Q2 2020 Earnings Call

[music].

The Green branches second quarter 2020 earnings conference call and webcast hosting the call today from building brands are Darcy Davenport, President and Chief Executive Executive officers and pull off road Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 130 PM Eastern time.

The dial in number is 805 eight sites 8367, and the passcode is seven threenine two to eight eight at this time all participants have been placed into listen only mode. It is now my pleasure to turn the floor ever to Jennifer Jennifer Meyer Investor Relations at El Arrayn brands for introduction.

You may begin.

Good morning, and thank you for joining us today for selling brands second quarter fiscal 2020 earnings call with me today, our Darcy Davenport, our president and CEO, Paul Brown CFO RCM call will begin with prepared remarks, and afterwards, we'll have a brief question answer session.

The press release out the park that supports these remarks is posted on our website. They both the Investor relations any FTC filing section at the Hollering Dotcom. In addition, there really is available on the Fccs website.

Before we continue I would like to remind you that this call will contain forward looking statement, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these days.

These forward looking statements our current as of the data this call and management undertakes no obligation to update these Steven.

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 posted on our website.

With that I will turn the call Overdid arty.

Thanks, Jennifer and thank you all for joining us this morning.

I want to start by acknowledging this unprecedented time in thanking all the bell ringing plays I've been blown away by the dedication flexibility and focus our organization has exhibited during this stressful time.

I'm proud to say that protecting or employees has been our number one guiding priority.

Special Thanks to the frontline employees, who work in our German plant and in our network of co manufacturing and logistics partners there in valuable to our success.

Last evening, we knew we were pleased to report record sales at 258 million at 19% and adjusted EBITDA of 43 million.

Performance exceeded our expectations and I'm encouraged by the progress against all of our growth strategies.

Because of our loyal consumers strong product offerings and stable supply chain, we're able to reaffirm our full year guidance.

This morning, I will share some category observations brand highlights progress against our growth strategies and and with our outlook.

I'd like to start with a broader category and the impact and Kobin 19 on consumer behavior.

During our second quarter the category remains strong at 6.5% as measured in Nielsen, while the liquid said category grew 11%.

As with most most categories all convenient nutrition product forms experienced kobin related pantry loading in March.

You have likely seen the Nielsen data showing declines in April we attribute the decline to pantry de loading a reduction in on the go consumption and a channel shifting to online.

Pantry de loading, which our research says is the majority of the April decline will soon and however, we expect the other two dynamics to continue.

Since channel shifting is not a reduction in consumption, but rather a change in measurement from tracked to untracked I won't go directly to the on the go you said you dynamic.

To understand this let me first share the category usage breakdown focusing on ready to drink shakes.

Research said approximately 64% of shake consumption occurs at home and 14% is consumed at work or school.

Given shelter in place orders, we believe these two usage occasions, our both now occurring in the home and have grown.

The remaining on the go occasions occur when traveling commuting or fitness centers in Jan.

We believe we believe this on the go consumption has declined in April and will continue at a lower level. So long as shelter in place orders exact.

However, we expect a long term effect of coven 19 to be positive for the category because of the increased trial gain through the stock after it.

Now to our brands.

Representing 80% of our portfolio Premier protein shakes consumption was at 33% in track channels and double that and on track.

We experienced strong organic growth as result of increased marketing and promotions, including our national advertising campaign, new products and the lapping up capacity constraints.

Premier proteins track consumption, followed a similar path as a category with a spike in mid March and a decline in April.

As a reminder, premier protein distribution, it's fairly equally split across tracked in untracked channels.

So equally as important premiers April performance in Untracked channels was incredibly strong growing over 50% with E commerce growing close to 200%.

In summary Premier protein April consumption remains strong despite the kobin category headwinds.

Now to our growth strategy.

Our first National television advertising campaign launched in January and across all media platforms generated over a billion impressions this quarter.

We experienced significant increases in awareness dollar share and website traffic, but most importantly, our household penetration surpassed our annual goal increasing from 5.3% to 6.6%.

Based on these results, we see television or the key driver for future New household.

Within track channels in the latest 13 weeks, we're growing 79% in food and 84% in drugs.

We expect further distribution gains in the back half the year.

Our new products are also performing loan Kathy latte is exceeding our expectations and is now our number two fastest selling flavor.

Protein without is also off to a great start performing in the top 40% of the category where it is sold.

Now I talk to our smaller brands dermatitis domestic business had a strong quarter up 13% led by E Commerce.

