Q3 2023 Vital Farms Inc Earnings Call
Good morning.
Third quarter 2020th.
It's called a blood test.
Today's call by Russell.
President and Chief Executive Officer.
Boxer.
She failed officer.
By now everyone should have access to the company third quarter 20 twenty-three earnings press release.
This morning, which is available on the Investor Relations.
Website didn't you got yours dot.
Dot com.
Through the course of his call management may make forward looking statements within the meaning of <unk>.
Launched.
Statements are based on management current expectations and beliefs.
And uncertainty that could cause the actual results.
From those described in these forward looking.
<unk>.
Please refer to today's press release.
Companies.
Art on Form 10-Q for the fiscal quarter ended so.
September 24th 2023.
You see today.
B for a detailed discussion of the risks that could cause actual results.
Does express or implied in any forward looking statements made today.
Today's call management refer to adjusted EBITDA and adjusted.
Margin, which are not.
Financial measures.
Comedy beliefs.
Measures provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information.
Presented in accordance with gap.
Please refer to our earnings release for a reconciliation of adjusted EBITDA and adjusted EBITDA margin to their respective most comparable measures prepared in accordance with gap.
And now I would like to turn the call over to Russell.
President and Chief Executive Officer.
Thanks, Matt.
And thanks, everyone for your time today.
Start by sharing updates on how we delivered on our commitments to our stakeholders during the third quarter.
Provide some insight into how we are benefiting from being a trusted partner at retail with a strong brands.
Finally, pillow will provide more in depth information on our quarterly results.
You'll guidance before we take your questions.
It with another great quarter at <unk>.
$110.4 million in net revenue, which represents a 20% increase from the prior year period.
The growth was driven by volume growth of 13% in price mix of about 70 per cent.
Gross margin expanded by over 100 basis points year over year to 33.2%.
Hosted another impressive quarter.
EBITDA performance.
$9 million, achieving an adjusted EBITDA margin of 8.4%.
Our year to date, adjusted EBITDA is $34.5 million, which is up over 250 per cent.
The $9.4 million produced during the first three quarters of last year.
As we've discussed in recent quarters the industry has gone through a dynamic period over the past 12 months.
The same can be said about the broader food segment and consumer Staples box in general.
The continuous change across the food industry is unlikely to see from the near term for.
For example, you've likely heard about G. L. P. One medications and the potential impact on both the future eating and spending habits of consumers.
Believe vital farms as well position as a help the protein and is the cough.
A healthy diet.
Moving more specifically to the I'd category.
Our operating plan anticipated what ended up occurring in the industry over the past year.
We thought supply shortages impact the price of conventional egg.
And as supply of them has returned to the market and things have gotten back to normal.
In a period of price compression.
Looking specifically at the data in the track channels. During the 13 weeks ended September 24th 2023.
Category experienced a retail dollar decline of over 20 per cent.
<unk> the category saw unit volumes compressed by 1% during that same time frame.
When compared to the same industry data during the same period.
Arms grew retail dollar sales by over 21% in our unit volumes expanded by about 5%.
Dollar share is now well over 8% of the total a category.
We believe our performance offers evidence that our brand resonates with consumers irrespective of what might be happening across the category at any given time.
We sold more units than we did at the same point last year, which has not been the case for the egg category across retail overall.
Our brand commands premium pricing, which allows us to maintain healthy margins with less variability than some others in the industry.
Our supply chain, some minimal disruption in the face of avian influenza, while others ran into challenges.
Which is a result of thoughtful planning.
Supply base.
Incredible crew members.
Strong relationships, we'd built with our farmers over several years.
While at present the industry appears to have largely recovered from the latest about it.
Avian influenza.
Issues that are likely to persist.
The cost to produce eggs is higher than it was just a few years ago.
Operating plan assumes this will remain the case in the near term.
There may be a return of avian influenza, which we have proven we can navigate.
We believe we're well positioned to effectively manage through any future changes in the operating environment.
