Q2 2021 Tattooed Chef Inc Earnings Call
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Good day and welcome to the tattooed chefs second quarter 2021 earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note this event.
Is being recorded I would now.
I'd like to turn the conference over to Rachel Perkins Investor Relations. Please go ahead.
Thank you good afternoon, and welcome to Turkish Chef second quarter 2021 earnings conference call on the call today are Sam Galletti, President and Chief Executive Officer, Sarah Galotti, Chief Creative Officer, and need tattooed chat and Stephanie Dykeman, Chief Financial Officer, and Chief Operating Officer, Matt Williams Patchy.
Chuck Chief growth Officer will also be available for questions.
By now everyone should have access to the earnings release, which went out at approximately four O. Five P. M. Eastern time today, if you've not had a chance to review the release, it's available on that Investor portion of our website at Www Dot catch your check dot com before we begin I'd like to remind everyone that the prepared remarks contain forward looking statements such statements involve a number of known and unknown.
Uncertainties, many of which are outside the company's control and can cause future results performance or achievements to differ significantly from the results performance or achievements expressed or implied by such forward looking statements.
Important factors and risks that could cause or contribute to such differences are detailed in the company's filings with the securities and exchange Commission, except as required by law. The company undertakes no obligation to update any forward looking or other statements herein, whether as a result of new information future events or otherwise.
Within our earnings release and in today's prepared remarks, adjusted EBITA as referenced it is important to note that this is a non-GAAP financial measures that we believe are useful metric that better reflects the performance of our business on an ongoing basis. A reconciliation of this non-GAAP financial measure to its most directly comparable GAAP financial measure is included in today's press release, which is.
Also been posted on our website.
With that it's my pleasure to turn the call over to Patrick <unk>, President and CEO Sam Goody.
Thank you Rachel and good afternoon.
I'll begin today's discussion with key business highlights new distribution wins and an update on our recent acquisition of foods in New Mexico.
And Sarah will discuss our marketing and innovation and Stephanie will provide further detail on the financials.
Our momentum continued in the second quarter of 2021 second quarter revenue increased 46% to $57 million compared to the second quarter last year, driven by our tattooed shell branded products and $4.3 million.
From food to new Mexico.
Our branded product sales for the second quarter of 2021 with $33.1 billion.
This is an increase of 62% compared to $24 million.
In the second quarter last year.
As a percentage of total revenue branded products accounted for 65% or 71% excluding foods in new Mexico I'm proud to say that we are well ahead of plan to reach 75% to 80% branded sales within two to three years.
We believe tattooed chef is positioned to be the leading plant based food company for years to come.
With fully vertically integrated production diversified product lines and ability to win in multiple areas of the grocery stores, not only frozen, but refrigerated and ambient to tattooed chef is positioned for long term success.
We are revolutionizing the way people think about plant based eating by thoughtfully, creating foods that feels good.
The tattoo chef brand as chef created for every lifestyle and an accessible price point.
<unk> brand is for everyone and we attract consumers of all ages and demographics. We also have a range of products to offer from breakfast lunch dinner or snacks. So that you can enjoy tattooed shift at any occasion.
It really resonates with both consumers and retailers as has been apparent through our sales velocities and product launches to date.
We are proud to announce that in less than one year, we have two skus among the top 10, veggie entrees ranked by velocity and according to the Mooloo Hwy.
As we previously announced we closed our acquisition of New Mexico, Food distributors, Inc, and Carsten Tortilla factory LLC collectively referred to as foods in New Mexico on May 14th for approximately $37 million in cash.
Frozen Mexican food is a 1 billion dollar category and we are super excited about the growth opportunity.
We will also be launching our first ever refrigerated ambient products early next year going after the 20 billion dollar Hispanic southwest food category with alternative tortillas, Burritos, Enchiladas and other creations.
This acquisition expands our own production capacity and Diversifies, our manufacturing capabilities to accelerate our expansion throughout the entire store not just frozen.