However, both diamond ties and Powerbar as international businesses, which represents 7% delving suffered as a result of Kobe toward the ended the quarter.

We expect these declines to continue through Q3 until stores reopened.

I was particularly pleased with our performance of our supply chain this quarter, even with the unexpected demand spikes and overloaded logistics next network our supply chain executed best in class service.

Our shake capacity expansion plans remain on track and we continue to have inventory flexibility to execute our growth plans.

Now I'd like to come back to our outlook, we exceeded our expectations for our first two quarters and have strong momentum against our growth strategies.

In summary, better than expected Premier protein performance is offsetting softness on our international businesses.

Which puts us in a good position to reaffirm our full year guidance.

I'm incredibly proud of our company.

Through all of this volatility and uncertainty our company our brand promise and our business proposition has never been has never been stronger.

I'll now turn the call over to Paul.

Thanks, Dorsey and good morning, everyone.

As Darcy mentioned in her remarks, the second quarter exceeded our expectations.

Net sales grew 19% to 258 million gross profit increased 11.6%.

Adjusted EBITDA was 43 million down, 12.5%, which reflects our planned incremental marketing and promotion investment behind Premier protein.

Overall net sales growth was driven by premier protein.

Net sales and volume increasing 26% at 27% respectively.

I mean approaching its all great growth driven by distribution gains and club FDM and E commerce and benefited from higher promotional marketing activity when compared to the prior year.

In addition, pantry loading related to cold that contributed to the group for the brand in the core.

Dormitories net sales declined 2%.

Strong E commerce growth in excess of 50% as consumer shifted purchases online was outweighed by decline for international and the club channel as we lap prior year promotions.

Powerbar net sales volumes declined 20%, 27%, respectively with lower international volumes and the impact from our portfolio optimization strategy in North America.

Turning back to consolidated results gross profit increased 12% this quarter with gross margins declining to work 20 basis points to 34.3%.

As anticipated.

The majority of gross margin decline related to higher input costs, primarily no bass pro teams, which we expect to continue for the second half.

Higher levels of trade promotions also weighed on gross margins, which was partially offset by lapping the prior year shake price increase.

<unk> expenses as a percentage as a percentage of net sales decreased 330 basis points to 18.4%.

This increase was driven by strategic increase the marketing spend of nearly $10 billion.

Got a public company costs and approximately 2 million net accounts receivable credit reserves.

We expect that you need to be lowered to second half as we lap yet back of the second quarter marketing campaign.

Adjusted EBITDA for the quarter was 43.4 million a decrease of 12.5% with adjusted EBITDA margin of 16.5%.

Before reviewing our outlook I'd like to make a few comments on cash flow and liquidity.

We saw an increase in that working capital the first half of the year, which was largely caused by coated and timing related items, one vendor payments and marketing spend.

Oh, good 19 called to Spike in sales in March which resulted in higher than expected customer receivables.

We expect operating cash flow to improve in the second half of fiscal 2020, when compared to the first half as some of the working capital timely reverses.

In fact in April loan, we generated approximately $25 million gosh.

Regarding liquidity, we ended the quarter with approximately 77 million up cash on hand.

As a precautionary measure to preserve flexibility in light of the uncertainty, resulting from cobot 19.

We barrel 65 million under our revolving credit facility.

We believe we have sufficient liquidity to satisfy our business needs.

As of March 31, net debt was 735 million and that leverage was 3.5 times.

Our net leverage target remains three times, we plan to reset.

Fiscal 2021.

Turning to our outlook, we continue to expect fiscal year 2020, net sales to be 1.0 to 1.05 billion and adjusted EBITDA of 192 to 202 million.

The first up 2020 came in stronger than expected largely resulting from coated related pantry loading for premier protein, which we expect reverse in the third quarter.

I want to emphasize the while cold it has not changed or what would your expected results. It has changed the quarterly guidance.

We expect to favor the second half over the first and the pull forward from Q3, two Q2 reverse that.

Likewise within the second half, we expect to Q3 to favor Q4 and for the same reason that too has reversed.

Despite the lingering effects of coded we expect the second half to deliver strong double digit top line growth driven by growth for Premier protein, we remain confident in our full year guidance.

With that I'd like to turn the call back over to the operator.

[noise] to ask a question at this time, you'll need to press star one on your telephone keypad to withdraw your question press the pound team.

Please stand by what we can pile became a day roster.

