Q2 2024 Freshpet Inc Earnings Call

Reading welcome to fresh cut second quarter 'twenty 'twenty four earnings call. At this time, all participants are in a listen only mode.

Operator: Greetings. Welcome to Freshpet's second quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Tracy Osh, Vice President of Investor Relations. Thank you. You may begin.

<unk> and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Tracey US Vice President and say that's your relations. Thank you you may begin.

Tracy Osh: Thank you. Good morning, and welcome to Freshpet's second quarter 2024 earnings call and webcast. On today's call are Billy Cyr, Chief Executive Officer, and Todd Cunfer, Chief Financial Officer. Scott Morris, President and Chief Operating Officer, will also be available for Q&A.

Tracey: Thank you good morning, and welcome to fresh Pet's second quarter 2024 earnings Conference earnings call and webcast on today's call are Billy Cyr, Chief Executive Officer, and Todd <unk>, Our Chief Financial Officer, Scott Morris, President and Chief Operating Officer will also be available for Q&A before we begin please remember that during the course of this call.

Tracy Osh: Before we begin, please remember that during the course of this call, management will make four forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements related to our long-term strategy, 2027 goals, and pace in achieving these goals, prospects for growth, timing of Freshpet Kitchen's expansion and new technology, and 2024 guidance. Words such as anticipate, believe, could, estimate, expect, guidance, intend, may, project, will, or similar conditional expressions are intended to identify forward-looking statements.

We make forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995. These include statements related to our long term strategy 2027 coal and pace of achieving these calls prospects for growth timing of fresh that kitchen expansion and new technology in 'twenty 'twenty four guidance words, such as anticipate believe.

Tracey: Could estimate expect guidance intend may project will or similar conditional expressions are intended to identify forward looking statements. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward looking statements include.

Tracy Osh: These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements, including those associated with the materials. Please refer to the company's annual report on Form 10-K with the Securities and Exchange Commission and the company's press release issued today for detailed discussions of risks that could cause actual results to differ materially from those expressed or applied in any forward-looking statements made today.

Tracey: And that was associated with such statements. Please refer to the company's annual report on Form 10-K, with the Securities and Exchange Commission and the company's press release issued today for a detailed discussion of risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.

Tracy Osh: Please note that on today's call, management will refer to certain non-GAAP financial measures, such as EBITDA and adjusted EBITDA, among others. While the company believes these non-GAAP financial 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 GAAP. Please refer to today's press release for how management defines such non-GAAP measures, why management believes such non-GAAP financial measures are useful, a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP, and limitations associated with such non-GAAP measures.

Speaker Change: Please note that on today's call management will refer to certain non-GAAP financial measures, such as EBITDA and adjusted EBITDA among others. While the company believes these non-GAAP financial 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 because I'd say.

Speaker Change: In accordance with GAAP. Please refer to today's press release for how management defined such non-GAAP measures why management believes such strong financial measures are useful are reconciliation to non-GAAP financial measures. The most comparable measures prepared in accordance with GAAP and limitations associated with certain non-GAAP measures.

Tracy Osh: Finally, the company has produced a presentation that contains many of the key metrics that will be discussed on this call. That presentation can be found on the company's investor website. Management commentary will not specifically walk through the presentation on the call. Rather, it is a summary of the results and guidance they will discuss today. With that, I'd like to turn the call over to Billy Cyr, Chief Executive Officer.

Speaker Change: The company has produced a presentation that contains many of the key metrics that will be discussed on this call that presentation can be found on the company's investor website.

Hum management commentary will not specifically walk through the presentation on the call rather it is a summary of the results and guidance. They will discuss today with that I'd like to turn the call over to Billy Cyr Chief Executive Officer.

Billy Cyr: Thank you, Rachel, and good morning, everyone. The message I would like you to take away from today's call is that we are on track to deliver the disciplined growth we committed to achieve this year. As you know, we aspire to deliver category-leading growth without a sized improvement in profitability. But as we've learned over the past few years, carefully managing our growth to about 25% enables us to drive operating improvements and manage cash more effectively, making Freshpet an even more attractive business. That is our definition of disciplined growth.

Billy Cyr: Thank you Rachel and good morning, everyone.

Billy Cyr: The message I would like you to take away from today's call is that we are on track to deliver the disciplined growth we committed to achieve this year.

Billy Cyr: As you know, we aspire to deliver category, leading growth with outsized improvement in profitability, but as we've learned over the past few years carefully managing our growth to about 25% enables us to drive operating improvements and manage cash more effectively making fresh pet and even more attractive business.

Billy Cyr: That is our definition of disciplined growth and if we do that well consumers will win customers will win and our shareholders win.

Billy Cyr: And if we do that well, consumers will win, customers will win, and our shareholders will win. Our second quarter results demonstrate the strong progress we are making towards delivering that disciplined growth. We delivered our 24th consecutive quarter of net sales growth over 25% and did it within our existing capacity limits, so we maintained exceptional customer service and strong fill rates. That enabled us to operate very efficiently and effectively.

Billy Cyr: Our second quarter results demonstrate the strong progress we are making towards delivering that disciplined growth. We delivered our 24th consecutive quarter of net sales growth over 25% and did it within our existing capacity limits. So we maintained exceptional customer service and strong fill rates that enabled us to operate very efficiently.

Billy Cyr: And effectively so we expanded our adjusted gross margin and an adjusted EBITDA margin.

Billy Cyr: So we expanded our adjusted gross margin and an adjusted EBITDA margin. The bulk of the operating improvements came in our key focus areas of input costs, quality, and logistics, totaling 770 basis points of improved operating efficiency. Those operating results, specifically adjusted gross margin, input, quality, and logistics costs, exceed some of the key elements of our 2027 goal. As a result, we are in an even stronger position to achieve or exceed our full set of 2027 targets, as well as raise our guidance for this year. We still need to prove that we can achieve these results consistently before we adjust our long-term targets.

Billy Cyr: The bulk of the operating improvements came in our key focus areas of input cost quality and logistics totaling 770 basis points of improved operating improvements.

Billy Cyr: Those operating results, specifically adjusted gross margin input quality and logistics costs exceed some of the key elements of our 2027 goals. As a result, we are in an even stronger position to achieve or exceed our full set of 2027 targets as well as raise our guidance for this year we.

Billy Cyr: Still need to prove that we can achieve these results consistently before we adjust our long term targets. However, another quarter of strong performance has made us even more optimistic.

Billy Cyr: However, another quarter of strong performance has made us even more optimistic. These results were driven by broad-based strength in the key business fundamentals. First, our growth in the second quarter was entirely driven by volume growth. There was no impact from pricing or mix this quarter.

Speaker Change: These results were driven by broad based strength on the key business fundamentals first our growth in second quarter. It was entirely driven by volume growth there was no impact from pricing or mix this quarter.

Billy Cyr: Furthermore, we have been seeing a steady trend towards consumers buying larger pack sizes, which slightly reduces the price per pound but improves the efficiency of our production lines and our distribution. This consumer behavior is a positive indication that value-seeking consumers move up to larger sizes of Freshpet rather than reducing the size or amount they buy. Second, from a household penetration perspective, our growth rate is where we need it to be to hit our 2027 target of 20 million households.

Speaker Change: Further we have been seeing a steady trend towards consumers buying larger pack sizes, which slightly reduces the price per pound, but improves the efficiency of our production lines in our distribution systems. This consumer behavior is a positive indication that value seeking consumers move up to larger sizes of our fresh pet rather than reducing the <unk>.

Speaker Change: <unk> or Mt. The pie.

Speaker Change: Second from a household penetration perspective.

Speaker Change: Growth rate is where we need it to be to hit our 2027 target of 20 million households.

Billy Cyr: We are growing households in the low to mid 20s and increasing the buying rate in the low single digits. That combination results in mid-20s growth rates, which is our targeted level. More encouragingly, our heaviest users are growing even faster than the total user base. Third, our media plan is also delivering the way we had hoped.

Speaker Change: We are growing households in the low to mid twenties, and increasing the buying rate in the low single digits.

Speaker Change: That combination results in mid Twenty's growth rates, which is our targeted level.

Speaker Change: More encouragingly, our heaviest users are growing even faster than the total user base.

Speaker Change: Third our media plan is also delivering the way we get it hoped it is driving strong household penetration gains in line with our long term model and at a healthy customer acquisition cost that is comparable to the cost we had prior to the price increases we took over the past two years.

Billy Cyr: It is driving strong household penetration gains in line with our long-term model and at a healthy customer acquisition cost that is comparable to the cost we had prior to the price increases we took over the past two years. Additionally, by balancing our media investment more evenly across the year, we have been able to deliver strong growth while living within our capacity limit. Fourth, consumers continue to believe that Freshpet represents good value. The desire for value is being expressed as quality for the price, not just price.

Speaker Change: Additionally, by balancing our media investment more evenly across the year, we have been able to deliver strong growth while living within our capacity limits.

Speaker Change: Fourth consumers continue to believe that fresh pet represents a good value.

Speaker Change: The desire for values being expressed as quality for the price not just price we believe consumers find value in a truly differentiated product that is why it appears that much of the category growth is now coming from the fresh frozen segment, where fresh pet is a leader.

Billy Cyr: We believe consumers find value in a truly differentiated product. That is why it appears that much of the category growth is now coming from the fresh frozen segment, where Freshpet is a leader. Further, our growth is fastest among our heaviest users, another strong indicator of the differentiated value that Freshpet represents, even in an environment where consumers are looking for ways to stretch their dollars. Finally, taking a step back, our growth continues to be supported by the long-term trend toward the humanization of pets.

Speaker Change: Further our growth as fastest among our heaviest users another strong indicator of the differentiated value that fresh pet represents even in an environment, where consumers are looking for ways to stretch their dollars.

Speaker Change: Finally, taking a step back our growth continues to be supported by the long term trend towards the humanization of pets.

Billy Cyr: The pandemic created a pet adoption bubble, but we are now back on the same long-term pet population growth trends we've seen for more than a decade. And our volume growth comes from expanding household penetration, which is the model that has worked for us since we first launched our Feed the Growth strategy in 2017. Now, I'd like to provide some highlights from the second quarter.