We plan to extend the tattooed chef reach not only within grocery but to a whole new level of convenience and refrigerated and ambient products to an untapped market of retailers such as airports convenience stores and more.
In two to three years between all the innovative ideas. We have we believe due to new Mexico can contribute up to $200 million in revenue annually.
The focus going forward will continue to be on tattooed shell branded plant based products.
We continue to look for similar acquisitions that we are able to add assets in manufacturing in order to develop new product new products in other categories and create shareholder value.
Our growth story, so far has been around diversifying patrushev customers and channels and we have been incredibly successful.
As you May remember at the end of 2020, our branded products were nearly 4300 stores and it had 23000 points of distribution, we have grown it to 8355 stores at the end of Q2 with 48070 points of distribution exceeding our previous projections.
As you May also recall our guidance for the full year was 10000 stores with 65000 points of distribution.
With the additional retailer commitments, our sales team has secured which I'll cover in a few moments I am proud to announce that by the end of the third quarter will be in over 12000 stores with 79402 points of distribution.
We continue to broaden our growth as measured by spins through July 11th our Tdp's have increased by over 135% since before closing the transaction in October. This is a strong example of the brand's viability and success in traditional retail and mass accounts.
Our new low consumption data as measured by fit spins continues to grow to the second quarter of 2021 was our strongest quarter for measured consumption in the history of the company Im ecstatic to announce the last 24 weeks ended July 11, 2021, we had four of the top five.
<unk> best performing innovation skewed in the plant based frozen Entre category, which Sarah will cover in a few moments.
Overall, our quarterly consumption has increased by 88% since completing the transaction October through strong growth in club mass and retail expansion.
In the club channel, we had another successful MBM and Costco with organic right call cluster side, we continue to partner and innovate with Costco with new items going into sucks selected regions across the U S.
And Sams clubs, we have three limited time offers in Q2 to improve green beans, with Lasalle begin with Savi Ranch Rice, cauliflower, Burrito, Glenn and our cauliflower Pizza with plant based Pepperoni. In addition to our core everyday items in.
In Q3, we will have three limited time offers including our <unk> Rancheros Breakfast Bowl Cheeseburger Bull and peptide programs.
According to spins in the club channel for the last 12 weeks ended July 11, 2021, tattooed chef is up over 60%.
For the 52 weeks ended July 11, 2021, tattooed schuff was up nearly 27% and remains one of the fastest growing brands in the frozen category.
In the mass channel latest 12 weeks through July 11, 2021. According to <unk>, we saw explosive growth from $119000 last year to $4.2 million. This year, primarily driven by store expansion and the new innovation within the <unk> brand.
We continue to be excited by the results of the retailers that were early adopters of the brand the combination of strong shelf presence and broad category. Assortments has led to very successful results that we believe can be scaled across the marketplace.
In one specific mass retailer for the latest four weeks through July 11th as measured by spin taxi chef has been number one and number two selling SKU in the frozen vegetable entre meals category in total dollar sales.
Additionally, in the same category the Turkish up as the highest total sales per point of distribution of all brands being sold.
These results support our growth strategy for expanded retail distribution and increased SKU count.
Yes.
We have more than doubled our ACB since the same time last year and now in over half Walmart in the U S and in almost every target store, we continued to see Tdp's increase in the mass channel in the latest 52 weeks, we have grown our business in the mass channel.
From 651000 last year to $7.9 million this year and we expect this momentum to continue throughout the year.
In the grocery and natural channels, we continue to win distribution.
With both national and regional retailers in the U S. Our products are resonating with retailers and consumers and it is a flywheel effect once retailers see our case studies in Q2, we went on shelf at whole foods Harris Teeter Jewel Smart and final Nuggets markets in nor.
Cow in a variety of independent retailers in Q3, we have begun distribution at sprouts farmers market Kroger multiple albertsons divisions, including the southwest Socal Norcal Intermountain Seattle.
Also HEB price shoppers and have additional commitments for later this quarter.
We are pleased to also announce our most recent distribution wins tattooed chefs products will be available in publix, beginning in the fourth quarter.