And have solid plans in place to propel our continued rapid growth, which we are fully incorporated in the guidance we are providing today.
Let me conclude by reiterating that we remain focused on driving longterm positive outcomes for each of our stakeholders, including our stockholders.
This has been the goal of our business from the start and we.
He had been intentional about the choices we have made over the past several years to drive toward this goal.
We believe the decisions, we make everyday fully considered each of our stakeholders, which contributes to our enduring success.
A competitive advantage.
As we outlined at a recent analyst day.
Great confidence in the trajectory of our business.
Clues are forecast to achieve $1 billion in net revenue by 2027.
Gross margin of at least 35%.
Justin EBITDA margin between 12, and 14% over that same timeframe.
We have demonstrated the ability to reach or exceed.
Both our financial forecasts and external expectations and our three plus years as a public company.
Continue to focus on doing what we say we're going to do.
We plan to achieve these goals.
New retail partners and expanding the depth of distribution at our current retail partners.
A further increase our household penetration through strategic marketing spend.
New customers and driving higher spend by the household who are vital farms customers.
Finally, we plan to support this higher demand by strengthening our supply chain through attracting new farmers, while enhancing our packaging and processing capability.
And now I'm happy to hand, the call over to our Chief sales officer Pizza habits.
Who will provide some context around the relationship based focus of our sales team here at vital part.
Thank you Russell on good morning, everyone.
Brand is an extension of final farms purpose consumers food service and retail partners choose us because they know we are committed to improving the lives of people animals.
<unk>.
I want to talk a bit about what makes final farms different from others in the industry.
We've built a premium brand that is based on trust, which also applies to a retail partners.
Some longterm delivered efforts.
Strong relationships with our retail partners.
Strategy, which focuses on collaboration and transparency.
Helped us differentiate are offering.
Game shelf space in recent years.
Laid the groundwork for future games, which we illustrated in our recent analyst day.
One of the ways, we partner with retailers is by applying a category first approach.
This is prevalent in other parts of the store and across retail.
And it's one example of her differentiated approach to building strong customer relationships.
Category first months, we work directly with our retail partners to provide solutions on how they can increase the sales and.
Margin performance across the entire.
Category.
Alignment on making decisions that drive category growth.
Not a strategy shared by everyone in the industry.
In time.
Demonstrated a willingness to look at the business from a macro as well as micro perspective.
Trust.
We also consistently prove that our products outperform many in the <unk>.
And as a result.
Additional distribution.
It all goes back to the longterm approach you've heard Russell discuss over the past few years.
To provide the best outcomes for all our stakeholders.
Directly benefit.
Most of the time.
Our success in building and maintaining strong relationships with our retail partners has been a cornerstone of our growth.
We recognize that retailers are crucial stakeholder most of our attorney Andrew ambition.
Therefore, we continue to invest in these relationships through collaboration.
Customer first mindset and tailored support.
Able to understand and address the unique challenges faced by retailers.
Provide exceptional service.
And go above and beyond expectations.
Our navigation of the recent volatility across the industry, which Russell touched on earlier.
Is a great example of what makes us different from others in the category.
Retailers and that'll be it.
Brazilian supply chain.
Able to garner a premium price for a product based on the brand we have built.
We're also consistently priced and our strategy is not one that fluctuates with changes in industry supply.
As a result of this operating model and the Trust me adult with consumers, we believe retailers to count on vinyl farms to provide industry leading margins.
Thank you for your continued confidence.
<unk>.
Today.
I'll pass it over to T mobile.
Hello.
And thank you for joining us today.
Review of our financial results for the third quarter end of September 24th 2023.
Provide more detail about an hour after guidance for fiscal year 2003.
That's what I mentioned earlier, we have another strong core.
$110.4 million an increase.
20% compared to the prior year period.
Driven by shipment volume growth of 13% price mix of about 70%.
Volume growth was primarily driven by increases with Bosnia and access some retail partners.
Provide some context for the 13% short on volume growth.