Speaker Change: The pandemic created a pet adoption bubble, but we're now back on the same long term pet population growth trends, we've seen for more than a decade and our volume growth comes from expanding household penetration, which is the model that has worked for us since we first launched our feed the growth strategy in 2017.

Speaker Change: Now I would like to provide some highlights of the second quarter.

Billy Cyr: We have strong momentum and made great progress against our long-term plan, and you can see that in our financial results. Second quarter net sales were $235.3 million, up 28% year over year, all of it being volume driven, as I said earlier. Second quarter adjusted gross margin was 45.9%, above our long-term target for the second consecutive quarter, compared to 39.8% in the prior year period. Second quarter adjusted EBITDA was $35.1 million, an increase of approximately $26 million year-over-year.

Speaker Change: Strong momentum and made great progress against our long term plan and you can see that in our financial results.

Second quarter net sales were $235 3 million up 28% year over year all of it being volume driven as I said earlier.

Speaker Change: Second quarter adjusted gross margin was 45, 9% above our long term target for the second consecutive quarter compared to 39, 8% in the prior year period.

Speaker Change: Second quarter, adjusted EBITDA was $35 $1 million, an increase of approximately $26 million year over year.

Billy Cyr: From a retail perspective, we are having a solid year of retail availability growth, and store count growth is in line with our long-term rates. More importantly, some of our larger customers are engaging with us on potential plans to add second and third fridges in high-velocity stores. That is where we expect to see the bulk of our growth. You will see that in TDP growth exceeding ACV growth as we go forward. Specifically, we placed 790 fridges in the second quarter, including new stores, upgrades, and second-slash-third fridges, bringing us to a total of 35,602 fridges at retail for more than 1.8 million cubic feet of retail space.

From a retail perspective, we were having a solid year of retail availability growth store count growth is in line with our long term rates more importantly, some of our larger customers are engaging with us on potential plans to add second and third fridges and high velocity stores.

Speaker Change: That is where we expect to see the bulk of our growth you will see that in TDP growth exceeding ACB growth as we go forward.

Speaker Change: Pacifically, we placed nine 790 fridges in the second quarter, including new stores upgrades and second slashed third fridges, bringing us to a total of 35602 fridges at retail more than 1.8 million cubic feet of retail space.

Billy Cyr: As of June 30, 2024, Freshpet could be found in 27,497 stores, 22% of which now have multiple fridges in the U.S. Fill rates continue to be strong, and we're in the high 90s throughout the quarter, supporting fridge placement and store layout. Now I'll provide an update on KPIs we track for our mainstream, main meal, more profitable plans, what we refer to as "main" and more. Focusing on the idea of mainstream, Freshpet is becoming increasingly mainstream, but it still has a long runway for growth. According to Nielsen Omnichannel data, which includes e-commerce and direct-to-consumer, as of June 29, 2024, total U.S. pet food is a $53 billion category.

Speaker Change: As of June 30th 2020 for fresh pack can be found in 27497 stores, 22% of which now have multiple fridges in the U S.

Speaker Change: Fill rates continue to be strong and we're in the high nineties throughout the quarter supporting fridge placement and store growth.

Speaker Change: Now I will provide an update on kpis, we track for our mainstream main meal more profitable plans, what we refer to as main anymore.

Speaker Change: Focusing on the idea of mainstream fresh pet is becoming increasingly mainstream but still has a long runway for growth.

Speaker Change: According to Nielsen Omnichannel data, which includes e-commerce and direct to consumer as of June 29th 2024, total U S. Pet food is a 53 billion dollar category.

Billy Cyr: We only have a 3% market share within the $36 billion dog food segment, which is the majority of our business today. In the Fresh Frozen subcategory in measured channels, Freshpet has a 96% market share. Fresh continues to outperform the broader pet food category, and many retailers believe it is the future of pet food. As a result, Freshpet is now at 66% ACV in Nielsen XAOC, and we continue to add distribution breadth and depth with second and third fridges.

Speaker Change: We only have a 3% market share within the 36 billion dollar dog food segment, which is the majority of our business today.

Speaker Change: Within the fresh frozen subcategory in measured channels fresh pet has a 96% market share.

Speaker Change: Fresh continues to outperform the broader pet food category and many retailers believe it is the future of pet food.

Speaker Change: As a result fresh pet is now in 66 per cent E. T V in Nielsen X Aoc and we continue to add distribution breadth and depth with second and third fridges.

Speaker Change: Our household penetration gains also demonstrate that we are well on our way to making fresh pet more mainstream.

Billy Cyr: Our household penetration gains also demonstrate that we are well on our way to making fresh pet food more mainstream. Household penetration at the end of the second quarter was 12.8 million households, up 25% year over year, and on track to meet our target of 20 million households by 2027. Our high-profit pet-owning households, or HIPPOs for short, are growing even faster, up 31% versus the prior year period. In short, dehumanization of pets is a mainstream idea, and now it is our job to make fresh food the standard way to feed your pet.

Speaker Change: Household penetration at the end of the second quarter was $12 8 million households, up 25% year over year and on track to meet our target of 20 million households by 2027.

Speaker Change: Our high profit pet owning households, or hippos for short are growing.

Speaker Change: Growing even faster up 31% versus the prior year period.

Speaker Change: In short the Humanization of pets is a mainstream idea and now it is our job to make fresh food the standard way to feed your pets.

Speaker Change: Turning to the main meal part of the strategy fresh pet sales are increasingly concentrated in our heaviest users hippos.

Billy Cyr: Turning to the main meal part of the strategy, Freshpet sales are increasingly concentrated in our heaviest users, hippos. Currently, 37% of Freshpet users are hippos, and they represented 89% of our sales in the second quarter. Even more encouraging, about 300,000 of our users, or less than 3% of our total users, buy more than $1,000 of Freshpet per year. And this group grew 47% over the past year. They now represent about 27% of our business.

Speaker Change: Currently 37% of fresh pet users are hippos and they represented 89% of our sales in the second quarter, even more encouraging about 300000 of our users are less than 3% of our total users by more than a thousand dollars a fresh pet per year in this group grew 47% over the past year.

Speaker Change: Are they.

Speaker Change: They now represent about 27% of our business.

Billy Cyr: There is a significant opportunity to increase this percentage and grow our total business. The key driver to convince more consumers to use Freshpet as the main part of their pet's meal is advertising. We need to educate consumers on the benefits of fresh food for their pets.

Speaker Change: There's a significant opportunity to increase this percentage and grow our total business.

Speaker Change: The key driver to convert more consumers to use fresh pet is the main part of their pets meal is advertising, we need to educate consumers on the benefits of fresh food for their pets.

Billy Cyr: Multipacks and larger pack sizes can also help reinforce the idea that our product can be your pet's main meal and will, in turn, help increase buy rate, which was approximately $100 a quarter end of 3.3% versus the prior year period. Adding unique value-added SKUs helps do that. Based on total US Pet Retail Plus data from Nielsen, we currently have an average of 18.4 SKUs per point of distribution, up from 16.1 SKUs one year ago.

Speaker Change: Multi packs and larger pack sizes can also help reinforce the idea that our product can be your pet's main meal and will in turn help increased buy rate, which was approximately $100 at quarter end up three 3% versus the prior year period.

Speaker Change: Adding unique value added Skus helps do that based on total U S pet retail plus data from Nielsen. We currently have an average of 18.4 skus per point of distribution up from 16.1 skews one year ago.

Billy Cyr: Since we have a finite amount of space in our fridge, as we increase the number of second and third fridges, we can increase the number of SKUs, amplifying our visibility and marketing impact, widening our product assortment, and broadening the appeal of our brand. Now to the more part of Maine, and more profitable. We had another strong quarter of margin improvement. Adjusted gross margin improved 60 basis points versus the strong results we posted in Q1, to 45.9%. And we ended the second quarter with an adjusted EBITDA margin of 14.9%.

Speaker Change: Since we have a finite amount of space in our fridge as we increase the number of second and third fridges, we can increase the number of Skus amplifying, our visibility and marketing impact widening our product assortment and broadening the appeal of our brand.

Speaker Change: Now to the more part of main in more more profitable we had another strong quarter of margin improvement.

Speaker Change: Adjusted gross margin improved 60 basis points versus the strong results. We posted in Q1 to 45, 9% and we ended the second quarter with an adjusted EBITDA margin of 14, 9%.

Billy Cyr: The key items that drove this improvement were, first, quality. Our team continues to execute well. We still have lots of opportunity for further improvement, but our team has been able to reduce both the number of issues we have to manage and also the size of any issue. We've returned to our historic level of input costs as a percent of net sales through a combination of price increases, commodity cost management, and meaningful improvements in our production yield. Further, we believe there is an opportunity to continue to improve efficiency in this area through formulation work, supplier diversification, operating improvements, and new technology. Third, logistics.

The key items that drove this improvement were first quality.

Speaker Change: Our team continues to execute well.

Speaker Change: We still have lots of opportunity for further improvement, but our team has been able to reduce both the number of issues. We have to manage and also the size of any issues.

Speaker Change: Second input costs and yield.

Speaker Change: We've returned to our historic level of input costs as a percent of net sales through a combination of price increases commodity cost management and meaningful improvements in our production yields further we believe theres an opportunity to continue to improve efficiency in this area through formulation work supplier diversification operating improvements.

Speaker Change: And new technologies.

Speaker Change: Third logistics, we are clearly benefiting from some macro factors on freight, including lower lane rates and fuel costs, but our 99% fill rate in the quarter. The expansion of the service area for our Dallas D. C. Hind increased production in house and new tools, we've put in place to more effectively bid our lanes and improve.

Billy Cyr: We are clearly benefiting from some macro factors on freight, including lower lane rates and fuel costs, but our 99% fill rate in the quarter, the expansion of the service area for our Dallas DC behind increased production in NS, and new tools we've put in place to more effectively bid our lanes and improve our customer service are the primary drivers of the improved performance. Now, an update on our capacity. We have a disciplined approach to managing capacity and continue to execute on our expansion plans, while also improving throughput and yields on existing lines. In Ennis, the fourth line is still on track to start up by the end of Q3 2024.