We are seeing our early retail wins expand their tactic, Jeff offerings into additional categories, which will increase the breadth of our distribution. We have set an internal goal of achieving 30 frozen skus per store across retail and our confidence that we have the portfolio to execute that we expect.
Our incredible double digit total company growth to continue driven by our branded products in the back half of the year, we have multiple avenues for growth near term with expanding product offerings and existing retailers, gaining more distribution with new retailers, including grocery and convenience stores <unk>.
Helping our foodservice business as well as licensing and international opportunities.
In 2021, we are reiterating our revenue guidance of $235 million to $242 million, which Stephanie will expand upon in a few minutes. We are thrilled with our retail wins and how products have been performing these distribution wins were already included in our original forecast for this year and given the timing of.
The equipment, we're putting into our foods, new Mexico facilities in the fourth quarter as well as selling cycle on what we will like to call. The Covid hangover, we will not see the full benefits of these items until fiscal 2022.
In 2022, we continue to expect at least $300 million in revenue based on our distribution success in grocery this year and our innovation pipeline, including the launch of our first refrigerated ambient products we'll.
We will provide full guidance for fiscal 2022 on our fourth quarter earnings call next February.
One of our key Differentiators is our vertical integration and production capacity and capabilities. We have the ability to go to market in as little as three months, which gives us the ability to constantly innovate and stay on trend.
We are on track to quadruple our production capacity in 2021 and have approximately 275000 square feet of manufacturing space today beats.
Between our four manufacturing facilities, we believe we have the capacity available to achieve over $500 million in revenue.
Our new capabilities in 2021 include gluten free soy free plant based meat production and with the Fuji New Mexico acquisition. We can now produce alternative tortillas snacks, Greta handhelds case of DS Enchiladas and more.
Since launching the <unk> brand in 2017, we have seen the brand and our innovative products resonate and appeal to a broad range of consumers and in 2021, we have demonstrated the strength of the brand with the acceptance at retail we have done what we said we would do from the beginning.
And we firmly believe Patrick chef has the power to be a generational brand and a leader in plant based food for years to come.
Now is the time to invest in our business and lay the foundation for future growth and success.
Plant based food is here to stay every category in the supermarket will be disrupted by a plant based alternatives and tattoo chip is positioned to be the disruptor. We are already doing it in is just the beginning and now I'd like to turn the call over to Sarah to discuss our innovation and our marketing efforts.
Okay.
Thank you and good afternoon, everyone at tattooed chef innovation as part of our DNA and we are paving the way and the plant based revolution today, we offer more than 62 branded items and we are continually bringing new ideas to the marketplace.
In fact, we have a pipeline of over 250 ideas for innovation, including more than 50 in the Hispanic southwest food category, which we plan to produce at our new food and new Mexico facilities.
As we continue to innovate as a brand and expand into more channels. We are excited about our partnership with spin and the data insights. It gives us on the new products that I'm, creating and the team is bringing to the market.
<unk> tracks the sales of the new items that have been launched over the last six months and through July 11, 2021, the Turkish chef breathable is the number one best selling new SKU and the move out frozen plant based entre category across all key velocity metrics total weekly dollar sales units per store per week and dollars.
Sales per store per week.
Additionally package have had four of the top five best performing innovation Skus in the plant based frozen Entre category launch over the same time period, considering the other skus introduced during this same time period were from legacy frozen Entre brands. We are excited about how consumers are responding to tack to check at retail.
In Q2, we launched 14, new skus, including our multi serve meals line at target and also new potato Smoothie Bowl something we've not seen in mass or grocery yet.
In Q3, we plan to watch six innovative items, including a cheeseburger ball inspired by California flavored with meat alternatives caramelized onions, and secret sauce. We're also launching rights pulsar pad tie it seen tower with little kicking uses <unk> elements of pad Thai.
I'm, especially excited about the launch of our new gluten free plant based chicken and our spicy table available now at sprouts farmers market.