Put some text within this number compared to what you're seeing Amtrak Charles I got one.
Why don't we saw another strong performance from our food service business, which grew over 100 per cent on the corner, adding some volume double not show up within attract channel.
Definitely.
A number of side effects than usual.
Upselling halter.
Also another data 0.1 would find within attract channel data.
About 700 dollar shipment volume growth.
These two factors are shipment volume grew and then <unk> Q3, which was in line with our expectations.
Gross profit for the third quarter of 2023 of US 36 months several million dollars.
33.2 per cent of my property.
29, $500 or 32% of net revenue for the third quarter of 2022.
Gross profit almost benefit primarily from Iowa.
<unk> was a result of increased crossing a cross our portfolio more than offsetting higher input costs.
Packaging cost.
Expenses for the <unk>.
2023 or 25.
Or 22.7% of net revenue compared to $26 million or 22.3% of revenue in the third quarter last year the.
The increase in extra in iOS, driven by higher marketing expenses.
Outlines of our recent Alistair we're continuing to focus strategic marketing spend on growing our brand awareness and house or penetration and service of our Goin' off adding 20 mail you a new households by year 2027.
We also experience some increased employee.
<unk> head count to support our country in your cough.
Marketing expenses are S dramatic decline to you over a year as a percentage of that partner.
Tripping, a distribution expensive and the third corner over a six month for money.
518% of net revenue.
Six one $900 or 7.5 per cent of my property you up in the throat.
2022.
The decrease distribution makes sense. So that's what's driven by a decline in line alright.
<unk> Mister continue to grow our shipment volume.
I trusted EBITDA for the third quarter of 2023, 195 $3 million or a 4% off my problem you.
$5 or 557% of revenue for the third quarter of 2022.
And lastly, an update on our capital structure.
As of September 24th 2023, we have totaled.
Total cash Catholic frivolous and marketable securities of 90 611.
<unk> and yesterday from 2023, we have generated $18 million a free cash flow.
If I could get them.
The call I want to update you on our higher <unk> you have 2023 adjusted EBITDA guidance.
We still expect revenue of more than $465, which I'm sure. It's our expectation is the highest thing on that the revenue in our company history on the fourth floor.
We now expect adjusted EBITDA for more than $40 million up from our prior expectation of more than $3500.
To expect the gross margin in the second half of the Europe will be below.
But we have problems within the first half of the year, primarily due to the previously discussed return of a more normal promotional payments on the back half of 2023.
And that's your name your continued practice spread target marketing spending on the second half of the year compared to the first half.
And lastly, we now expect fiscal year 2023 capital expenditure in the ranks of $11 million to $15 million.
Before we open the line for questions I would like to reiterate a few points. One we have successfully navigated several anticipate a challenging dynamics across the category I'll continue to grow up.
Volume, while ahead of a category.
We're well positioned as a consumer brand.
Part of a healthy diet and in turn helps a lot.
A three we take pride in the trajectory of our business and are confident in our ability to grow to a billion dollar per at.
Thank you for your time and interest in <unk> and full of confidence that you're facing us with your own restaurant with that I'll be happy to protect your questions.
Thank you at this time will conduct a question and answer session to ask a question you will need to press star one one on your telephone and wait for your name to be announced.
To withdraw your question simply press Star one one again.
And our first caller today is Pamela Kaufman with Morgan Stanley Pamela Your line is open. Please go ahead.
Hi, good morning.
<unk>.
I was hoping you could get Scott.
Five Q4.
<unk>.
That was about four per cent.
That has been <unk>.
<unk> embedded internet's outlook, how much of it is a reflection of conservatism birthday.
To step up and back neck and promotion.
Chang.
No problem.
Great question.
The grief.
What we've done all year is to make sure that we can deliver but we promise to deliver so that's certainly placed into that we are also looking at fourth quarter, where.
The the commodity environment is sold it and and volatile territory.
We're looking at a promotional environment going into the holidays, we're looking at marketing spend in the fourth quarter. So all of those pieces together into our EBITDA margin assumption.