Your first question comes from Andrew Lazard with Barclays.

Hi, good morning, everybody.

Good morning.

Hi.

Thanks, Darcy work to start off maybe with some of your comments on household penetration.

<unk> you know still has among the lowest helpful penetrations of really almost all the brands that we cover and yet obviously the highest repeat rate I think even in the nutritional food category. So I'm trying to get a sense of it's very early in its probably very hard to really get too much out of the actual data at this point.

But maybe if you have any anecdotal.

After evidence around what you're seeing in terms of shopper behavior from those folks that are sort of new to the brand.

And your likelihood that some of those remain sort of sticking to the brand going forward given that the repeat rates in sort of.

What you can do if anything differently to make sure you're really converting those people are just going forward.

Sure.

Yes, you're exactly right or repeat and loyalty is among the high snack category and what we have seen historically and we expect to continue to see is when we get people to try because of the 50% repeat they won't repeat on what we often see is it safe.

If they try and on smaller pack sizes for instance, in food drug Walmart et cetera.

Then what happens they start consuming the product every day and then they want to start buying bigger pack and so we Boston seen this sort of cycle within our channels as weve as our consumers become kind of adopted into the franchise. So we expect to see that.

Same phenomenon with these new buyers that are entering and recently.

Thanks for that and then there's been some discussion that in addition to some of the recent shopper behavior shifts that you mentioned like the on the go piece and all of that which I certainly understand that maybe shopper behavior, even in the store. During this sort of panic buying phase has been a little different where consumers are going in shopping center of store and then getting out as quickly as they.

Ken and maybe bypassing some other areas that they might otherwise have gone to like the pharmacy section and whatnot, where a lot of your you know shakes are sold I don't know if you're seeing much evidence of that and if so does any of that help you ultimately when all this passes in terms of.

Debate and argument with retailers about getting your product more into the mainstream though thank you.

Yeah, It's a great question and obviously with everyone else. We this is a.

Dynamic situation and we are seeing shopping trip down as and everyone is right and we're seeing rings. A however, whats interesting we see that at the factor, we just don't see be traffic being the most important most critical factor.

What we fight one of that one of the key things that we look at was.

Different retailers shells convenient nutrition products in different places.

So in the past couple years.

They on several retailers have shelved some nutrition bars in the granola pile.

And those and whether its placed in Akron, Ohio or in the pharmacy, we're still seeing the same declines in April so that to me tells me, it's really less about traffic in certain parts of the stores and more about the on the go usage.

Thanks, so much.

Yes. Thank you.

Your next question is from Chris Grubb <unk> with Stifel.

Hi, good morning.

Good morning, Chris.

Good morning, I hope you're well. Thank you I just wanted to ask a quick question. If I could just don't better understand the quarterly flow. There I guess is I'm thinking about the de differences between consumption and shipments in the quarter do you foresee then in the third quarter like a larger inventory I'm kind of restocking occurring there.

How does it interacts with the fact to the consumers pantry loading as well so just trying to get a better sense of how Q3 plays I guess relative to Q4, and how that retail de stocking.

Q3.

Yes, so yeah crystal Yeah, we definitely think that the second quarter pantry loading for primarily for Premier.

We believe feel our customers will the load from somebody metro that they bought late in March because obviously the consumption pull through hasn't been quite a strong in the in April as thirsty alluded to and so we'll see the other side of that the the d. load.

I think from a consumer perspective.

I think there's been some d. loading it there you know kinda pantry level, we're starting to see it out of things were stable life Outdoorsy do you want to add on that at all.

Yeah, I think that you know we found a spike the consumer spike in the middle in March and then that many of our retailers.

Replenished so they took in big orders toward the end to <unk>.

So many of our retailers had higher than normal inventories at the end of March and that's why we said that there's going to be kind of a reversal between two three and cute too.

Okay. Thank you for that makes sense and then just a a quick question for you on your just sounds like a supply chain operated very well.

It's not your supply chain or it's like it's just say your <unk>. The manufacturing is not yours. If he will stand by third parties are there incremental costs. During this kind of environment that you have to bear during this time to try to get a sense of like how that may affect the Q2, and it's like how that could affect the business going forward.

They're they're not incremental costs, we did experience some slightly higher transportation costs during kind of that height toward the end of March but it was nominal and we don't expect any further increasing off.

And you had no capacity issues in the quarter, you don't foresee them is that fair to say.