We believe it's important to have a variety of meat alternatives and our value added products to appeal to the growing set of consumers who are newer to plant based eating.
We are excited to introduce attached to chat to the foodservice channel as well.
In addition to our ready to eat products, such as entree into Diebold. We recently launched an 11 SKU portfolio of taxi chip products that can be used to incorporate more plant based ingredients into their menus.
These items are on trend high quality convenient to use and help eliminate food waste all important attribute in today's dynamic foodservice industry.
In regards to marketing we successfully launched our first commercials in the beginning of April on a curated list of cable networks connected TV and digital media.
We are pleased to report we have more than doubled our U S brand awareness from 6% to 15%. According to Millward Brown cancer research.
After just a few months of advertising purchase consideration for <unk> is approaching the levels of competitors, who had been in the market for years.
We have learned from over the last eight months is that the brand is responsive to advertising.
We will continue in the back half of this year to test some other marketing initiatives and next year increase their marketing spend with a disciplined approach to ROI.
E Commerce is a minor part of our business today, but I am proud to announce that we will be launching a subscription service later this year as another way for our loyal consumers to shop protected chef products.
Now I'll turn it over to Stephanie to walk through our financials.
Thank you Sarah and good afternoon, everyone.
In the second quarter of 2021 revenue increased 45, 9% to $57 million compared to $34.8 million for the prior year period as Sam mentioned the revenue increase was driven by a $12 seven.
Increase in revenue of CAD, two check branded products.
This now accounts for 65% of our total revenue.
Well is $4.3 million in revenue from our research needs of New Mexico acquisition.
As a reminder, we closed the acquisition over halfway through the second quarter on May 14th. So this was only a partial quarter contribution.
Gross profit in the second quarter, with 8 million or 15, 7% of revenue compared to $3.7 million or 10, 8% for the prior year period.
The increase in gross margin was primarily due to the increase in branded catching chefs sales and the investment in manufacturing equipment made in the back half of 2020 that doubled our production capacity in both the United States and it.
Italy.
Despite inflationary pressures in freight and container costs, which were $6.7 million during the second quarter of 2021, we were still able to leverage our operating efficiencies and contractual buying opportunities for raw material do.
Two our vertically integrated business model.
Going forward, we anticipate quarterly gross margin expansion throughout the rest of 2021, as we increase our branded volume and as Sam mentioned quadruple our production capacity.
Operating expenses increased to $15.9 million in the second quarter of 2021 compared to $2.1 million in the prior year period. The increase in operating expenses was primarily due to promotional expense.
<unk> of $3.2 million marketing expenses of $2.9 million and professional services, including legal and accounting of $2.6 million. We do not expect operating expenses to decrease as a percentage of revenue over time as more.
Many fixed operating expenses will be spread over increased revenue.
We are also heavily investing in the tattooed chef brand to increase distribution.
<unk> brand awareness and drive sales in the new stores that are launching products.
The costs that we are investing in today should produce realized benefits in the future.
Net loss was $53.2 million in the three months ended June 30th.
2021, compared to net income of $1.3 million in the prior year period.
There was a one time non cash expense of 46 million included in the second quarter of 2021, resulting from a valuation allowance on a deferred tax asset due to the company's additional investments there.
This adjustment does not affect revenue gross margin or adjusted EBITDA.
Adjusted EBITDA was negative $5.9 million in the second quarter of 2021 compared to adjusted EBITDA of positive $2 million in the prior year period.
The decline was primarily due to public accounting costs that were not present in the second quarter of 2020 and the operating expenses that were just mentioned.
As of June 32021, we had cash and cash equivalents of $140.2 million.
Now turning to our outlook, we continue to expect total revenue in the range of 235 million to $242 million.
The increase of 58% to 63% compared to 2020.
We expect the base business or rather excluding foods of new Mexico to grow 49% year over year to $222 million.
This is consistent with our projections at the time of the transaction announcement over a year ago and includes the expected distribution wins in the mass retail channels.