And I wouldn't say, there's there's one factor that's bigger than the others. It's it's really been a mix of different puts and takes a dark later.
Okay. Thanks.
And then can you just explain the volume dynamics more that you mentioned that impacted Q3, well well.
Context of the off price and got it.
How should we think about volumes.
Yeah, So we have.
We had a few puts and takes when it came to a volume.
Depending on the age of flocks that we have depending on the season that we are in there there are times in a year. When we have yeah, there're there're times over the psychological chalk, where we have more of side effects than than.
<unk>.
The majority of what we're teluk retail large eggs and if we have a different sizes. So I'm gonna need to find different places to to sell them.
So what came together in the third quarter of us pair of whether Empire.
Lock rotation, but we just had more of context and we usually do so those went to to the wholesale channel.
Did you just don't see in truck data and it's a channel where we don't get the same revenue.
We do in the retail channel.
So that that was worth about mid single digits <unk> single digit volume grows quarter over quarter.
We have some other puts and takes and so on a on a like for like.
This is the hour volume grows.
A high single digit somewhere around there.
This offsides Eric.
Phenomenon that we haven't I'm sure, it's not something that we expect to repeat it in the fourth quarter.
Uhm quota today, we actually see that these off so I was like your your arm.
<unk>.
So with that these puts and takes that we had in the third quarter, we don't expect them to repeat in the fourth quarter.
Thank you that's helpful.
Excellent.
Thank you.
Our next question comes from Adam Samuelson with Goldman Sachs. Adam Your line is open. Please go ahead.
Yes. Thank you good morning, everyone.
Adam.
Alright, so maybe just sort of keying off that last question on on the volumes.
<unk>.
Thinking about how that tracks as we move into next year I know a big part of the the volume growth.
And longer term is around distribution expansion in terms of new units, but also expanding kinda. The number excuse you have any any to your retailers.
Line of sight today over the next six nine months Uhm.
Muscle how would you how would you frame kind of TDP gross uhm and and that being.
[noise] TDP versus velocity as we think about the the driver of a volume growth going into the first half of next year.
Shelf reset start to come into effect kind of.
Help us thing with the pipeline of new distribution, both do retailers and kind of new shelf space that you've got that you could see too.
Hey, Thanks that I'm good to hear from you.
As you know every year as we think about the potential drivers of growth. There are new doors to be had there are additional items in existing doors to be had occasionally there's even innovation to add on top of that it's I think it's pretty premature for us to guide toward the mix for next year, but I think every year.
Pete and Kathryn and our entire commercial team kind of build their plans. They they really do them from a bottoms up perspective customer by customer and opportunity the opportunity and you can count on us to continue to to work with retailers to be a great partner to them and to help build their business at the same time, we're building ours.
Okay. That's that's that's helpful and then on.
On the on the margins for the for the fourth quarter.
I appreciate that there is essentials to conservatism embedded in there, but it just cause we look at the commodity input costs within gross margins I mean that I would think starts to become a bigger tailwind as you go in fourth quarter.
And into first quarter. So is there actually it doesn't seem like that's embedded in the fourth quarter you but.
Rather than the fourth quarter EBITDA margin, but maybe just clarify between the commodity cost side versus the step up in marketing.
Seems awesome also to be in there just qualification be helpful.
Which is the 40 low answers I will say that Adam anytime you mentioned commodity cost I'm always listening more closely because I think you've got a great track record of helping us understand house those markets will play out over time and so we're certainly watching as everyone else has to see what happens with the various inputs that we have although I think you've probably got a better Chris.
The ball on that than I do.
<unk>, maybe you can speak a bit more about yeah on the coffee across it there isn't any particular.
Four saga, we have like nobody helps us it was more a reflection that.
We are in a volatile environment, we just adding color conflict that can that can impact.
How global markets operate with the Middle East.
And so with that we're we're just remain cautious on the outlook. There. The majority of the of the margin impact if you want it in the fourth quarter.