Speaker Change: Our customer service are the primary drivers of the improved performance.

Speaker Change: Turning to an update on our capacity.

Speaker Change: We have a disciplined approach to managing managing capacity and continue to execute on our expansion plans, while also improving throughput and yields on existing lines.

Speaker Change: N N S. The fourth line is still on track to start up by the end of Q3 2024.

Billy Cyr: We began commissioning the line in July and feel good about the test run so far. In Bethlehem, the team is focused on Increasing Capacity Utilization, or OEE, and our seventh line on that campus will test new technology, and it's expected to start up in the second half of 2025. And in Kitchen South, we continue to evaluate ways to add more lines and or shift. We continue to evolve our capacity expansion plans to drive greater capital efficiency.

Speaker Change: We began commissioning line in July and feel good about the test run so far.

Bethlehem: And Bethlehem the team is focused on increasing capacity utilization or O E and our seventh finding that campus will test new technology and its expected startup in the second half of 2025.

Bethlehem: In kitchen, South we continue to evaluate ways to add more lines and our chefs.

Bethlehem: We continue to evolve our capacity expansion plans to drive greater capital efficiency. As we've discussed previously we are intensely focused on one maximizing the throughput of our existing lines to maximizing the capacity of our three existing sites and three developing and implementing new technologies that generate.

Billy Cyr: As we've discussed previously, we are intensely focused on one, maximizing the throughput of our existing lines to maximize the capacity of our three existing sites; and three, developing and implementing new technologies that generate more throughput per line. While we've come a long way since our first facility in Quaker Town, PA, the manufacturing systems to make fresh pet food are still not where we'd like them to be.

Bethlehem: More throughput per line.

Bethlehem: Well, we've come a long way since our first facility in Quakertown P. A the manufacturing systems to make fresh pet food are still not where we'd like them to be we.

Billy Cyr: We've invested heavily in both technology and talent to make our production more stable, reliable, and efficient. We've made tremendous progress, but still believe the opportunities for improvement are sizable. In summary, I think we are making good progress at delivering the disciplined growth we promised at the beginning of this year. We are highly focused on managing the business to live within our capacity and believe this has led to the progress we've made on our profitability.

Bethlehem: We've invested and will continue to invest heavily in both technology and talent to make our production more stable reliable and efficient.

Bethlehem: We've made tremendous progress, but still believe the opportunities for improvement are sizable and.

Bethlehem: In summary, I think we're making good progress at delivering that disciplined growth we promised at the beginning of this year.

Bethlehem: We are highly focused on managing the business to live within our capacity and believe this has led to the progress we've made on our profitability. We believe our model works very well at approximately 25% growth generating the right balance of growth capital investment and cash generation and we are increasingly confident that we will be free cash flow path.

Billy Cyr: We believe our model works very well at approximately 25% growth, generating the right balance of growth, capital investment, and cash generation. And we are increasingly confident that we will be free cash flow positive by 2026. I'm incredibly proud of the progress we have made and the results we have delivered, especially since NS is still subscale and we have some exciting new technologies under development that could meaningfully enhance the economics of our bags business. Now we need to continue to execute at a high level and keep raising the bar.

Bethlehem: <unk> by 2026.

Speaker Change: I'm incredibly proud of the progress we have made and the results we have delivered especially since N. S is still subscale and we have some exciting new technologies under development that could meaningfully enhance the economics of our bags business.

Speaker Change: Now we need to continue to execute at a high level and keep raising the bar.

Billy Cyr: Before I turn it over to Todd, I want to point out that the press release announcing our earnings today has a dateline of Bedminster, New Jersey, instead of our previous home in Secaucus. We've outgrown our corporate offices in Secaucus and have moved into a temporary office space in Bedminster, New Jersey, while our new purpose-built leased corporate office is under construction right down the road in Bedminster. We expect to move into the new office in the first half of next year.

Speaker Change: Before I turn it over to Todd I want to point out that the press release announcing our earnings today has a dateline of Bedminster, New Jersey, instead of our previous home and Secaucus.

Todd: We've outgrown our corporate offices in Secaucus and have moved into a temporary office space in Bedminster, New Jersey, while our new purpose built leased corporate office is under construction right down the road in Bedminster, we expect to move into the new office in the first half of next year, our new location in Bedminster will allow us to attract and retain the top marketing.

Billy Cyr: Our new location in Bedminster will allow us to attract and retain the top marketing and finance talent we need, while making it much easier for our team members to go back and forth to our technical base in Bethlehem, Pennsylvania, enabling much closer collaboration and planning. Our new office will embody our Pets, People, Planet mantra, and we look forward to sharing it with you when it opens next year. Now, I will turn it over to Todd to walk through the details of the Q2 results and our updated guidance. Okay, Todd?

Todd: Finance talent, we need well, making it much easier for our team members to go back and forth to our technical base in Bethlehem, Pennsylvania, enabling much closer collaboration and planning our new office will embody our pets people planet mantra and we look forward to sharing with you when it opens next year.

Now, let me turn it over to Todd to walk through the details of the Q2 results and our updated guidance Todd.

Todd Cunfer: Thank you, Billy, and good morning, everyone. As Billy mentioned, we are very pleased with the second quarter results, particularly our ability to deliver on profit improvement. Now I'll give you some color on our financials and updated guidance for the year. Second quarter net sales were $235.3 million, or 28% year over year. Nielsen measured dollar growth was 24% versus the prior year period with broad-based consumption growth across channels. We saw 26% growth in XAOC, 24% in U.S. food, 9% growth in pet specialty, and over 100% growth in the unmeasured channel.

Todd: Thank you Billy and good morning, everyone as Billy mentioned, we're very pleased with the second quarter result, particularly our ability to deliver on profit improvement.

Todd: Now I'll give you some color on our financials and updated guidance for the year.

Niels: Second quarter, net sales were $235 3 million or 28% year over year Niels.

Speaker Change: Nielsen measure dollar growth was 24% versus the prior year period with broad based consumption growth across channels. We saw a 26, 26% growth in X Aoc, 24% in U S food, 9% growth in pet specialty and over 100% growth in the unmeasured channels.

Speaker Change: It is important to note that Nielsen IQ has expanded their coverage beyond what we previously called Nielsen Mega channel to our new U S pet retail plus channel that as online sales via Amazon Chewy neighborhood pet retailers and farm and feed stores.

Todd Cunfer: It is important to note that Nielsen IQ has expanded its coverage beyond what we previously called the Nielsen Mega Channel to a new US Pet Retail Plus Channel that adds online sales via Amazon Chewy, neighborhood pet retailers, and farm and feed stores.

Speaker Change: Wherever possible, we will use the expanded definition to <unk> to provide the most comprehensive view of our business and the category. We estimate that this new channel covers more than 85% of our U S business today.

Todd Cunfer: Wherever possible, we will use the expanded definition to provide the most comprehensive view of our business and the category. We estimate that this new channel covers more than 85% of our U.S. business today. Second quarter adjusted gross margin was 45.9%, up 610 basis points year-over-year. This was driven by improvement in input cost, yield, throughput, and quality cost. Specifically, input cost as a percent of net sales improved 460 basis points with better yields, throughput, and lower commodity costs, while quality cost improved by 90 basis points.

Speaker Change: Second quarter adjusted gross margin was 45, 9% up 610 basis points year over year. This was driven by improvement in input cost yield throughput and quality cost specifically input costs as a percent of net sales improved 460 basis points with better yields throughput.

Speaker Change: And lower commodity costs, while quality cost improved by 90 basis points.

Todd Cunfer: Second quarter adjusted SG&A was 31% of net sales compared to 34.9% in the prior year period. We spent 12.2% of net sales on media in the quarter, down from 14.8% of net sales in the prior year period. Total media investment was up 6% year over year.

Speaker Change: Second quarter, adjusted SG&A was 31% of net sales compared to 34, 9% in the prior year period.

Speaker Change: We spent $12 2% of net sales on media in the quarter downturn 14, 8% of net sales in the prior year period total media investment was up 6% year over year.

Todd Cunfer: Recall, our media plan is less frontloaded this year than in years past, so that we can manage our growth to live within our capacity limits. Logistics costs continued to improve and were 5.8% of net sales in the second quarter, a decrease of 220 basis points compared to the prior year period. Like Billy stated, the majority of the improvement was due to strategic actions we have taken to increase bill rates, reduce miles driven by increasing the number of states served by our second distribution center, and negotiate with vendors, with the remainder being macro-driven with more favorable lanes.

Speaker Change: Recall, our media plan is less frontloaded this year than in years past. So that we can manage our growth to live within our capacity limit.

Speaker Change: Logistics costs continued to improve and were five 8% of net sales in the second quarter, a decrease of 220 basis points compared to the prior year period like Billy stated the majority of the improvement was due to strategic actions, we have taken to increase bill rates reduced miles driven.

Billy Cyr: Even by increasing the number of states served by our second distribution center and negotiate with vendors with the remainder being macro driven with more favorable language.

Billy Cyr: Other SG&A, which was 13% of net sales increased 90 basis points driven by higher incentive compensation.

Todd Cunfer: Other SG&A, which was 13% of net sales, increased 90 basis points driven by higher incentive compensation. Please note that our GAAP P&L includes an $11.1 million true-up of non-cash, share-based compensation based on multi-year share-based awards granted in fiscal year 2020. This year's unexpectedly strong profit performance has increased the likelihood of greater vesting on those awards. Excluding this charge, we would have generated $9.4 million of net income.

Billy Cyr: Please note that our GAAP P&L includes an $11 1 million true up of noncash share based compensation based on multi year share based awards granted in fiscal year 2020. This year's unexpectedly strong profit performance has increased the likelihood of <unk>.

Billy Cyr: Greater vesting on those awards, excluding this charge, we would have generated $9 $4 million of net income.