We expect a $13 million to $20 million contribution from the reset foods of New Mexico acquisition and do not expect the second facility Carsten to have a material impact on 2021 revenue because of the timing of the facility being finished during the fourth quarter.
We are updating our full year 2021 gross margin guidance to be between 16% to 22%.
We are committed to an aggressive plan of growing our brand through extensive marketing and promotional spending that has already produced significant revenue growth.
In both grocery and mass retail to augment our revenue growth, we have invested in our staff and infrastructure equipment.
Brand visibility and customer acquisition costs to meet the market place demand and our current and future goals.
We also continue to be impacted by increases in logistics costs.
George fees, legal and accounting fees and marketplace shortages and packaging products.
Given this we are updating our adjusted EBITDA guidance to a loss of $14 million to $17 million.
Lastly, we expect capital expenditures in the range of $15 million to $20 million for full year 2021, which includes our recent acquisition of foodservice, New Mexico tab.
Tattooed chef has a long runway for growth with both new and exciting customers and channels and experienced team and a strong cash position to support the growth of the business.
With that we are now available to take your questions operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
The first question today will come from George Kelly of Roth Capital Partners.
Hi, everybody thanks for taking my questions.
Maybe if we could start with your EBITDA guidance for the year. So.
But does it change since the last time.
You updated us so just curious if you could.
Maybe bridge exactly what that I think it was $2 million to $4 million before so just what are the primary could you kind of breakdown.
The difference.
Absolutely George Stephanie here, we are going to spend an additional $3 million in marketing.
During the back half of this year to take advantage of some of the opportunities that we have discovered in order to build more brand awareness.
We have also been building our infrastructure and hiring experienced talented individuals in what is a very tight job market right now.
And we want to build the foundation for that infrastructure not for the sales and distribution of today, but for the growth of this company next year and the year after.
In addition.
There is also inflationary cost to freight.
Storage.
Other logistical items.
And upcoming increases in both packaging path.
Corrugated and even pallets and combined with these we felt that it was important at this time to make this adjustment.
Okay. Okay understood and then next question is just about the all.
On the distribution wins so.
Amazing.
Brush on tour expansion.
Distribution points.
What's next I guess, I mean, not trying to get too far ahead here, it's been really crazy year, I know, but what do you think the total opportunity is if you were to look at maybe to the end of next year or couple of years from now I mean, it is 12000 doors and how many distribution points.
Where can you take that over time.
Hi, George this is Matt.
Obviously, thank you for the compliment we're equally as.
Excited about the results that we've had this year, so I think that.
There is really.
Two pronged approach I mean, the first is we obviously have established relationships with.
The retailers over with today.
Sarah has created a lot of amazing products that not everyone has been accepted so I think that we're really encouraged by closing those voids on other categories that retailer summer with today are not carrying so I would say.
That's job one for our sales team has to give.
Get to that 30, SKU target that we talked about.
And we're really excited about is that our SKU acceptance quarter over quarter is actually increasing so we started the first quarter with about $4 four skus accepted per retailer.
In Q3, we're going to be up to seven seven and so we're really excited about the fact that we're seeing like almost like a <unk>.
W are over 60% SKU increased increasing our SKU Count Center accepted when we launched with a retailer and so that's really encouraging.
The next thing that we're also going to be focused on is still closing a lot of GAAP that we have in terms of customers that we are not with today.
Do have regional as well as other customers that are not doing business with us yet and then we also have opportunity with with other major retailers today to close stores out. So those combined with all the innovation that we have coming we are obviously very bullish about what the future holds in terms of getting to that $30 to work.
30 count.
Skus across the other markets.
Okay.
Then.
The push this has come up on prior calls.
All the success you've had I mean exceeding your target to start the year as far as doors and distribution points.
<unk> guidance is staying the same and so.
Is there something that is.
Maybe you've seen pressure in certain channels I don't know if its club or.
Is the kind of initial.
Velocity and a lot of these new channels, maybe not what you thought it could be or any can you talk at all about just the reasoning.
It goes into maintaining your.
Initial revenue guidance.
