul Rode

No, if we think about fiscal '25, I would not expect 4.5% to be the full year. I think it should be a little bit less than that. Again, Q4, we have a number of things going on that including the test marketing we had for our Premier shakes. I will say that if you look at fiscal '25, marketing will be a bigger headwind to margins in EBITDA in the first half than it is the second half because we did step-up marketing in the second half of '24. So as you look at '25 fairly sizable step-ups in both Q1 and Q2 of '25 versus year ago and then it more moderates in the second half but net-net, it should be somewhere in the high 3s to low- to mid-4s for the year.

Operator

David Palmer, Evercore ISI.

David Palmer

I'll maybe make this a super general question about convenience channel. I know there's a lot of curiosity about strategies to improve your penetration in that channel and growth rate in that. And I would suspect there's some synergies with expanding plastic bottle capacity as well there. Could you maybe talk about that?

Darcy Davenport

Sure. Yeah. So the convenience channel just I'll give a broader perspective. So it only represents about 10% of the category. So it's actually a pretty small part of the category. And so that is not -- it just is not our immediate focus, and we see that actually the bigger opportunity for us is expanding distribution where we already are distributed. So TDPs incremental displays in food. I mean, we think there's an opportunity to double our business in food. That is -- to that end, we also see a very big opportunity in mass. So those are the big expansion opportunities.
Now, I want to separate -- I want to separate out the convenience channel and the single-serve opportunity because we actually think the single-serve opportunity is a very big one. It's just not -- it just doesn't have to be in the convenience channel. And so that is something that we are -- absolutely, we're expanding our bottle production. And we'll be -- and we are focused internally as an organization to expand our single bottles and that would be in the channels that we already are being distributed.

David Palmer

No, that's great color.
I just wanted to ask one more on advertising. If you get to the 4s as Paul was just talking about in terms of advertising mix, where does that place you in terms of your share of voice in the category? It feels like this category might be under advertised right now versus your 20% market share. How much of the heavy lifting will you be doing in terms of advertising voice? And I'll pass it on.

Darcy Davenport

Yeah, so just from a share of voice, it gets close on Premier Protein. And same way -- and we are also advertising Dymatize, but I think you're more asking about Premier Protein. It's during -- so what's unique about this category is just the -- a little bit of the seasonality. So Paul mentioned that we will start advertising at the end on Premier at the end of Q1.
Just to prime the pump for the big season, which is our Q2 or January, February, March. That is when most people -- most new people enter into the category during I'm air quoting, diet season. But so -- during the period when brands are advertising, so think of mostly Q2, Q3, Q4; we will have a competitive share of voice.

Operator

Jim Salera, Stephens Inc.

Jim Salera

I wanted to ask you a question just about maybe the composition of growth and I appreciate Paul, you gave a lot of good detail in your prepared remarks. But what are you guys expecting for RTD shape category growth? And then when you talk about some of the distribution gains, is that distribution for the whole category and obviously, you have a prominent place there? Or is it you're finding Premier is gaining distribution where other competitors are being left out of that incremental shelf [placement]?

Darcy Davenport

Okay, so first there are a couple of questions in there. The first one was, what do we expect for the RTD category? We expect the RTD category to grow at low-double digits. So I think that we will continue to see expansion of RTDs. Couple -- the mainstream brands and Premier leading that are the ones driving the category growth, and we'll continue to see that.
As far as our distribution gains and when you look at our growth for the year, we expect about 75% of the -- our Premier growth to come from new distribution and new products. So that is definitely going to be driving most of our growth and we will -- because we're the ones driving the growth, we should get most of the shelf space.
So again, I think that we're having incredibly constructive conversations with our retailers. They realize that convenient nutrition is under space. Actually, when you look at our category compared to other categories in the store, with much lower growth rates, I mean, we should have 2 to 3 -- convenient nutrition should have 2 to 3 times the category space as it does today. So I think that the retailers see that opportunity.
Unfortunately, to date, there's just been a lot of capacity constraints. And so now that at least we are out there, I talked about in my prepared remarks that we have an incredible category selling deck which walks at retailers through the opportunity and the opportunity is two-fold. One is just incremental space and why the category deserves it. But the other piece is if you've been in any food account, you'll see the opportunity of just organization and merchandizing of the category.
The category generally is misunderstood and confusing to many consumers and it needs to be cleaned up. And so we have a lot of recommendations around that backed by research, et cetera. So those were some of the pieces that I was referencing when I was saying we -- the organization is ready for this moment when we are unconstrained where we can actually go on the offensive.