Happy to say, we did not have [laughter] okay.

Okay, great. Thanks, so much free time, thank you.

You are next question is from Kim Goldman with J.P. Morgan.

Hi, Good morning, Thank you everybody I come from me.

First I wanted to ask Darcy are you able to take advantage at all.

Lower dairy costs, Yeah, I know, there's some lag obviously between when you can buy.

When the costs are but I'm just curious if there's if it's possible for you to sort of help us out understand in terms of the timing and the degree to which this might be able to help you in the back half a year if at all.

And actually I know that Paul answer that.

<unk>.

Yeah, So you're right you've seen.

Dairy prices drop.

Yeah, we were expecting them to increase throughout the rest of the year it into the next year.

And with with milk prices coming down because of <unk>.

That does put pressure on a protein prices I will say that while.

Protein prices are indexed somewhat too you know nonfat dry milk, it's not always completely and sake and there are sometimes it's a supply and demand within about proteins as well. So it's not always going to fully track milk in it and were largely seeing that but as far as our our business and what we baked into our guidance we baked.

The.

The second half it still has increased protein costs as we cover out I think the opportunity really is more as we look into next year.

Where if protein price do come down or don't go up at the level that we expected that will that will help or are.

We get into next year.

Okay. That's clear and then my follow up is I I know, it's hard to know these numbers and I know we're in a very uncertain time, but it does seem like pantry loading a was a big effect and obviously you talked about the fact that there's some inventory at retail that maybe has to unwind is there any help you can.

Give us in terms of quantifying how much you expect shipments to lag consumption and the third quarter, even just sort of the rough justice would would be very helpful. As we think about modeling.

<unk>.

So I picked out ones.

As we look at.

Quarter, you know we were we were largely heading on track with our expectations of you know high single digit low double digit applying grove.

We ended up obviously around 90%.

And so long you know from our perspective that gap to <unk>. That's the that's the benefit that we got from Kobe order and.

Are thinking is that that that really larger versus as we get into the third.

So our retailers will do you load.

Okay. So really we should just look at that yep in that period of time and there's nothing else beyond that you think we should be factoring in.

Yeah, I think from from a you know premiere north, but you know from a premier protein perspective that as I was thinking about the business. That's rents are just.

Two or three or from yeah from tree to three into that too for our international businesses have died <unk>, which are left the temperature of our total revenue duty headwinds for that business in the third quarter, which walls, who impact or our our net sales is think about Q3.

As we get into queue for I I think we feel.

You know that.

North America business will largely be tracking normally again and the international business.

Recovering by them, but if it's probably a slow recovery for them.

Understood. Thanks, so much.

You are next question is from Pamela Kaufman with Morgan Stanley.

Hi, good morning I.

I had a question on E. commerce, well I is obviously very strong during the quarter. I think you mentioned it was up over 200 per cent.

Have you seen similar growth rates continue on that <unk> April and May and how does this compared to the pre <unk>.

Yeah, Great question. So we during the quarter and we thought about 150 per cent increase and actually in April we thought got the 200 and so we're actually seeing E. commerce grows increase over time, we <unk> historically, we've had our eat.

Timers business represent kind of high single at mid single digit and within our portfolio. It's now about 10. So it is becoming a bigger part of our portfolio and I think I mean, my personal feeling is.

We've known this trend has been happening I think it's not not a new trend. Obviously <unk> is accelerating that trend and I think that it will be here to stay I think this is one of the the laughing in packs of Covanta. After we are well.

Passed a vaccine I think people, there's going to start getting used to a new way of shopping and I think it'll be it'll continue being a bigger part of our business.

<unk> and then within their track channel data it seems that there's been some uptake in private label share a gains in the recent periods are you seeing any change in private label competition and is there any concern about potential downtrading and the category.

Yeah for US private label inconvenient nutrition is still a relatively small so it's still single digits. It is increasing slightly so it's about middle single digit now it's about about seven 8% in liquids it's about.

Eight or 9%, so it's increasing but still relatively small portion of the category. There are certain retailers that are heavy in private label, but mostly actually don't have private label with inconvenient nutrition, we're watching it especially given.

Recession discussion.

And but what we've found and even when there is a a private label and trend I. It doesn't affect our business very much I think it goes back to our strong consumer and the loyalty in the repeat that we have as well as.

Our flavor strategy when you have the private label, usually what you have is chocolate and vanilla and you know in bars, you know talk a peanut butter or you don't have that tremendous variety that our consumers expect from.

