Juice Plus+ Moody’s Downgrades Rating, Outlook Is Negative

The Moody’s press release:

Moody’s Investors Service (“Moody’s”) downgraded JP Intermediate B, LLC’s (dba as The Juice Plus Company, “Juice Plus”) Corporate Family Rating (“CFR”) to Caa1 from B3 and its Probability of Default Rating to Caa1-PD from B3-PD.

Moody’s also downgraded Juice Plus’ first lien senior secured revolving credit facility and term loan ratings to B3 from B2. The rating outlook is negative.

The rating downgrades reflect Moody’s expectation for debt-to-EBITDA (Moody’s adjusted) to remain elevated above 10x in fiscal year 2023 given inflationary cost pressures and high distributor churn, which factors are adversely impacting operating performance.

Juice Plus has experienced double digit sales declines in its fiscal year ending April 2022, reflecting declines in sales force and volumes.

The sales force is a significant driver of revenue across the company’s direct selling business model, and declines in distributors is negatively impacting business performance.

Juice Plus continues to invest in IT systems, tools, training, and incentives to drive enrollment, but these investments have not halted the erosion of sales and earnings.

Moody’s anticipates it will be challenging to quickly and meaningfully improve the distributor base due to other opportunities for workplace flexibility brought about by increasing hybrid work arrangements. Juice Plus will likely benefit from the fall 2022 launch of a reformulated Omega Plus product in Europe that will replace the Omega product that was previously taken off the market in the EU.

Moody’s nevertheless projects EBITDA is likely to be relatively flat in 2023 as the full impact of distributor losses is realized and costs remain elevated, leading to continued negative free cash flow and high leverage. Moody’s also expects liquidity to weaken, as operating cash flow will continue to deteriorate over the next 12 months, and the upcoming expiration of the revolving credit facility in November 2023 approaches.

Moody’s forecasts the EBITDA margin will remain constrained in the low double digits, well below pre-pandemic levels, even after pricing initiatives offset some of the cost pressures.

The following ratings/assessments are affected by today’s action:

Ratings Downgraded:

• Issuer: JP Intermediate B, LLC
• Corporate Family Rating, Downgraded to Caa1 from B3
• Probability of Default Rating, Downgraded to Caa1-PD from B3-PD
• Senior Secured 1st Lien Bank Credit Facility, Downgraded to B3 (LGD3) from B2 (LGD3)

Outlook Actions:

• Issuer: JP Intermediate B, LLC
• Outlook, Changed To Negative From Stable

RATINGS RATIONALE

Juice Plus’ Caa1 CFR reflects its high leverage, high distributor churn, upcoming November 2023 revolver expiration, and economic headwinds will continue to create challenges for the company. The company’s direct selling model also increases the risk of adverse regulatory and/or legal actions, and the potential for actions by regulatory authorities.

Moody’s is concerned that the company will face difficulty mitigating distributor, revenue and earnings declines because increased hybrid work arrangements create competition for sales consultants that desire work flexibility.

This will impact Juice Plus’ credit metrics, constrain its ability to generate positive free cash flow to repay debt, and pressure the company’s liquidity. The rating is supported by the company’s existing product suite that is largely focused on wellness products and weight loss.

The rating is also supported by a high percentage of variable costs given the outsourced manufacturing model, as well as sales commissions and marketing expenses that fluctuate with sales volume. Social factors driven by an aging population and obesity trends that support demand for health, wellness and weight loss products also benefit the credit profile.

Liquidity is weak considering projected negative free cash flow and November 2023 revolver expiration.

Juice Plus had $45 million of cash as of January 2022 and $7.5 million drawn on its $50 million revolving credit facility as of the last twelve months ending January 31, 2022.

Moody’s projects negative $11 million of free cash flow in the fiscal year ended April 2023. Moody’s believes the cash balance may not be sufficient to fund the free cash flow burn, the $22.5 million of required annual term loan amortization, and repayment of the $7.5 million revolver if the facility is not extended.  

A revolver maturity extension would improve the company’s liquidity though it is not assumed in our liquidity analysis. The credit facility has a maximum net leverage covenant of 3.75x and Moody’s expects the company to be in compliance with the covenant, although with diminishing cushion. The maturity profile is weak with the revolving facility expiring in November 2023 and the term loan maturing in November 2025.

Environmental considerations are not considered material to Juice Plus’ credit profile, but the company must monitor the land, water, energy, and raw material usage of its contract manufacturers.

Social risks are a key consideration to Juice Plus’ credit profile particularly human capital and customer relations. The company depends on its distributor sales force to sell its products. Distributors can sell products to the public — often by word of mouth, social media, and direct sales.

Distributors can also earn commissions, not only for their own sales, but also for sales made by the people they recruit, which can lead to unfavorable regulatory scrutiny. The Federal Trade Commission has taken action in the past on a number of multi-level marketing companies and in some instances has made those companies pay fines. In addition, changes to consumer preferences can also drive shifts in demand. Juice Plus products and labeling are also subject to FDA oversight.

Governance factors consider aggressive financial policies under private equity ownership including the willingness to operate with a high amount of financial leverage, and potential for debt funded acquisitions and dividend distributions. The company’s control Altamont Capital also creates risks from concentrated decision making that can favor shareholders over debt holders and create event risk. However, Juice Plus will likely focus on business reinvestment and stabilizing operations over the next 12 to 18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The negative outlook reflects Moody’s expectation that Juice Plus’ operating initiatives will stabilize EBITDA but that free cash flow will continue to be negative over the next 12-18 months. The negative outlook also reflects the increasing liquidity pressure due to the upcoming revolving credit facility expiration and the high amount of required annual term loan amortization. These factors could increase the risk of a distressed exchange or other default.

The ratings could be downgraded if the company does not stabilize membership, the distributor count, revenue, and earnings. Increased likelihood of a distressed exchange, or deterioration of liquidity including an inability to proactively refinance the revolver, increasing revolver utilization, or continued negative free cash flow, could also lead to a downgrade.

An upgrade would require that the company stabilize and improve earnings including successfully increase its distributor count. An upgrade would also require Juice Plus to generate consistent positive free cash, maintain debt-to-EBITDA below 7x, and improve liquidity including improving the maturity profile.

The principal methodology used in these ratings was Consumer Packaged Goods published in June 2022 and available at https://ratings.moodys.com/api/rmc-documents/389866. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

About Juice Plus+

JP Intermediate B, LLC (dba The Juice Plus Company, “Juice Plus”) headquartered in Collierville, Tennessee, is a direct-seller of whole-food, plant based nutritional supplements (98% of revenue) and growing products. Products are available in a variety of delivery formats including capsules, soft chewable (gummies), shakes and bars.

The company operates through a multi-level marketing system in North America and a number of international markets. Juice Plus generated approximately $580 million in annual revenue for the latest twelve months ending January 31, 2022, and was acquired by private equity firm Altamont Capital Partners in a November 2018 leveraged buyout.