Operator

John Baumgartner, Mizuho Securities.

John Baumgartner

Darcy, there were some high-level comments around innovation for 2025. At this point, are you at liberty to speak more in detail about those? And maybe just conceptually when you speak about new platforms, what's your expectation for these platforms in terms of offering new ingredients or benefits that can attract new users, new age groups and so on?

Darcy Davenport

I'm probably not at liberty to talk as much as you'd like me to. (laughter)
It's still early, but here -- I'll talk in maybe a little more specifics. Okay, so Premier on -- I'll talk first Premier, then Dymatize. Premier, we will continue to have close innovation. I've in the past called it little eye innovation. That's flavors pack size formats. So we will continue to expand the offerings there. We think there's a ton of opportunity, low risk, and not only do you increase household penetration through these offerings, but you also increase buy rate. So that will happen probably a little less (inaudible) than the big-eye innovation. But I think what's exciting around next year, we will have two new launches under Premier. And that's what we would call more big-eye innovation. One launching in Q2, the other in Q4. And once they're on the shelf, I'll tell you more about them. (laughter)
And then Dymatize, we have two lines launching in the first half and these are platform ideas. And then the first half, one -- and they're both -- I'll have a little teaser is they are both outside of the typical protein powder. So to get at and the idea around the big-eye innovation for both businesses is it has to check the box for incremental household -- incremental consumers or incremental occasions, so that is -- that's what -- that is what needs to be true.
Does that give you a little?

John Baumgartner

Yeah, I'll sit tight.
And maybe just to follow up there. Coming back to the household penetration and shake like the category level, the rate of increase accelerated this year relative to what we've seen post COVID, which was already strong. In terms of the underlying drivers and penetration, is it possible that isolate how much of the recent growth in shakes has come from substitution of other formats, whether it's bars or powders relative to absolute new users into the nutrition category? And is that -- has that balance -- is it changing at all? Do you expect it to change in 2025 and beyond? How do you think about that from a penetration perspective?

Darcy Davenport

Most of the growth is coming from incremental to the category. So very little coming from -- well, first of all, only 10% of our growth is coming from brand switching, so start there. And most -- and then the -- so the 90% is coming from new users or our own users buying more. So -- and there's actually there's not that much interaction. We're not sourcing a lot of volume from bars and powders, a little from powders, but not that much. Most of it is coming from out like new consumers or our own consumers buying more.
And those -- our own consumers buying more are usually if you think of the consumer progression. Those are ones that have recently come into the category and now are becoming with because for -- with us, we have 50% repeat. So with those consumers just continuing to maybe they came in a year ago, two years ago, and now they're just -- they're becoming everyday users.

Operator

Bill Chappell, Truist Securities.

Bill Chappell

Darcy, talk a little bit more about just the decision on stepping up marketing in 2025, and why now and what level and because it seems like it's a step change. I mean you've grown exceptionally well over the past few years, despite not doing any national marketing, despite not flooding the airwaves. And it seems like at least this quarter and probably for the next few quarters, you are deciding to step up. So maybe give us an inside look of what the thought process was from the company or from the management team of like, why now? Where do we go with this? How far is too far? How little is too little? Any color around that would be great.