Hey, George Sam So, it's really a function of.
Our projected.
Acceptance to the products that we thought that we were going to we really had.
Some good.
The knowledge of the wins that we were going to get on on these retailers and Thats really yet we really projected pretty aggressively our guidance on the acceptance of the brand based on what was happening with club with Us and Thats why we just were solid right there.
And like you know like was mentioned in our in our review right now was that.
Because of the timing of distributions through the year with these retailers getting all of this product on the shelf. That's why we really feel we won't we won't feel the full impact until 2022 of all these wins that we're getting with full distribution in the promotional programs that we have planned for 2000 to now so that's why we were.
We're very excited about.
Exactly what's happening I mean, the the wins in the acceptance and the.
The increase of sales per week and units per retailer, it's all very.
So it's really incredible it is very positive and we think we've really got a tiger by the tail here and we have so many different categories.
Because of our capabilities.
Any one of these the sections that were doing right now whether from foods in new Mexico, stating.
Stating that within two to three years, we really believe it could be a couple hundred million bucks in and just what their existing facilities.
We could be over we are over a couple of hundred million dollars. So to hit that first point of the $500 million in revenue, we feel pretty confident that that's that's the direction and the opportunity is there for us.
Okay, Great and then last question for me just an accounting issue I remember on the last call. There was a feasibility study that was going on.
Going to do with.
How do you treat certain whether it's operating expenses or should they go into the cost of goods sold line is that settled in.
Are we comparing apples to apples if you look back to last year's second quarter and Thats All I had thank you.
Thanks, George It's Stephanie I guess, so we are comparing apples to apples when we talk about second quarter last year, we have not concluded on the preferably study and we are still working on it and we're hoping to be able to provide an update soon.
Okay. Thanks.
The next question is from Rob Dickerson of Jefferies. Please go ahead.
Great. Thank you so much.
Thank you for a short while.
The ground is covered.
I guess first question I had was just.
On the revenue Q2 relative to Q1, and I know you called out some of the private label.
For like home losses sounds like Theyre more intentional exits.
It seems like those.
Actually offset maybe.
Some of the <unk>.
Branded growth and also.
$4 million included from the field.
Mexico, and I'm, just asking because the growth is obviously, an extremely impressive right year over year.
The revenues were.
A couple of million relative to Q1.
Thank you.
With some of these new wins.
Yeah, it'd be going up not down, but then the delta here is the private label side I just don't know what that was so if you just provided color on that Delta Q on Q2, that's the first question.
Hi, Rob this is Sam so.
If we were at 100%.
Grocery and mass and then I understand where there would just be this increase quarter over quarter, but because we are still the majority of our brand is still in club. It's based on these <unk>. These these limited time offers and the distributions and the timing of when these.
Things happen so.
But overall, it's like you see.
We're still up over in the year in club year over year, but it is just from a timing standpoint. That's all this is so you know.
We will see in Q3, I think that Youll really start to see more of this consistent growth start happening as our grocery and mass market starts becoming a bigger part of our company.
And so.
<unk>.
As far as private label goes it's pretty much flat you're absolutely correct. The focus is definitely been branded and Thats where were really were really pushing her.
Hey, Robin if I can.
Yeah sure go ahead, sorry about that Rob it's Stephanie.
If I can just add to that a little bit remember that when we look at last year, and we talked about the quarter over quarter and we experienced a lot of growth in 2020 as well, but we did see that big peak in quarter, one and we've talked about it it has to do with organic months and a lot of limited time offers we ran a very.
Any large Asa E promotion with Commscope and we did run a promotion on organic surf right, but it's just the blended products right now at club. So when do we start to talk about quarter. Two I think that's a big focus needs to be on the fact that we grew 46%.
Year over year and quarter, two and we had great growth in quarter, one year over year. So this is a little more cyclical for us as it was last year and we expect this to even out in the future as we expand into more mass in traditional grocery, but those wonderful you know club items.
Were fantastic in January and we will see some of those limited time offers in Q3 as Sarah discussed. So there is a little bit of that that happens throughout the year, but it is still 46% growth.