It's gonna comedy, though the gross profit line simply marketing spend goodness and my son kind of business.
Alright, that's all that's all very helpful. I appreciate it I'll have some thanks.
Seven.
And our next question is from Matt Smith with Stifel. Matt Your line is open.
Good morning good.
<unk>.
I wanted to ask about the health of the various household groups that you're targeting with your media. It's believed there's still targeting a higher income group the heavy and Abe households versus you know a more more everyday type of household with the original band households, as you've referred to them in the past are you seeing a difference in consumer behavior in this in.
<unk> are you seeing more incremental consumers from the higher income households are are are both groups still holding up well in this environment.
Thanks, I think that's a great question you know it's interesting.
We certainly as you.
Correctly pointed out have expanded sort of the breadth of the of the target market that we address over time as we gain more insights both about the behaviors of different demographic groups and Psychographic groups, but also who is buying our ex Ah whether we've specifically target.
[noise] them or not I believe as many as half of the people that buy our products are not necessarily people that we specifically targeted which I think actually is a is a positive indicator that the market is even bigger than we typically think it is for our products at the same time, what we're finding is that we are seeing I think sim.
Miller levels of health at least in terms of consumption of our products across that sort of the the different groups that do buy them, but but interestingly, we're starting to see some self selection in terms of boat channel and product. So for example, we've seen a really strong uptick in in in <unk> four hour large.
Pack sizes, those are more of a value offering for arguably our heaviest using household. So for example, we have our our core items are 12, count or doesn't sized cartons of eggs, but we also have seen a remarkable growth in our 18 count or value pack size across across channels.
And so that's been an indicator for us that even our highest income households are still looking for for great values. They may not compromise on the quality of their product, but they'll they'll potentially vote for a for a better value and we appreciate the chance to serve them in that way.
You know on the other hand, we're seeing some really strong growth in more of the mass channel with some new products. We've we've brought to market. There are some of those off sized egg set that tela mentioned earlier, we have a medium organic skew at Walmart for example, that's performing remarkably well and.
That's a great way for us to bring a unique value to shoppers at that store, who may not have had the opportunity to find us somewhere else or may not find that are more traditional items are compelling value for them. So we appreciate the chance to find the right answer for many households in this country.
Thank you for that Russell and if I could just ask a follow up question on input costs and the cost environment overall.
There was a comment early in the prepared remarks about.
Higher costs are expected to I believe remain a part of the cost structure going forward, but at the same time, you had pricing that off said input costs and packaging in the quarter. So could you talk about your view of of your price structure today relative to cost structure do you have the price that you need in place today.
Or would you expect I didn't additional pricing actions based on that comment about higher costs persisting longer.
Yeah. That's a great question it goes back to that Crystal ball, a little bit I think you.
You may recall that prior to sort of the inflation that we saw starting at the beginning of 21, we hadn't taken price in a in a you know across the range since about 2016, and typically we were able to fund that through our own scale economies inefficiency. So even as we might have seen EM.
It'll cost inflation in line with overall inflation, we were able to more than offset it with our own operational improvements.
Preferences, not to very price a whole lot or very frequently which I think is more typical of the commodity egg market.
Nothing.
It's important to us as we continue to add households overtime that we do everything we can to help those new households, build a habit and that includes not changing very many things at once whether it's price or package design or location in the store et cetera, we try to make it easy to find us an easy to repurchase us when I think of.
<unk> input costs, it's one thing to to see that they've come down substantially from a year ago, but when we go back to 2019 to a pre pandemic pre inflation period, what we find is that our main input costs, including corn and soy are substantially higher than they were at that time and so wild bees.
Decreases that we're currently seeing seem substantial across a broader period of time, they're still actually relatively small. So we believe we're well positioned to have taken enough price to cover the input cost inflation, we've seen and potentially will see in the short term midterm and that gives us more flexibility.
For example to to invest if we've if gross margins are expanding because input costs. Sir are accelerating downward we can make investments in anything from promotion to marketing spend as we see fit.