Great. Thank you. Thank you.

You are next question is from Bill Chapel, What's on trust.

Thanks, Good morning, and have you all are well.

Morning, I hope you too.

<unk> just one question or it gets first question on on the guide and I. Appreciate you keeping giving guidance that's a rarity right now, but just trying to.

I understand that from a quarterly basis, the the stock up and then the D. stock is kind of washes out in two q. and three q., but.

<unk>, where are we can all sitting that that 14% of people who consume on the go you know, which is obviously going to be tamp down is that being upset by just a new uses that have come into the the marketed in the first six months or there's something else.

Kind of keep you in maintaining guidance for the full year.

Yeah. So.

The <unk> the information I gave you was from a category perspective.

<unk> Premier is slightly different so if you think of I taught in my prepared remarks about 64% of the liquid category is consumed at home well, that's actually 75% or premiere protein. So already we have more consumption at home.

But you're exactly right and what we're seeing based on some surveys that we did is there <unk>, there's actually consumers at home or actually consuming more and so what you have is you have those people those that 80% or so consuming more and then and so that it and and you have.

New consumers and so that is slightly off setting the on the go the other piece is beyond that go the way we look at it is.

You have the stocking the d. loading, which we believe as close to over then you have the on the go which we think will last through the shelter in place.

And then you have kind of this ongoing on on the conversion D.E. commerce, but we <unk>. We so we see it really happening for the next couple months.

But it's not accepting near protein as much as the overall category I think that's an important point.

Got it in in one question on Diamond ties just trying to understand I mean, we are seeing it gets Germany and some other countries started to open up probably even faster than the U.S. So didn't know just trying to understand kind of how that plays out over the next few months.

Yeah our.

Our assumptions are fairly conservative on that front I would even say that from from a Germany standpoint, an easy you perspective, we assumed that the wasn't going to open up as fast as it looks like it's going to so but from a dime attire standpoint, you know as.

And you all know we were looking at a single digit growth by the end of the year and unfortunately due to the international business. We think it's gonna be you know single digit decline pretty year, but I do think it's temporary and it tomorrow and we expect.

By queue for if not before that it will for the most part recover.

Great. Thanks, so much and stay safe. Thank you to do too.

You are next question is from Rob Dickerson would jeffrey's.

Thanks, so much the morning.

[noise] [noise].

I guess the data that direct question is on the D. word.

You know for the past month, or so or the the time domain. That's your question as well what about.

Oh and they go in the category and you know, let's all of them will look at the day that trend. So the data trends, let's just say it up and get out. There is this is fairly substantial raise pretty material and at least some track channels that doesn't sound like.

<unk> different nontrade channels. So you know is it fair to say then if you think that d. load.

Of coming to an end or you know, it's getting better that over the next couple of months, where when you're in Q3 that we should just see that you know that that decline yerby or hopefully get less bad as consumers D., a load and then that whatever 75 per cent.

Consumers that are consuming more at home in theory that would be hopefully you know all you know also helping to offset.

The decline and in a way from are all undergo.

That is exactly how we're thinking about it.

Okay.

Oh, that's good.

And then I guess you know on the promotional side, you know kind of last quarter's call and did a part of the head of all the Tobin related chefs. The conversation was fairly you know senator round promotional timing.

And sometimes that it has to do with annotation, sometimes it doesn't are you. There you know have you sensed changes in their promotional calendar you know now for even a couple of months ago, and maybe how you think about kind of overall a. and p. spend as consumers are.

You know I mean, as they would be D. loading and then also as their home watching television and.

You know consuming media in various ways.

Thanks.

Thank you yeah. There there are two pieces of that one is any changes to our promotional calendar and our promotional <unk> is essentially the same as when we <unk> previously communicated and then the question about and peace and and any changes there, yes, I mean, we actually see.

As an opportunity we've had success with T.V., they're more more people at home watching T.V. and so we're actually on television again right now.

And we are going to continue to look at that for the remainder of the year and that was I will say that that was largely planned and so what we did as we moved it up a little bit but for the most part it was largely plan and baked into or guidance.

Alright, great. Thanks Darcy.

Thank you.

You know our next question is from David Palmer, whatever core I.S. I.

Thanks actually just to follow up first on on that point about advertising and promotion and even your innovation you know coming into this your your plans to spend up a decent amount. If you had a crystal ball, maybe you wouldn't have done that some of the spending or at least that degree because you get the essentially free trial.