Speaker Change: Second quarter, adjusted EBITDA was $35 1 million or 14, 9% of net sales compared to $9 million or four 9% of net sales in the prior year period. This improvement was primarily driven by higher gross margin as well as improved logistics costs.

Todd Cunfer: Second quarter adjusted EBITDA was $35.1 million, or 14.9% of net sales compared to $9 million, or 4.9% of net sales in the prior year period. This improvement was primarily driven by higher gross margin as well as improved logistics costs. Chappell's spending in the second quarter was $48.3 million.

Speaker Change: Capital spending in the second quarter was $48 $3 million.

Todd Cunfer: Operating cash flow in the second quarter was $42.4 million, and we had cash on hand of $251.7 million at the end of the quarter. We continue to believe that we have adequate cash to fully fund our growth through 2025 and will be free cash flow positive in 2026. Our strong improvement in adjusted EBITDA this year also makes it unlikely we will need additional capital. Now, turning to guidance for 2024. We are updating our outlook to reflect our outperformance in the second quarter, as well as our conviction in our ability to execute in the second half.

Speaker Change: Operating cash flow in the second quarter was $42 4 million and we had cash on hand of $251 $7 million at the end of the quarter. We continued to believe that we have adequate cash to fully fund our growth through 2025 and will be free cash flow positive in 2026 or <unk>.

Speaker Change: Strong improvement in adjusted EBITDA. This year also makes it unlikely we will need additional capital.

Speaker Change: Now turning to guidance for 2024.

Speaker Change: We are updating our out our outlook to reflect our outperformance in the second quarter as well as our conviction in our ability to execute in the second half.

Todd Cunfer: We are raising our net sales guidance from at least $950 million to at least $965 million, or growth of at least 26%. We are able to do this because of the strong improvements in our operating efficiency, particularly in Bethlehem and Kitchen South, that will allow us to sell a bit more this year and still maintain strong customer service. However, we still need the new roll line in Ennis to start up by the end of September and ramp up production.

Speaker Change: We are raising our net sales guidance from at least $950 million to at least $965 million or growth of at least 26%. We were able to do this because of the strong improvements in our operating efficiency, particularly in Bethlehem and kitchen, south that will allow us to sell a bit more this year.

Speaker Change: And still maintain strong customer service. However, we still need the new roll on in earnest to startup by the end of September and ramp up production in order to have the supply we need to meet demand.

Todd Cunfer: In order to have supply, we need to meet demand. We are also keeping in mind the capacity needed to support next year's growth and do not want to get too far ahead of our original plan. As far as cadence is concerned, we continue to expect net sales to have sequentially lower percentage growth throughout the remainder of the year as we intentionally manage our growth rate while expanding capacity. Our more balanced first half and second half media investment this year has been critical to delivering the growth we have experienced while also living within our capacity constraints.

Speaker Change: We are also keeping in mind the capacity needed to support next year's growth and do not want to get too far ahead of our original plans.

Speaker Change: As far as cadence, we continue to expect net sales to have sequentially lower percentage growth throughout the remainder of the year as we intentionally manage our growth rate while expanding capacity.

Speaker Change: Our more balanced first half second half media investment. This year has been critical to delivering the growth we have experienced while also living within our capacity constraints as the first half media really dictates the demand we have in the second half of this year in the second half media investment will drive the demand we experienced in the first half of next year.

Todd Cunfer: As the first half of the year really dictates the demand we have in the second half of this year, and the second half of the year's media investment will drive the demand we experience in the first half of next year. For this reason, our second half media investment will be significantly larger than the investment we made in the previous year. For Just a Deeper Doubt, we are raising guidance from at least $120 million to at least $140 million to reflect the overdelivery in Q2.

For this reason our second half media investment will be significant significantly larger than the investment we made in the previous year.

Speaker Change: For adjusted EBITDA, we are raising guidance from at least $120 million to at least $140 million to reflect the over delivery in Q2.

Todd Cunfer: We now expect Adjusted Gross Margin to expand by approximately 500 basis points for the full year compared to 300 basis points previously. Capital expenditures are now projected to be approximately $200 million, compared to approximately $210 million, to support the installation of capacity to meet demand in 2025. The modest reduction is due to the timing of certain expansion projects. In summary, the second quarter results demonstrated disciplined growth and our ability to execute the strategy we laid out.

Speaker Change: We now expect adjusted gross margin to expand by approximately 500 basis points for the full year compared to 300 basis points previously.

Speaker Change: Capital expenditures are now projected to be approximately $200 million compared to approximately $210 million to support the installation of capacity to meet demand in 2025. The modest reduction is due to the timing of certain expansion projects.

Speaker Change: In summary, the second quarter results demonstrated disciplined growth and our ability to execute the strategy. We laid out we are very pleased to see our investments in capacity and organizational capabilities are paying off and we are gaining significant scale advantages.

Todd Cunfer: We are very pleased to see our investments in capacity and organizational capabilities are paying off, and we are gaining a significant scale advantage. That concludes our overview. As a reminder, we ask that you please focus your questions on the quarter, guidance, and the company's operations. Operator?

Speaker Change: That concludes our overview, we will now be glad to answer your questions. As a reminder, we ask that you. Please focus your questions on the quarter guidance and the company's operations operator.

Operator: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. Our first question is from Ken Goldman with J.P. Morgan. Please proceed.

Speaker Change: Thank you if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Ask that you please limit to one question and one follow up question.

Speaker Change: Our first question is from Ken Goldman with J P. Morgan. Please proceed.

Ken Goldman: Good morning. Thank you.

Ken Goldman: Good morning, Thank you.

Ken Goldman: When it comes to the outlook for 2007, I think you you're skating about as close as possible to.

Ken Goldman: When it comes to the outlook for 27, I think you're skating about as close to Raising it without officially doing so, if that's fair, can you just please remind us of or update us rather on the, you know, the guideposts you're looking for that will allow you to, I guess, proverbially pull the trigger. I guess I'm also asking what gives you pause. Today, that makes you maybe think you can't necessarily deliver some of these results consistently. You know, I think some people are hoping that within the next couple of quarters, you'll raise that outlook. That's kind of what I'm getting at.

Ken Goldman: Raising it without officially doing so if that's fair can you just please remind us on or update us rather on the you know the guideposts.

Hosts youre looking for that will allow you to I.

Speaker Change: I guess proverbially proverbially pull the trigger I guess I'm also asking what gives you pause.

Speaker Change: Today that makes you maybe think that you can't necessarily deliver some of these results consistently.

Speaker Change: I think some people are hoping that within the next couple of quarters, you'll raise that outlook is kind of what I'm getting at.

Ken Goldman: Yeah, Ken Thanks.

Billy Cyr: Yeah, Ken, thanks. The way we're looking at it is we feel really good about the progress that we've made, particularly on the operations side. And at the same time, we're very mindful that we operate in a fairly volatile environment. So what we'd like to see is us deliver the full year at the rates that, you know, would be embedded in our 2027 targets. And when we get to that point, we'll take a look at it and say what makes sense going forward.

Speaker Change: The way we're looking at it is we would we feel really good about the progress that we've made particularly on the operation side and at the same time, we're very mindful that we operate in a fairly volatile environment. So what we'd like to see is we'd like to see us deliver the full year at the rates that you know would be embedded in our 2027 targets.

Speaker Change: And we get to that point, we'll take a look at it and say what makes sense going forward, but we'd like to see that you'll see us deliver the full year in a consistent way in ways that could support those 'twenty 'twenty targets and that particularly is on the operations side on the net sales side, we feel really good about where we are where we're as we said in the comments we're trying to.

Billy Cyr: But we'd like to see the, you know, see us deliver the full year in a consistent way and ways that could support those 2027 targets, particularly on the operations side. On the net sales side, we feel really good about where we are. We're, as we said in the comments, trying to drive our growth to live within the capacity limits and plan capacity. You know, we plan capacity for 18 to 24 months.

Speaker Change: Drive our growth to live within the capacity limits in planned capacity, we plan capacity out 18 to 24 months. So you should expect us to be very very close to the guidepost as we go from here through 2027 and expect that on a long term basis that it's going to our growth rate is going to be driven by our ability to add capacity.

Billy Cyr: So you should expect us to be very, very close to the guideposts as we go from here through 2027 and expect that, on a long-term basis, our growth rate is going to be driven by our ability to add capacity and the rate at which we want to add capacity.

Speaker Change: And the rate at which we want to add capacity.

Speaker Change: Thank you and then a follow up Bill you know.

Bill: Haven't really talked I think in specifics about where your capacity will be.

Speaker Change: Next year in a little while and where you expect sales to exactly be although I think people still expect kind of a 25% increase there can you just give us a little bit of an update perhaps on the path ahead for the next year or two as you see it in terms of capacity versus sales. What you. You know is there a rough utilization rate, we should think about it.

Billy Cyr: Can you just give us a little bit of an update, perhaps, on the path ahead for the next year or two, as you see it, in terms of capacity versus sales? Is there a rough utilization rate we should think about? I think one thing that kind of confuses investors a little bit, and there's not much confusion about the story right now, given how well everything's going, is just try to kind of think about those paths ahead in terms of capacity versus expected sales and how they may track each other in general.

Speaker Change: I think one thing that kind of confuses investors a little bit.

Speaker Change: And theres not much confusing about the story right now given how well everything is going is just trying to kind of think about those pads ahead in terms of capacity versus expected sales and how they may track each other in general.

Billy Cyr: Yeah, historically, we've talked about it in the context of total capacity, but we're at the point now where it really is driven by, you know, capacity for bags versus capacity for rolls. So, for example, this year, the capacity limitation that we've had to work with has been on our roll lines. And as we're starting up another rolls line in Ennis this quarter, we've had to keep our total business or total net sales underneath the limit that that rolls capacity implied.

Speaker Change: Yeah, historically, we've talked about it in the context of total capacity, but we're at the point now where it really is driven by <unk>.

Capacity for bags versus capacity for rolls. So for example, this year the capacity limitation that we've had to work with has been on our walls lines and as we're starting up another role Brian Bold line in N S. A in this quarter, we had to keep our total business. Our total net sales underneath the limit that that rolls capacity.