Just gives us more room to just as we need to.
That's great wrestling for the detail I'll pass it on.
And our next question comes from Robert Moscow with T. D. Cowan Robert Your line is open go right ahead.
Hi, Thanks, I got a question for <unk> it it really use it as a commodity cost higher.
But you know corn and soy are a lot lower than they were a year ago.
So are are they're just other costs that are higher that are upsetting lower grain costs.
And then secondly.
Given just the comparison, if you're located like say first half of 24.
Corn and soy stay where they are today I know I know no one knows what they're gonna do but.
If he did would you have it continued benefit in the first half of the 20th Wow.
So on the first part of your question.
The <unk> across their flow through for us with a with a lack given that we're trusting prices that we pay to farmers on on relax. So it's not a direct correlation to what you see for the.
For the.
Quoted commodity cost plus then we have organic feed which which doesn't really trade publicly.
Those swings they they just show up and if he felt that our farmers have.
So there is there is a component on Y our commodity costs and the commentary that we have on commodity cost isn't necessarily track what you see on the Chicago Board on a day by day basis.
On the Alpha for next year I'm sorry.
Talk about that when we got there.
We haven't provided twenty-four guidance, yet and that service we're building our plans for the year. Once we have firm will talk about that.
Okay.
And the lack commentary, but I guess, there was a lack last year too and.
Maybe I'll take this offline but anyway.
Anyway, I would've thought that the lag you still would have had lower year over year costs.
Even with a lag and pack but.
I can take that off line for like yeah. So so Robert just to clarify.
<unk>, but then there's also the cost of the inventory that we have if you're looking at a balance sheet, you'll see that we have an inventory position and eggs and.
We're working through eggs that were that were legs.
Bigger time difference than that in previous quarters.
And so with that this lack of just.
It's it's a it's a very much a moving moving target.
Okay. Okay. Thank you.
Our next question comes from Robert Dickerson with Jeffries, Robert Your line is open.
Thank you so much I should've kind of too easy questions. I guess, the first one just joined L. T O J <unk>.
Press release, you doing some like <unk>.
L T O breakfast burrito, which other players and you know clearly.
Heard you'd say kind of been the quarter to decent shipments to food service and court part of your business is not necessarily food service, but you know as we kind of just think forward if should expectation be broadly speaking that you know maybe activity could increase kind of on the L. T.
T O seidman food service, which would therefore, I guess extend and kind of brand recognition first question.
Yeah. Thanks very much for the question. This is Pete I, Yeah, we continue to look for ways to add value.
You are stakeholder partners and.
In food service. This is one way that we are able to do that rather uniquely.
One of the one of the benefits.
That we have it by the farms is the strength of our brand and the strength of our brand lends itself to these types of unique partnership opportunities that we can offer.
Offer to some of our operators as well as some of our retail partners. So we're gonna continue to look at different.
Ways to engage consumers engage our operators.
<unk>.
And we do think that that expands.
Expands relevance expands awareness expands households.
And puts them in a little bit of a different a different playing field than than our competitive set.
Alright, Super and then have a technical question Galaxy cash flow related so right now on the balance sheet approximately $57 million in cash.
Which is great very positive free cashflow continues and it's a cash balance is very nice.
Tech relative to where you finished the end of last year at the same time the investment security piece alright available for sale has come down quite a bit.
And I'm just not sure.
How I should read that like gaudy.
Not even sure what the mechanics are of that like what what.
Why has that come down where's that cash going.
Restarting on more cash so I'm just not sure if there's been kind of a transfer of security you can get a cash balance because maybe there is a potential need.
Kate more cash going forward back.
Yeah, Rob the.
Thank you just answered your own question <unk>, we were moving from investment securities into cash equivalent I'm, sorry, you were holding hands and money market funds.
That's actually working Charlie Palace right now.
Since modern market contact yielding really well right now.
And we are shifting this in anticipation of spending that is coming up with a new facility, we've talked about that before.