From cobot itself. So how are you thinking about the return on investment.

And how much of that money is is already spent but it also just how given the fact that Kobe does change the game, perhaps you you want to lean into a digital channels more or something else How're you adjusting how you go to market promotion after the marketing and then what you're retailers your.

<unk>, allowing you to do through this year.

Sure. So the are alive from from an advertising standpoint, I mean.

We started our plan was to focus.

Our advertising at during the new year, New you when the most people enter into the category I still think that is that was a sound decision and I look at our metric.

And they are very positive so I I think that as a as a big success.

As far as putting more in digital our plan already has a a very good combination of kind of linear T.V. as well as digital. So we are the one area that we are pivoting is like many.

There are C.P.G. companies you know, we're spending more time on a social e. commerce were pushing but again and and we're adjusting our communications. So we're adjusting and how we communicate to consumers for ends and focusing more on the at home I mean so.

You know an example of this is we know that recipes resonate with our consumer well <unk> on when we're talking about on social and so those are the type of things that we we want to give consumers more.

Was there another question.

No I mean, well the the only if there's a retailer angle about how you know just basically getting done what you wanted to get done how that it might be changing.

With retailers.

Yeah, so from a promotional standpoint, we had seen some.

Some slight delays in promotions and flight delays on reset, but no. We so far has not have not seen any cancelled reset.

And so we are and and actually we've seen some opportunity here, where we've actually executed incremental promotions with certain retailers and so it's definitely a dynamic situation, but we have not seen a tremendous and we haven't seen cancelling.

<unk>, but rather movement.

And then the <unk>. The second quick one is we've heard there's tetra pack shortages out there is that something you're seeing in the marketplace and given the fact that.

<unk> your skill player I'm wondering if that might even be an opportunity where there might be players that.

Don't have enough supply out there and all pass it on thanks.

Yeah, we are having no problems with with supply.

On any of our packaging or ingredients.

Thank you.

Yeah.

You aren't X. question is from Brian Holland, whether D.A. Davidson.

No. Thanks, good morning, a one or two.

Kind of probe on the the composition of your consumer given that.

Such a large percentage consumed the product at home. So maybe the first question is.

And maybe maybe this answers the question but.

I'd be super seeing what's happening in in the track channels for the date that you mentioned the 200 per cent growth of consumption.

Any commerce 50 per cent overall and not try channels. So obviously caught maybe doing a little bit softer than that but it is there a difference between the consumer that's going into the club store buying your product in the track channel. So maybe maybe the the the folks who are are consuming the product at home or by Board club and the folks are on the go or buying it the other.

Is that maybe the disconnect there.

So when you break down when you look at track I guess that I, although we the way I described it was track versus on tract. When you look at that channels for premiere <unk>.

You start seeing is actually the channels and the retailers that are having success with premiere are mostly those who have expanded distribution of premiere or are supporting it with promotion so and that goes both on track as.

Well as I'm trapped for instance in April food for premiere was that 31% drawn was up 18%. So I think that it becomes more about their retailers, who has retailers and the channels, who have kind of gotten behind.

Mind Premier and expanded distribution and they're able to offset the covert headwind.

Okay.

Couple of contacts and then.

You know I just.

Going into this I I thought the current dynamic might set up such that there would be pent up demand as folks look to migrate back towards convenient nutrition, we're hearing about more kind of dolgen type purchases.

You know spiking in this backdrop, so so folks maybe need to reduce or or just kind of get back into a normal habit, but it sounds like the the percentage of your core customer or maybe there's a lower percentage of your core customer that actually impacted by the current I never so maybe I would've thought so his pent up demand is that something that is.

Real opportunity for you or or maybe not as much if you're if you're court. If if your of your core consumers are really impacted by by what's happening right now as far as the way they consume.

So no I think that there will be pent up demand I think that so if you. If you look at the different kind of needs states with inconvenient nutrition and you see a couple areas you see some areas like adult nutrition, which have done very well during this because.

Time, obviously, they target you know an older individual which may feel vulnerable. During this time specifically in the pandemic. So they are buying a fair amount of product then you've got the kind of diet side, which actually are done.

Signing and mainly because consumers are at home stress eating and their with their families. Then you've got the sports nutrition side of things that gyms are close this aren't more on the go and so those are suffering a little bit and you think of those those second too but.