Speaker Change: <unk> implied as soon as that line is up and running we flip it over and then the next capacity limit that will run into probably in the first half of next year is bags and so we have new bank lines coming on in the first quarter of next year and so I don't think of it in terms of total capacity I tend to think of it in terms of the limitations that we have on <unk>.

Billy Cyr: As soon as that line is up and running, we flip it over, and then the next capacity limit that we'll run into probably in the first half of next year is bags. And so we have new bag lines coming on in the first quarter of next year. And so I don't think of it in terms of total capacity. I tend to think of it in terms of the limitations that we have on bags or rolls, and we kind of flip-flop back and forth between the two, but in a very steady cadence.

Speaker Change: <unk> rules, and we kind of flip flop back and forth between the two but in a very steady cadence and if we keep adding capacity at the steady rate that we plan, we keep improving capacity utilization on the existing line and operate really well, we feel very comfortable about our ability to deliver the net sales growth. That's embedded I think people who look for us to go.

Billy Cyr: And if we keep adding capacity at the steady rate that we plan, we keep improving capacity utilization on the existing line and operate really well. We feel very comfortable about our ability to deliver the net sales growth that's embedded. I think people who look for us to go way above that are missing the fact that we're trying to stay very disciplined and very close to the guideposts that our capacity provides. That's really where we're focused.

Speaker Change: Way above that are missing the fact that we're trying to stay very disciplined and very close to the guide post that our capacity provide Ah that's really where we're focused but can just to be clear. We are we had next month and the new lines coming up and Dennis we have aligned our bag line coming up at our kitchen South facility in Q1, we're also gonna.

Todd Cunfer: But Ken, just to be clear, we have the new line coming up in Ennis next month. We have a line, a bag line, coming up at our Kitchen South facility in Q1. We're also going to add some shifts to some existing lines in Kitchen South, and then we're anticipating better performance and a ramp-up in Ennis across the entire facility. So we feel very good about the amount of capacity we will have for next year.

Speaker Change: Add some shifts.

Speaker Change: To some existing lines and kitchen, South and then we're anticipating better performance and a ramp up and it's across the entire facility. So we feel very good about the amount of capacity. We will have for next year, but as bill pointed out we're not going to get too far ahead of our Skus, we're trying to manage cash flow capacity.

Todd Cunfer: But, as Billy pointed out, we're not going to get too far ahead of ourselves. We're trying to manage cash flow, capacity, earnings, and the top line all together, and that's the trick. But, you know, we literally review this every month, and we have a clear strategy and path to get to our $1.8 billion in 2017. Thank you very much.

Bill: <unk> earnings topline altogether and that that's the trick, but we literally review. This every month and we have a clear strategy and path to get to our $1 8 billion and 27.

Speaker Change: Thank you very much.

Speaker Change: Our next question is from Bill Chappell with truly Securities. Please proceed.

Bill Chappell: Our next question is from Bill Chappell with Truist Securities. Please proceed.

Speaker Change: Yeah.

Bill Chappell: Thanks, Good morning.

Bill Chappell: Good morning, just a follow up on your comment about the consumer buying more bulk or larger sizes.

Bill Chappell: I just want to follow up on your comment about the consumer buying more bulk or larger sizes and trying to understand, you know, we have heard so many mixed signals over the past three months about what the consumer is buying.

Speaker Change: Trying to understand what we hear so many mixed signals over the past responsible what the consumer is doing well are you seeing a real change or is that more reflective of just your recent expansion in the club channel with and actually they are buying much bigger ball.

Bill Chappell: What are consumers doing, right? Are you seeing a real change?

Billy Cyr: or is that more reflective of just your recent expansion and the club channel with which, naturally, they're buying much bigger bowls?

Billy Cyr: Thanks for watching. Bye.

Billy Cyr: Clearly, there's some part of that in it, but we do see across the board that there is a migration towards larger sizes. The way I think about it, if you're taking a step back from the macro market, if you have consumers who are value-seeking and you are in the staples business, meaning consumers want to buy your product, and every day they need to keep it in their pantry or in inventory, you should expect to see them migrate to larger sizes because that's the way they exercise value-seeking behavior.

Speaker Change: Clearly, there's some piece of that in it but we do see it across the board that there is a migration towards the flight by migration towards the larger sizes. The way I think about it if you're taking a step back on the macro market. If you have consumers who are value seeking and you were in the staples business, meaning <unk>.

Speaker Change: Tumors want to buy your product in everyday they need to keep it in their pantry or an inventory you should expect to see them migrate to larger sizes, because thats the way they exercise value seeking behavior. If on the other hand during the impulse purchase business you should expect to see consumers moving to smaller sizes as a as a driver but in our business we view ourselves.

Billy Cyr: If, on the other hand, you're in the impulse purchase business, you should expect to see consumers moving to smaller sizes as a driver. But in our business, we view ourselves as a staple. We're part of the everyday diet of dogs, and so we see consumers moving up into larger sizes.

Speaker Change: As a staple where part of the everyday dye to the dog and so we see consumers moving up into larger sizes is not a huge shift but it is enough of a shift that is noticeable.

Speaker Change: Got it and then just.

Billy Cyr: It's not a huge shift, but it is enough of a shift that it's noticeable, got it, and then the bigger picture. So we hear a lot of noise from the direct to consumer, new players in the market, mainly it's frozen direct to consumer. And, you know, frozen has been a fairly stagnant category since even before you started to exist. And so I'm just trying to understand, are you seeing anything new? Is it a threat? Is it an opportunity, just as you look at the other players that are certainly making more noise on the advertising front? I'm not sure if, on the sales front, if they're having much impact.

Speaker Change: Bigger picture, so we hear a lot of noise from the direct to consumer new players in the market, mainly it's frozen direct to consumer.

Speaker Change: The president has been fairly stagnant.

Category since even before you started to exist and so I'm just trying to understand are you seeing anything new there or is it a threat isn't an opportunity just as you look at the other players that are certainly making more noise from the advertising front I'm not sure if from a sales run it there having much impact.

Billy Cyr: Hey Bill, we're always keeping a really close eye on everything that's going on in the market and kind of where the new entrants are coming in, how it's playing. We're testing basically different types of direct-to-consumer in three and four different ways. We think it's really interesting. We love our model, and, long term, we really feel positive about the way our model is developing and progressing.

Speaker Change: Hey, Bill So look we're always keeping a really close eye.

Bill Chappell: On everything that's going on in the market and kind of where the new entrants are coming in how it's playing we're testing are basically different types of direct to consumer and three in four different ways.

Speaker Change: We think it's really interesting we love our model and long term, we really feel positive about the way our model is developing and progressing.

Speaker Change: Okay. Thanks, so much.

Bill Chappell: Okay, thanks so much.

Speaker Change: Thanks.

Robert Moskow: Our next question is from Robert Moskow with TD Cowen. Please proceed.

Speaker Change: Our next question is from Robert Moskow with TV Cowen. Please proceed.

Robert Moskow: Hi, Thank you.

Robert Moskow: Billy, you might have kind of answered this question already, but I wanted to fast forward beyond 2027. I mean, if your growth rates continue at a rapid pace, what's the implications for capital deployment and, therefore, cash flow? Could you foresee, like, having to take a step backward on your cash flow momentum in order to fund another tranche of significant growth? What's the appetite for that?

Robert Moskow: He might have kind of answered this question already but I wanted to fast forward beyond 2027, I mean, if if your growth rates continue at a rapid pace.

Robert Moskow: What's the implication for capital deployment, and therefore cash flow could you foresee like having to take a step backward on your cash flow momentum in order to fund another tranche of significant growth.

Speaker Change: You know, what's the appetite for that.

Billy Cyr: And then secondly, I had a question about the buying rate in the numerator data. It looks like last year got restated. It's not by a lot, but compared to the first quarter, it's down a little. And then your buy rate growth this year is 3%. I think last quarter it was 5%. So it's small numbers, but I want to know if you're watching that, if you have any reason for that.

Speaker Change: And then secondly, I had a question about the buying rate in the numerator data it looks like it looks like last year got restated its not by a lot, but it compared to first quarter, it's down a little and then your your buy rate growth. This year is 3% I think last quarter. It was five so.

Speaker Change: It's small numbers, but I wanted to know if you're watching that if you have any.

Speaker Change: The reason for those changes.

Speaker Change: Yeah, Rob we do on the first question, we do look at the capacity planning out through in fact, we go out to 2030 and beyond and we pay very close attention to it we have construction and light installation projects going on right now on all three of the campuses that we operate and where.

Billy Cyr: Yeah, Rob, on the first question, we do look at the capacity planning through, in fact, we go out to 2030 and beyond. And we pay very close attention to it.

Billy Cyr: We have construction and line installation projects going on right now at all three of the campuses that we operate, and we're very comfortable that we have adequate capacity to meet the demand that we can reasonably project through 2027 and beyond on those sites. The thing that we've been spending a lot of time trying to figure out is at what point does our existing footprint require us to go and add a new site, which would be a fairly sizable capital expense.

Speaker Change: Comfortable that we have adequate capacity to meet the demand that we can reasonably project through 2027 and beyond on those sites. The thing that we've been spending a lot of time trying to figure out is at what point does our existing footprint require us to go and add a new site, which would be a fairly sizable capital expense and at this point, we don't see that happen.

Billy Cyr: And at this point, we don't see that happening inside of the 2027 window and probably out to the 2030 window, where we would not require it because we can get enough capacity through technological improvements and adding lines to the existing site. So we feel very good about it. And as a result, and I can comment on the cash flow that comes from that, but we feel pretty good about the cash generation capability of the business and more than able to meet the needs of the capacity planning expansion we have. Let me just jump to the numerator piece for a second.

Speaker Change: Turning inside of the 2027 window and probably out to 2030 window, where we wouldn't we would not require it because we can get enough capacity through technology improvement and adding lines to the existing sites. So we feel very good about it and as a result, and I can comment on the cash flow that comes from that but we feel pretty good about the cash generation.