That we need to build another egg processing facility.
Will pay that out of operating cash in and out of existence cash balances and as we're preparing for that we're just letting investment securities mature and Muslim mature, we don't forget the rest of them put them in the.
Money markets.
Alright.
So much that's all.
Excellent.
And our next question comes from Matt Mcginley with Needham Matt. Your line is open go ahead. Thanks. Thank you. So based on the cadence of when you took price increases last year I think the gross pricing benefit would've been low double digit overall benefit the sales but.
Overall pricing impact that you reported was around seven per cent on higher plan promotion I think the gross impact in the fourth quarter is about the same but the fourth quarter is typically a little bit more promotional so can you give some color on the promotional impact on sales in the fourth quarter and and how we should view that relative to what we saw this quest.
Yeah.
If I followed your mask correctly I agree with it the the reason why the pricing benefits that you saw piano wasn't as high as your thoughts are set free resolve it spending on promotions again in the third quarter.
<unk> higher sales volume than normal to to the wholesale channel. That's just a lower revenue per egg and so that's a that's a reduction all three of our pricing benefit that we had for the year.
Yes, there are it's it's a promotion environment we.
We participated in promotions to the degree that we want to create new consumers of our brand.
We're not participating with the intention of renting market share. If you want it's all about consumer acquisition.
Rather than participating in price moves up and down by commodity producers. So we have a strong brand. That's a game that we decided not to participate in.
Got it.
The shipping and distribution you noted that much of the benefit there.
She said again right much of that was driven by a decline in line how rates, but I mean, you had really impressive volume gain so I assume that there was some operating efficiency or.
Leverage Daddy you got from that so I guess can you can you talk about what that volume or operating efficiency leverage was and do you think there's more benefit to come over the next few quarters from cheaper transport costs or or do you think is nearing the end of that kind of line-haul benefits.
Yeah the.
And I'm I'm not going to speculate on the outline hall right. So we're going to move forward, but but we have had for this call.
As I said, it was a balance of better alright and better.
Capacity utilization.
The business continues to grow in general, we're able to put more pallets on the outbound trucks.
And that reduces the cost of shipping cost per pallet. The line-haul rate reduction that we saw in the third quarter was about 50 per cent decline you over a year.
That obviously placed into that is all.
Alright, thank you.
My questions. The first one for me.
And our final question comes from Ryan Myers with Lake Street Capital markets. Ryan. Your line is open please bear guys Hey.
Thanks for taking my erections.
First one for me how has the risk of trade Downs impacted how you guys think about launching new product skews, our how're you feeling potential new categories.
I think it's a great question I appreciate it uhm, we've got Pete here and so he might add some more detailed context, but it's interesting are are most recent you know product expansions and where we're seeing some of the fastest year on year growth in percentage terms or in some of our highest price skews. So we're <unk>.
Landing distribution of a specialty egg, which is our blue egg, we are expanding distribution and seeing velocity gains in those higher account 18, count because we value proposition excuse and so what we're actually seeing is a mix shift toward higher price point items in that context.
The risk of trade down is affecting our ability to introduce innovation that continues to be a strong value for consumers even at a relatively high price point.
Okay.
Did I get it okay sounds like I got it.
Okay got it and all that is helpful. And then how should we think about marketing spending 2024, both kind of on a full your basis and then from a seasonality perspective as we progress throughout the year.
Yeah.
I would assume that our marketing spending dollars gross as the business grows we're not going to provide guidance right now.
For spelling.
And that includes any thinking about how how it goes quarter by quarter, we adjust those plans as we go throughout the year. Obviously, we go into the year with a plan and then readdress S events over the Euro unfold, but we'll talk about that once we're done with 2023.
Got it thank you for taking my questions.
Uh-huh.
And that does conclude the question and answer session I would now like to turn it back to Matt Siler for closing remarks.
Thanks, everybody for your interests today have a good one.
This does conclude the program you may now disconnect.
Mmm.
[music].