Typically that that absolutely will rebound and I will I would expect will rebound in a in a bigger away and what and I think it'd be great for the category because I think you'll have more people more people coming to kind of the pharmacy section and.

I think and what's unique about our brand is yes, we kind of live in this every day nutrition need state, but we we access and we all all of the other needs state. So we won't get our fair share.

Appreciate the my best of luck.

Thank you.

Yeah. My next question is from <unk> with bank of Montreal.

Good morning, or good afternoon.

Good morning still.

Well, if you're you and your family.

Thank you just one.

<unk> when I think about the longer term in a pack of covert 19, and you get your business that.

<unk> be better neutral or worse off and why or why not.

I believe it will be better I believe that that especially during that.

There are two pieces. The first is during this docket period, we know we got new household not only did we hear that from the survey we thought in the household pen.

So and then so I believe that the I think the down as temporary and the actually we got new trial, which will then get those consumers to repeat and and have you know a lifelong consumer the second pieces I do believe.

Is that after this there is going to be pent up demand and I think we're gonna have more traffic coming into our category.

So it would it be fair to say that you are longer term growth rate. Your top one feels good could be up another hundred to 200 basis points or you'll be on 2020 like 2021, 2022, two and beyond is that it reasonable way of thinking about it and and at the same time, you're construction does not get in fact, given how you guys go to Mark.

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I don't think I'm at the position I don't think I'm in a position right now to really look at that long term right now we I do believe there's outside but we're in like a vet right now can so I I I <unk> I I haven't quite quantified it and to really get a sense of how big the upside.

<unk>.

Great I really appreciate stay say, thank you too.

You are next question is from John Baumgartner with Wells Fargo.

The morning, Thanks for the question.

Good morning, Dark Darcy, you're one of the US Big picture about the innovation pipeline I mean, there's an increasing amount of functionality across this category in terms of specialized products and I guess, you know given that new products are a part of your longer term growth plan can you speak a little bit to that pipeline you how much activity you have there at this point given the dislocations and then you how you're anticipating.

Positives or net delays in that activity, resulting from this this cobin environment. Thank you.

Thanks term our innovation pipeline is is I'm changed from that Cove, it environment I'm continuing to be so impressed by our r. and d. team and their creativity on how they're getting things done.

We still have that kind of skeleton crew in our lab and they're they're moving project along.

Bigger picture on the innovation pipeline and how we're looking at it you can look at our successful launches this year around cafe Latte, where it had its at first time, where we had a benefit <unk>.

<unk> a benefit to our shakes with the added benefit of caffeine and so we're looking at that as an interesting way to go I think where we want to take it is we want to take innovation is within the liquid.

Looking at incremental consumers and an incremental needs states an incremental occasions. So we will continue to launch products that that go in all three of those directions.

[noise] that you.

Thank you.

You're an X. question is from Jason English with Goldman Sachs.

Hey come all you folks thank you, particularly question.

[laughter].

I want to match the the idea of the notion of this pent up demand and the.

When we all emerge from quarantine and and.

Sheltering home.

We're going to have to as sort of a a kick start another new year's resolution. If you well, it's an interesting ocean or at least personally resonates a me as I spent way too much time sitting behind the computer screen here at home right now and snacking too much.

<unk>.

New approach to retailers from this sort of concept yet and is there any is there any inertia underway at the trade wait now to prepare for any sort of programming activation around that concept.

To be honest I think it'd be retailers are just trying to get labor and and get through this.

Crisis. So however, and you know making sure that they have resets on time and promotions on time, However, I think a big time for the category. The two biggest times for us and the category really is around new year, New you as well as back to school. So I see the back to school timing at the very.

Interesting time to Reengage consumers and most the time the retailers will make kind of a big splash during that period of time.

That's interesting what do you think back to school resonate so much I would've thought you what is sadly swimsuit season kickoff. This summer I like we see so many with other other nutrition weight management products.

Yeah, I think it has to do with just the higher traffic in the stores.

And because they're really what's unique about this category is with the exception of.

Oh and November and December being about a 90 index and Jan Fed March being a higher index for the most part consumption is pretty stable.

So then it becomes okay. When do you have the eyeballs in the store, where you can get people's attention and I think that's where back to school come.

Got it that makes sense I think slow past, congrats and again quarter and congrats I navigating almost turbulent so well.

You take them.

There are no further questions at this time, ladies and gentlemen, thank you for participating. This concludes today's conference call and what's cats you may now disconnect.

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