Speaker Change: The capability of the business and more than able to meet the needs of the capacity planning expansion we have.

Billy Cyr: On the numerator piece, the numerator restates the data literally every month. And so they readjust their panel, so you should always expect the numbers to move a little bit. And that's why the previous periods will change. What you can also expect is that a year ago, we had some pricing that was in the 52-week numbers. This year, there's no pricing in the 52-week numbers because we've left all that pricing. So you should expect that the buy rate is not benefiting from anything other than consumers migrating to higher-value products, or there are increased purchases of the products. It is not benefiting from pricing.

Speaker Change: Let me just jump to the numerator piece for a second on the numerator piece numerator restates the data literally every month and so are they readjust their panels. So you should always expect the numbers to move a little bit.

Speaker Change: And that's why the previous periods will change what you can also expect is that a year ago. We had some pricing that was in the 52 week numbers. This year Theres no pricing in the 52 week numbers, because we've lapped all of that pricing. So you should expect that the buy rate is not benefiting from anything other than consumers migrating to higher value products your or there.

Increased purchases of the products. It is not benefiting from pricing, we feel really good about the combination of household penetration growth in our buy rate I mean in fact, its running slightly hot right now versus where we would've expected to be and feel very very good about it you should expect that we will always run in the call. It low twenties on penetration and low single digits on buy rate.

Billy Cyr: We feel really good about the combination of household penetration growth and our buy rate. I mean, in fact, it's running slightly hot right now versus where we would have expected it to be. We feel very, very good about it. You should expect that we will always run in the low 20s on penetration and low single digits on buy rate, and that'll give us our total growth rate. I don't know if Todd wanted to give you any more commentary on the cash flow. Yeah, I mean, look, it's a really valid question, Rob.

Todd: And that'll get us our total growth rate I know Todd wanted to give you any more commentary on the cash flow yeah. I mean look it's a really valid question Rob.

Todd Cunfer: Look, we're very bullish on this business growing nicely over the next several years. But do I think we're going to grow at a 25% clip in 2035? Probably not.

Speaker Change: We're very bullish on this business growing nicely over the next several years do I think we're gonna grow at 25% clip in 2035.

Speaker Change: Probably not possible, but even under that scenario, we will be generating.

Todd Cunfer: It's possible. But even under that scenario, we will be generating enormous amounts of EBITDA that will come into fruition and plenty of operating cash flow to cover what could be a lot of capex based on that kind of growth in dollars year over year, which is I think where we are getting to. But it also goes to where we're spending so much time; we know we have to get better on operating efficiencies at our plant.

Speaker Change: Enormous amounts of EBITDA at that that would come into fruition and plenty of operating cash flow to cover.

Speaker Change: What could be a lot of capex based on those kind of growth in dollars year over year, which is I think where we are getting yet but it also goes to we are spending so much time, we know we have to get better on operating efficiencies at our plants. That's why we spent so much time looking at new technologies to make the Rois C on X on new.

Todd Cunfer: That's why we spend so much time looking at new technologies to make the ROIC on new capacity better and better as we go in the future. And look, we will need a new facility at some point in time. We are not averse. We're looking at every possible scenario, whether it's another greenfield like Ennis. We're very comfortable with working with partners that can minimize the amount of capital out there, but we will manage that cash flow impact very, very closely.

Speaker Change: The better and better as we go into the future and look we will need a new facility at some point in time, we are not averse. We're looking at every possible scenario, whether it's another greenfield like N S.

Speaker Change: We're very comfortable with working with partners that can minimize the amount of capital out there.

Speaker Change: But we.

Speaker Change: We will manage that cash flow impact very very closely.

Speaker Change: Thank you.

Speaker Change: Our next question is from Brian Holland with D. A Davidson. Please proceed.

Brian Holland: Our next question is from Brian Holland with D.A. Davison. Please proceed.

Brian Holland: Thanks. Good morning.

Brian Holland: Yeah. Thanks, good morning.

Brian Holland: I guess just to start with the media spend.

Brian Holland: Which looks like it's still projected to grow in line with the top line I know year on year higher in the second half than it was prior year.

Scott Morris: I guess just to start with media spend, which looks like it is still projecting to grow in line with the top line. I know, year on year, higher in the second half than it was the prior year. You know, trying to square that with the consumer acquisition costs, which once again, down sequentially this quarter, continued progress there back to pre-price levels. I guess maybe there was a part of me that was anticipating sort of a lower revision of media.

Trying to square that with the consumer acquisition costs, which once again down sequentially. This quarter continued progress there back to pre price increase levels.

Speaker Change: I guess, maybe there was a part of me that would be anticipating sort of a lower revision of media and fast.

Scott Morris: And if that's out there and I missed it, forgive me. But just help me think about the cadence for media as we start to think about 2025 and how quickly we can kind of come in line. So that seems to be the one metric that we're still a bit off from, you know, what your 2027 target is.

Speaker Change: Out there and I missed it forgive me, but just help me think about the cadence for media as we start to think about 2025, and how quickly we can kind of come in life because it seems to be the one metric that we're still a bit off from what your 2027 target is.

Scott Morris: So, hey Brian. So, the thing that's really exciting about this is, the way we like to think about it, the growth model is really, really well intact. I know you've watched it for many, many years. We focus on it, like the number of consumers that are coming in and what it's costing to get us those consumers. It is definitely right within the band of exactly what it was this year, a year ago, three years ago, five years ago, and even longer than that.

Speaker Change: So hey, Brian So the thing that's I think really exciting about this is the way we like to think about the growth model is really really well intact you've watched it for many many years, we focus on it like the number of consumers that are coming in what is costing to get us those consumers. It is definitely rate within band or exactly what.

Speaker Change: It was this year a year ago, three years ago, five years ago, and even even longer than that so I think that one of the things that's really important to communicate it.

Scott Morris: So, I think that one of the things that's really important to communicate. It demonstrates the potential of this idea. It demonstrates the potential of the change that we're making in the category. And the deeper we're getting, like further and further, we're getting into our TAM, we're not seeing increased costs on our CAC. I mean, and that's extraordinary. And I think that's incredibly unique from what else we're hearing from other people trying to come up with kind of fresh and frozen.

Speaker Change: It demonstrates the potential of this idea of demonstrating the potential of the change that we're making in the category and the deeper we are getting further and further we're getting into our Sam we're not seeing increased cost on our cat I mean, and that's extraordinary and I think that's incredibly unique from what else. We're hearing from other people trying to come into kind of fresh and frozen.

Speaker Change: So I think that we feel we feel really terrific about that if you look at our media spend this year. It was literally constructed to make sure that we stayed with inbound for the for the growth that we wanted for the year. It is lower if you look at the overall year. It will be a fairly significant increase in overall media spend with a front half will be a much lower <unk>.

Scott Morris: So I think that we feel really terrific about that. If you look at our media spend this year, it was literally constructed to make sure that we stayed within bounds for the growth that we wanted for the year. If you look at the overall year, it will be a fairly significant increase in overall media spend, but the front half will be a much lower increase versus a year ago. It was about a 16% increase versus a year ago.

Speaker Change: Increase versus year ago. It was about a 16% increase versus year ago in the back you're going to see a significant increase but the back half media is all about making sure that we're in a great spot and setting ourselves up for another terrific year in 2025, and if you ask.

Scott Morris: In the back, you're going to see a significant increase. But the back half media is all about making sure that we're in a great spot and setting ourselves up for another terrific year in 2025. And if you think about, talk to people in the company, and the work that we're doing now, it's all about what we need to do over the next six months to put ourselves in a terrific position for 2025. And I think we're incredibly fortunate that we have the ability to plan in that way, think that way, and kind of put our resources behind that.

Speaker Change: If you think about you know talk to people in the company and the work that we're doing now it's all about what do we need to do over the next six months to put ourselves in a terrific position for 25 and I think we're incredibly fortunate that we have the ability to plan and that way think that way and kind of put our resources against that.

Appreciate the color Scott.

Scott Morris: Appreciate the color, Scott. And then maybe Todd, just thinking about, you know, what's implied in the guidance for the second half of the year. If we set aside the top line, the biggest driver of upside was obviously the gross margin over delivery in the first half. Anything to be mindful of in the second half that would compress the kinds of gross margins we've seen in the first half? Is there any reason they couldn't be mid 40% or better, mindful that we've had six consecutive quarters of sequential gross margin improvement? Yeah, I mean, look, there's it is.

Speaker Change: And then maybe Todd just thinking about.

Todd: You know what's implied in the guidance over the second half of the year, we satisfied the topline.

Todd: The biggest driver of upside was obviously the gross margin over delivery in the first half.

Speaker Change: Anything to be mindful of in the second half that would compress the kinds of gross margins. We've seen in the first half is there any reason they couldn't be mid 40% or better mindful that we've had six consecutive quarters of sequential gross margin improvement.

Speaker Change: Yeah, I mean look Theres a couple of headwinds, we're we're feeling great about the start of the year, obviously wed like to replicate the gross margin that we had in the first half in the second half, but we're going to do our best.

Todd Cunfer: Yeah, I mean, look, there's a couple of headwinds. But we're feeling great about the start of the year. Obviously, we'd like to replicate the gross margin that we had in the first half and the second half, but we're gonna do our best to hit those marks. But there are, I mean, there are a couple of expenses that will hit that are legitimate here in the second half. Obviously, the startup of the fourth line in tenants will add costs on the very low volume coming out of that new line.

Speaker Change: It does mark, but there aren't I mean, there are some a couple of expenses that will hit that are legitimate here in the second half obviously the startup with a fourth line in China that will add costs on very low volume coming out of that new line. We are adding some additional shifts at kitchen south of your preface up for next years.

Todd Cunfer: We are adding some additional shifts at Kitchen South to prepare us for next year's growth and reliance on bag capacity. That will add some costs there as well. We did not, you know, deload any of our inventory.

Speaker Change: Growth and our reliance on on the band capacity that will add some cost there as well.

Speaker Change: We did not.