Darcy Davenport

Sure, I think that we have always seen advertising as an important demand driver. The last time we were on air was 2021. And it is -- it really is -- if you think of the only demand driver that is able to lift your entire business, it's advertising, especially national advertising. And so, that is the reason, we've always -- we've just had to -- we needed to wait until we were confident in our supply. And so now we're confident in our supply.
What I will say around levels, I mean, Paul talked about just percentage of sales. But I think that just maybe a little more qualitatively. I think we are being cautious, meaning that we are starting to press the accelerator of advertising and -- but we're not pedal to the metal at the very beginning. We did the test markets this last quarter, so we have a sense of what the list should be when rolled out nationally. We feel great about that. We also will be ready. We have some upside on production if the results end up to be higher than we expected. But overall, I mean, we are the big opportunity for Premier and the category is household penetration and there is nothing better to expand household penetration of the entire business than advertising.

Bill Chappell

Okay. And then maybe tying into that when you talk about things like you believe you can double the food channel sales over a certain amount of time. Like what are those consumers consuming right now? I mean, that's always the -- you have good household penetration. I think you've said that 80% of your consumption is for breakfast.
Do you -- is this different meals, different occasions of the similar user or these new consumers that are coming in and going for meal replacement or going for active nutrition where they haven't over the past few years? What's the driver of that?

Darcy Davenport

Yeah, you're right. So about 60% of our consumption is a meal replacement. So think of those people, they're not in the category now. They may not be -- they're either having an unhealthy breakfast. And I'm sure you've heard me say they're stopping and having an Egg McMuffin, they're stopping and having a Dunkin' Donut. So they're having an -- and they want to make a healthier change in their lifestyle and they start with breakfast or they're not having breakfast at all. And so this is incremental but they have been told by their doctor or their trainer or their -- or someone that they need to either lose weight or they need to just improve their health. And they start with improving their first meal of the day.
So that is where we -- our research shows where most of the people are entering. The biggest reason is because they want to improve their health and lose weight, and it usually is around breakfast. Now that is the main one. However, as we begin to expand, big-eye innovation, then you start going at new occasions on top of outside of just breakfast because yes, breakfast is the biggest one. The next one is mid-morning and mid-afternoon snacks, and then the next occasion is a replacement for lunch. So based on each one of those occasions, you replace a different food.

Bill Chappell

Got it.
So your thought is just more occasions than necessarily. Occasions is driving it more probably a little bit more than the new users (multiple speakers)--

Darcy Davenport

No, new users is number one -- new users is number one, occasion number two.

Bill Chappell

Great. Thanks so much.

Operator

Thomas Palmer, Citi.

Thomas Palmer

I just hope to get a quick refresher on your pricing plans. It sounds like you instituted the price increase in the fourth quarter for Premier. And then it did not sound like they were planned last time around on Dymatize. Is that still the case?
And then just any magnitude of thinking through the price increase this year? And yeah, I guess confirming that it's just that one round on Premier.
Thank you.

Paul Rode

Yeah, the current thinking is it's really confirming what you said. So we took a pricing -- a mid single-digit price increase on Premier shakes late in the fourth quarter. So we'll get the benefit of that throughout most of fiscal '25. We are seeing -- significant inflation on our powder business which we price for back -- if you go back in time we took significant pricing on our Dymatize business and Premier business powders back in late -- in the first half of fiscal '22. We're seeing protein costs really go back to about those same levels that we saw in late '22 and '23, so we price for that.
And so right now, we're not contemplating initially pricing per se on our powders, but it is something we're evaluating. What we will look at is perhaps promo rates -- promotional rates could come down a bit. But it's something we're evaluating. But as of now, it's primarily the Premier price increase that we're -- it's in our guidance.

Thomas Palmer

Okay, thank you.
And maybe I'll just follow up quickly on the inflation side. Any help on the magnitude of the inflation that you're facing. And then I just want to make sure I have it right. The Premier shakes pricing is covering the magnitude of inflation that you're seeing on that piece of the business, so that the pressure would be the powder side.