Yeah, Okay no.
Yeah, It's just a function of club exposure, which I get.
And then.
I guess, you know usually along with Bell Jones.
There was some promotional activity.
Some promotional spend.
So again, if I'm thinking forward then.
Would you say collectively.
As you think about the back half of this year marketing spend goes up a little bit youre getting into new stores right. So at some point once you're in the store you wanted to show. The velocities are good that maybe like you said there could be some shale activity.
Near term Q3 ish, but kind of overall there could also be just some kind of upfront promotional activity to also make sure you're getting the brand going.
And the new store, just trying to get a sense of how you think about that promotional dynamic.
How so.
So what is the plan for <unk>, so as we continued.
As our retail and grocery mass is going to start coming down more aggressively in the second half absolutely. That's why Stephanie suggested that.
When she said that we are going back in with an additional $3 million promotion.
Spend on the back half of the year.
Okay.
Still against all the products with all these major retailers Theres tremendous marketing plans that are already built into this.
No Matt if you want to.
I mean, I think you said it.
This extra 3 million Bucks that we've got built into the plan George is all around.
Did the broad campaign to build awareness that money is now there to spend to drive velocity right, we're getting closer to the retailer we want to make sure that our our new distribution wins are.
SaaS World and so we're really investing in programs that are there to drive.
Purchase and.
And conversion.
Point to point of sale, so that's where you're seeing that come in.
Okay, Okay, Okay fair enough.
And then I guess just.
To come back to the margin question.
Obviously, I understand what's driving that.
You know that.
Lower EBITDA in the near term it sounds like you said you're hiring more people.
So I guess the first question it.
It seems like.
Essentially we had to sum it up and say tell you for sure.
What's it to where you were in Q1 and Q2, you said, okay, we actually got.
Some new wins, we need some more people and to hire some more people and then.
We've heard from a lot of food companies. There are also some other incremental costs that are coming in.
No.
Product cost package trade, but what have you. So it's really like there's 3 million.
And the marketing side.
You know there is.
Call it another.
$10 million or so.
Other costs in there assuming that those other costs are the buckets that you explained that.
Just trying to get a sense as to kind of like what what kind of change through the quarter that made you decide to.
Or let's say increase your overall cost base.
Side of the incremental marketing promos.
Okay.
Absolutely, Rob I think that when we start to talk about inflationary costs that some of these items were things that as we looked at them at the end of the year and even through the first quarter seemed to be temporary and I believe that a lot of people assume that we would be more on a road to recovery by this point in time after the Pan.
<unk> than we currently are and the fact of the matter is is that freight and container costs do not seem to be decreasing fuel prices do not seem to be decreasing and there are things that we can all see and so we would like to take the conservative approach after analyzing our data and the information with our.
Providers in logistics and things of that nature that honestly. After we saw the increase of roughly 184% in freight and container cost when it's taken as a percentage of revenue compared to last year, we want to be very cautious in this we are starting to hear things about packaging shortages and.
Paper shortages and those types of things, we made sure that our raw material inflation prices, we're not going to be an issue in the back half of this year, we have talked about it and it's one of those things in which the things that we are able to control and do better. We are I know that I have heard other companies, who have quoted higher inflation rates.
Some of these items, it's not that we're necessarily doing better than they are we've just made other changes within our system and within the infrastructure to help mitigate some of those costs and we are focusing on cost which will improve the gross margin within the operations themselves.
Okay Fair enough. That's all I have thank you so much.
Okay.
And this concludes the question and answer session I would now like to turn the conference back over to Sam glad he for any closing remarks.
Thank you for joining us today, we're pleased with our results for the first half of the year and expect our momentum to continue in the second half with our incredible brand innovation pipeline manufacturing expertise and with the team and resources. We have available I believe we are well positioned for long term growth.
And success I look forward to speaking to you again at the upcoming investor events.
And on our third quarter earnings call in November have a great day.
Thank you. The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines have a great day.
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