Speaker Change: The load anything our inventory, obviously that was a big Q1 benefit of about 100 basis points.

Todd Cunfer: Obviously, that was a big Q1 benefit of about a hundred basis points. We're going to be talking about Q2. We're obviously feeling great about the start. We are about 90% covered on commodities. We don't see much happening there at this point. But it is the new capacity coming on line in the second half that will be a slight headwind.

Speaker Change: No impact in Q2, we could see that happens still in the second half of the year and that's still a watch out but you know look we're gonna. We're obviously feeling great about the start we are about 90% covered on commodities, we don't see we don't see much happening there at this point, but it.

Speaker Change: It is the new capacity coming online in the second half that will be a slight headwind.

Speaker Change: Yeah.

Speaker Change: I appreciate it thank you.

Our next question is from Mark Astrachan with.

Mark Astrachan: Our next question is from Mark Astrachan with Stifo. Please proceed.

Speaker Change: Stifel. Please proceed.

Mark Astrachan: Thanks and good morning everybody. I wanted to go back to this larger pack size comment and try to understand it a little bit better. So the price mix was flat, but you're selling larger packs in Costco at a higher price point. How does that factor in? I get that what you're selling has a lower average price per unit, but I suppose what the consumer is buying would just be, you know, bigger dollar amounts and bigger volumes. And obviously, you have more sales and cost goods today than you did 12 months ago, so would that be mixed accretive in terms of contribution to the top line? That's the first question.

Mark Astrachan: Yeah, Thanks and morning, everybody.

Mark Astrachan: Wanted to go back to this larger pack sizes.

Speaker Change: Comment and try to understand it a little bit better so and price mix was with.

Speaker Change: Flat, but you're selling larger packs and cosco at a higher price point. So how does that factor in I guess at what you're selling at a lower average price per unit, but I suppose what the consumer is buying would just be you know bigger dollar amounts in bigger volumes and then obviously you have more sales Costco today than you did.

Speaker Change: Well once it goes through would be mix accretive.

Speaker Change: The contribution to the top line that's the first question.

Scott Morris: Hey Mark, so I think the way to think about this is, if you look across our portfolio, we have, we have, we are definitely developing and pushing larger pack sizes as Freshpet becomes more of a main meal feed. The other thing we did, you may remember a year or so ago, we brought a product called Complete Nutrition in a one and a half pound size.

Speaker Change: Hey, Mark So I think the way to think about this is if you look across our portfolio.

Speaker Change: We have yeah, we are definitely developing and pushing larger pack sizes as freshmen it becomes more of a main meal feed. The other thing. We did you may remember a year or so ago, we bought a product called complete nutrition, and one and a half pound size and we also got really sharp before the value is as much of a discussion we've got really sure.

Scott Morris: And we also got really sharp, before value was as much of a discussion, we got really sharp on our one pound pricing, like we actually tightened it up just a little bit. And, and, and we did that intentionally because we started hearing a little bit of, you know, storm clouds where people were concerned about value. So you have people coming in on one side and buying, you know, some of the smaller-sized items and the Complete Nutrition, which is a good opening price point but very solid margins.

Speaker Change: On a one pound pricing like we actually tightened it up just a little bit.

Speaker Change: And.

Speaker Change: And we did that intentionally because we started hearing a little bit of storm clouds, where people were concerned about value. So you have people coming in on one side and buying some of the smaller size items and the complete nutrition, which is a good opening price point, but very solid margins and you have the other side, where we have these larger packs at some of the some of the you know not only.

Scott Morris: And you have the other side where we have these larger packs at some of the, some of the, you know, not only in mass, but also in clubs, etc. The things that, you know, it's interesting that we're seeing the largest growth in, if you look across our developed items, the things that are growing the fastest are our large packs, which are the most expensive items we have. So there's a lot going on.

Speaker Change: In mass, but also in our clubs et cetera. The things that you know it's interesting that we're seeing the largest growth in the law. If you look at across our developed I don't the things that are growing the fastest are a large bags.

Speaker Change: Which are the most expensive items we have.

Speaker Change: So theres a lot going on and there are a lot of pieces to it and when we set the strategy forward going into the market. We intentionally wanted to make sure we covered basically products for as many different people on how they want to use it and how they think about our brands and our products. So theyre sizes, there's price points to go from low to high as you know.

Scott Morris: There are a lot of pieces to it, and when we set the strategy forward going into the market, we intentionally wanted to make sure we covered basically products for as many different people as possible on how they wanna use them and how they think about our brands and our products. So there are sizes, there are price points that go from low to high, as you know. And I think what we've done is we've done a nice job developing a really good portfolio, and consumers appreciate it.

Speaker Change: And I think what we've done is we've done a nice job developing a really good portfolio and consumers appreciate it and there is a lot of action. There's a lot of movement all through that so it was on sizes and some of it's on trade up to a larger sizes, but some of it's a lot of new people are coming in on this one one and a half pound sizes, we see that that's the single.

Scott Morris: And there is a lot of action. There's a lot of movement all through that. Some of it's on sizes, some of it's on trade up to the larger sizes, but some of it's a lot of new people are coming in on this one, one and a half pound sizes. We see that that's the single fastest area where people are coming into the business.

Speaker Change: Fastest area, where people are coming into the business.

Scott Morris: Got it. So there are just a lot of moving parts, I guess, beyond what we're sort of, you know, sort of related to that, Ben, because I had another question, but just to follow up on that. So is Costco still an incremental consumer? I mean, is the larger pack size just people just consuming more of the product? Is that the right way to think about this?

Speaker Change: Got it so it's just a lot of moving parts I guess, yeah, yeah, yeah, there's sort of.

Speaker Change: Yeah sort of related to that bad because I had another question, but it just as a follow up to that so it's Costco is still an incremental consumer I mean, it's the larger pack sizes more people just consuming more of the product is that the right way to think about this.

Speaker Change: Yeah. So we are one of the interesting thing is we are seeing a lot of new consumers coming through our non club, but also even our larger sizes in all retail I mean, it is interesting we do see some people go for it and actually Youll start up with a fixed town role so.

Scott Morris: Yeah, so we are, the interesting thing is we are seeing a lot of new consumers come in through not only Club but also our larger sizes in all retail. I mean, it is interesting.

Speaker Change: We definitely see that dynamic going on and then what we started to put out these multi packs not only in club, but we're also starting to see these multi packs that are starting to go into regular retail and they're starting to get a little bit of early traction. We knew it was going to be slower, but it's part of our long term plan to make sure people are using and if there's an amazing product.

Scott Morris: We do see some people go for it and actually start up with a six pound roll. So we definitely see that dynamic going on. And then we started to put out these multi-packs, not only in Club, but we're also starting to see these multi-packs that are starting to go into regular retail, and they're starting to get a little bit of early traction. We knew it was going to be slower, but it's part of a long-term plan to make sure people are using us as a main meal product.

Billy Cyr: Hey Mark, one other thing is we said in the comments that if you think about where our fastest growth has been, it's amongst the HIPPOs, so the heavier users, and then we also mentioned the ultra-users, the people buying over $1,000 a year. They're growing at an even faster rate. So we are seeing an increasing number of consumers who are moving up to higher purchase amounts, and oftentimes, that comes with buying larger pack sizes.

Speaker Change: Mark one other thing as we said in the comments that that if you think about where our fastest growth has been it's amongst the hippo. So the heavier users and we also mentioned the ultra users that people were buying over $1000 a year, they're growing at even faster rate. So we are seeing an increasing number of consumers who are moving up into that higher purchase amounts and oftentimes that comes with it.

Buying larger pack sizes.

Speaker Change: Got it Okay. That's super helpful. I'll, just I'll leave it there. Thank you.

Mark Astrachan: Got it. Okay, that's super helpful. I'll just leave it there. Thank you.

Mark Astrachan: Thanks Mark.

Peter Benedict: Our next question is from Peter Benedict with Baird, please.

Mark Astrachan: Our next question is from Peter Benedict with Baird. Please proceed.

Peter Benedict: Good morning, guys. Thanks for taking the questions first one is just around I mean, a lot to talk about capacity what might be needed going forward. You did mention the new production technologies seem to be proving out here I think you said second half of 'twenty, five where you might have that fully up and running can you kind of remind us what's going on there.

Peter Benedict: Good morning, guys. Thanks for taking the questions. The first one's just around the corner. I mean, a lot of talk about capacity and what might be needed going forward.

Scott Morris: Seem to be proving out here, I think you said second half of 25, where you might have that fully up and running. Can you kind of remind us what's going on there? And kind of what the plan would be to, I guess, retrofit your existing lines with those technologies, just thinking of ways to improve or continue to improve your output without a new facility, that type of thing? That's my first question.

Mark Astrachan: Sure.

Speaker Change: And kind of what the plan would be.

Speaker Change: 222, I guess retrofit your existing lines with those technologies, just thinking of ways to improve.

Speaker Change: Improve or continue to improve your output without a new facility that type of thing. That's my first question.

Scott Morris: Hey Peter, I think the way to think about this is there are three major pieces to us improving the capacity on our lines. The first one is basically just like OEE improvement, and we have a long way to go and a lot of opportunity, and the team is doing an extraordinary job there. I mean, like, hats off to the guys and the work that they've done. And it will be significant, and that will change the cadence that we need to open new lines, and it will improve profitability from the existing network.

Speaker Change: Hey, Hey, Peter I think the way to think about this is there's three major pieces to us improving the capacity on our lines. The first one is basically just like OE improvement and we have a long way to go and a lot of opportunity and the team is doing an extraordinary job. There I mean, my hats off to the guys in the work that they've done and there are significant that that.

Speaker Change: Will be significant and that will change the cadence that we need to open new lines and it will improve profitability from the existing network. That's the first one the second one is I'll call. It a.

Scott Morris: Okay, that's the first one. The second one is, I'll call it, kind of updating and minor modifications to the existing lines with some new technology and new equipment. We've been able to start proving that out, and we're seeing pretty significant, we're not going to share anything at this point, but we're seeing significant progress in that area. We're really excited and enthusiastic about the potential that just by making some small improvements and some investments in the lines, the amount of upside there is. And the third one is basically, I would call it almost, it's not an evolution; I would say it's somewhat of a revolution in our bag technology.