Paul Rode

Correct? Yeah, so we expect our price increase to -- on shakes to cover inflation on powders. What I would say is again, we took significant pricing back in '22 on this business. In '24, as protein cost came down, it did drive really strong margins for our powder business in '24. So that's part of the reason you see our EBITDA margins really strong in fiscal '24 is a lot of that is just the powder really favorable protein rates. And those are flipping on us as we move into '24 -- into '25. And I feel like I missed the first part of your last question. What did I miss?

Thomas Palmer

Oh, sorry. Just any help on magnitude of inflation to be thinking about.

Paul Rode

Yes, thank you. Sorry about that. Yeah. So overall, I would say inflation is in the mid-single-digit range. It's more impactful again, as I mentioned on our powder business. Powder as an example so we're looking at cost of -- on our protein for our powder. So that's give whey protein is up about 50%. That's our expectation for fiscal '25 and it's almost double in Q1. So we're talking about significant inflation.
So on powders, it's much more significant on our shake business. Obviously, it's less than that, but still inflation on not only the protein which we expect to continue to increase as we go through the year, but we're also continue to see inflation on things like manufacturing cost a bit on packaging. So much more modest increases and slower to build inflation increases on our shake business on powders. It's much more impactful, especially in the first half, it moderates as we go through the year but it's still a headwind throughout the year for powders.

Operator

Robert Moskow, TD Cowen.

Jacob Henry

This is Jacob Henry on for Rob Moscow. Thanks for the question.
I think just one from me. I know it's still early but how have the (inaudible) been versus your expectations on the shakes following the price increase?

Darcy Davenport

It is early but they're largely as we expected. I would say modesty last 50. One interesting piece is we are seeing a trade up from the 4 count to the 12 count, and that's a little higher than we would have expected. Again, we saw that in powders over the last year where consumers would trade up to larger sizes within Dymatize. So not unexpected but a bit higher. Honestly, I think it's good news in that they're moving to -- there's some pantry loading once you get a bigger pack, you end up consuming more, which I think is great, but that's really the only piece but otherwise largely as expected.

Operator

Steve Powers, Deutsche Bank.

Steve Powers

First is potentially a rudimentary question. But Paul, production attainment fees, could you just give us a little tutorial as to what those are? And whether they are expected to recur at all or if it was just isolated to the fourth quarter?

Paul Rode

Yeah. So the letter question, we're not expecting those things to continue. So production attainment fee is basically we have our co-manufacturers have volume commitments to us and if they do not meet those volume commitments, there is a fee to be paid for the missed volume. And so that's what -- that was in the fourth. So it's something we recognize in our fourth quarter related to volume and fiscal '24 that was not delivered.

Steve Powers

Yeah. Okay. That's what I thought. Okay, thank you.
And then Darcy, on incremental innovation, you talked about thresholds for new innovation to drive incremental households or more occasions. I guess are there any thresholds we should -- do you think about in terms of the profitability, the incrementality from a profitability perspective? They have to be margin neutral, margin accretive, and how do you balance the complexity that new innovation, new platforms represent relative to just trying to keep -- simplicity and efficiency in the business.

Darcy Davenport

Yeah, our goal is to have all innovation margin accretive. Over time, I think that obviously, when you launch new innovation, you sometimes need to support it at the beginning. But in the long term, we want it to be margin accretive.
And just from a complexity standpoint, I mean, we have a fairly simple business. So I think we know that when we do launch innovation, there will be some complexity brought in. But honestly, it's nothing -- it's still a pretty simple business. So again, margin accretive is the goal. And our -- and then just our innovation plan is that we would launch -- over time, we would launch a new platform on the Premier side every 18 months. Obviously, we haven't launched a lot of big-eye innovation over the last few years. So we've got a lot in the hopper. So that's why we have two this year. But over time, we'll get back to every 18 months.

Operator

Thank you.
At this time, I'm showing no further questions. This concludes today's conference call. Thank you for participating. You may now disconnect.