Speaker Change: Kind of updating and and like.

Speaker Change: Like minor modifications to the existing lines with some new technology, and new equipment, and we've been able to start proving that out and we're seeing pretty significant we're not gonna share anything at this point, but we're seeing significant progress in that area. We're really we're excited and enthusiastic about the potential that just by making some small improvements.

Speaker Change: Some investments in lines that the amount of upside there is in the third one is basically I would call. It almost it's not evolution I would say, it's somewhat of a revolution of our bag technology.

Speaker Change: And it is a kind of more developed future state of where we believe the bag production will be now we'll start to see that next year, but it will be very small and the intention is that that will take as we prove that technology out it will start taking the place as we expand our lines in the future but at this point.

Scott Morris: And it is a kind of more developed future state of where we believe bag production will be. Now we'll start to see that next year, but it will be very small, and the intent is that as we prove that technology out, it will start taking its place as we expand our lines in the future. But at this point, that's really far out, and that's not something that we can get too far into.

Speaker Change: That's really far out and that's not something that like we can get too far into it just like we can't predict exactly the future I'll say I will say, we are confident that that technology will work. The question is exactly when and then the exact impact on kind of our expansion in our and our capacity across our.

Scott Morris: It's just like we can't predict exactly the future. I will say we are confident that that technology will work. The question is exactly when and then the exact impact on the kind of our expansion and our capacity across our network.

Network.

Peter Benedict: Well, fair enough. Thanks, Scott. That's a good perspective. And then my follow-up question Look, you guys have made enhancements to the management team over the last couple of years. You're obviously executing very well.

Speaker Change: No well fair enough. Thanks, Scott that's a good perspective, and then my follow up question.

Speaker Change: Do you guys have made enhancements to the management team over the last couple of years are obviously executing very well Billy you talked about the new corporate headquarters in Bedminster, New Jersey, I think you mentioned marketing and finance.

Billy Cyr: Billy, you talked about the new corporate headquarters in Bedminster, New Jersey. I think you mentioned marketing and finance as maybe some areas where you'd be looking to attract additional talent. Just wondering if you could expand on that, your thoughts around the organization, who you might or what areas you would be focused on, maybe continuing to build as you support the growth in the business. Thank you.

Speaker Change: Maybe some areas where you'd be looking to attract additional talent just wondering.

Speaker Change: Wondering if you could expand on that your thoughts around around the organization.

Speaker Change: Who you might or what areas you would be focused on maybe continuing to build as you as you support the growth of the business. Thank you.

Speaker Change: Yeah, Peter is as we're growing obviously, we have growth opportunities in need in virtually every area in the company. That's what happens when youre growing at the rate that we're growing and the most important lesson. We've learned in the last couple of years is you can't get behind on adding talent. So you can see us leaning into acquiring the necessary talent in the place.

Billy Cyr: Yeah, Peter, as we're growing, obviously, we have growth opportunities and needs in virtually every area of the company. That's what happens when you're growing at the rate that we are growing. And the most important lesson we've learned in the last couple years is you can't get behind on adding talent. So you can see us leaning into acquiring the necessary talent in the places that will make the biggest difference. And you'll see this in a wide range of areas.

Speaker Change: They will make a big is different and you'll see it in a wide range of areas and as you've seen in the last 18 months the amount of talent that we've hired it's been fairly significant I don't want to get into any specific areas. Other than just say that you should think about as we add scale to the company. It gives us opportunities to add capability in areas, where we may have been a generalist before.

Billy Cyr: And as you've seen in the last 18 months, the amount of talent that we've hired has been fairly significant. I don't want to get into any specific areas other than to just say that as we add scale to the company, it gives us opportunities to add capability in areas where we may have been a generalist before, and we can become a specialist, or we can get higher-level capabilities in an area where we've previously been operating but probably haven't had the sophistication and capability that's needed for a business that's a billion or $2 billion or So you're going to see us continue to add people to add bench strength to help us grow the company. And it's just going to be an ongoing part of our process.

Speaker Change: Sure and we can become a specialist or we can get higher level capabilities in an area, where we'd previously been operating but probably haven't had the sophistication and capability that is needed for our business at the 1 billion or 2 billion or $3 billion in sales. So you're going to see us continue to add people to add bench strength to help us grow the company and its just going to be an aunt.

Speaker Change: Boeing part of our process.

Speaker Change: Alright, good to hear good luck guys. Thank you.

Speaker Change: Our next question is from refresh Park with Oppenheimer. Please proceed.

Rupesh Parikh: Our next question is from Rupesh Parikh with Oppenheimer. Please proceed. Good morning and thanks for taking my question. So maybe just start out with the, uh, EBITDA cadence, just any more color, how you guys.

Peter Benedict: All right. Good to hear. Good luck, guys. Thank you. Our next question is from Rupesh Parikh on behalf of Oppenheimer.

Rafe Park: Good morning, and thanks for taking my question. So maybe just start out with the with the EBITDA cadence just any more color. How you got to think about Q3 versus Q4, and then I've one follow up.

Speaker Change: Yeah.

Todd Cunfer: Obviously, we don't get specific guidance, but just the big picture. We'll have more EBITDA in Q4 than Q3 just because of the amount of media spending. We'll see a similar as we pushed media from the first half to the second half this year. You'll see a similar amount of media spend in Q3 as you did in Q2. That's unusual for us.

Speaker Change: Obviously, you don't give specific guidance, but just big picture, we will have more EBITDA in Q4 than Q3, just because of the amount of media spending will see a similar as we've pushed media from the first half to the second half this year, you'll see a similar amount of media spend in Q3 as you did in Q2.

Speaker Change: That's unusual for us.

Speaker Change: But then there will be a drop off in Q4 is still a very sizable increase versus prior year, but there'll be a drop off in that that will allow.

Todd Cunfer: But then there will be a drop off in Q4. Still a very sizable increase versus the prior year, but there will be a drop off, and that will allow additional EBITDA in Q4. Great. And then one follow-up question:

Speaker Change: Additional EBITDA in Q4.

Speaker Change: Great and then one follow up question just on the category. So one of your retail customers highlighted they are seeing green shoots in the pack category on the pet adoption. So I was just curious where you guys are seeing right now from a pet adoption perspective.

Rupesh Parikh: Rupesh, I think the way to think about this is, I mean, the category always goes through ebbs and flows. And, you know, there was definitely a little bit of a post-COVID trough, but we think it's going to come back to a much more normalized rate. But I think that, you know, there's look, there's, if you look at the category, there are tons of headwinds going on. And I think when you're kind of dealing in, you know, single digits, you're going to kind of really focus on some of those either headwinds or tailwinds.

Speaker Change: I think the way to think about this is I mean, the category always goes through ebbs and flows.

And you know there is definitely a little bit of a post COVID-19 trough, we think it's going to come back to a much more normalized rate but.

Speaker Change: But I think that you know there's look there's if you look at the category there are tons of headwinds going on and I think when you're kind of dealing in.

Speaker Change: Single like light single digits, Youre going to kind of really focus on some of those either headwind or tailwind. We've been very fortunate that we haven't had to really focus on those trends and that we're winning within them.

Scott Morris: We've been very fortunate that we haven't had to, you know, really focus on those trends and that we're winning within them. If you're, I'd say, almost any retailer, you're kind of looking across the category, and you're looking across segments, and then you're kind of looking across brands. And we have really been the absolute clear winner, and it creates even more opportunities for us in the future to work with them and develop the business.

Speaker Change: If you're if you're I'd say almost any any retailer you're kind of looking across the category and youre looking across segments, and then you're kind of looking across brands and we have really been like the absolute clear winter and it creates even more opportunity for us into the future to work with them and develop the business. So I know your question was specific around adoption rates.

Scott Morris: So I know your question was specific around adoption rates. I would say, look, when we're looking at this stuff on quarterly and six-month basis, and things are ebbing and flowing, yeah, it's off a little bit. I mean, this has been a significant trend, a large societal trend where people are treating pets more like people, and people are having fewer kids and more pets. And they're becoming an important part of our lives. And we think that that's going to continue in the long term.

Speaker Change: I would say look when we're looking at this stuff on a quarterly and six months basis, and things are ebbing and flowing yeah, it's off a little bit.

Speaker Change: I mean look this has been a significant trend of more societal trends where people are treating pets more like people and people are having less kids and more pets.

Speaker Change: And there have become an important part of our lives and we think that that's going to continue over.

Speaker Change: Over the long term.

Speaker Change: Great. Thank you for the color.

Speaker Change: Our next question is from Bryan Spillane with Bank of America. Please proceed.

Bryan Spillane: Our next question is from Bryan Spillane with Bank of America. Please proceed.

Bryan Spillane: Thanks, operator. Good morning, guys. Just one question for me. You know, I think you started this year or went into this year with a plan to uh you know be more measured I guess right in terms of growth and you know not wanting to overheat um your manufacturing network and And so I guess it's just curious this year, right, given how good the demand has been, if you had, if capacity was not a question, right, if you could make as much as you could, would your sales have been higher, I guess, is there more interest from retailers and consumers than maybe what we're seeing in the results? I would say.

Bryan Spillane: Thanks, Operator, good morning, guys. Just one question for me I think you started this year or went into this year with a plan to.

Bryan Spillane: Be more measured I guess right in terms of growth and not wanting to overheat your manufacturing network.

Speaker Change #101: And so I guess just curious this year right given how good the demand has been.

Speaker Change #102: If you had if if if capacity was was not a a question right. If you could make as much as you could.

Speaker Change #103: What would your sales have been higher I guess is there is there more interest from retailers and consumers than than maybe what we're seeing.

Speaker Change #104: And the results.

Billy Cyr: I would say if we had spent at the sort of comparable growth rate on media to what we had last year, in other words, you know, growing media in the first half at the same rate of sales growth, you would have seen more demand, but we knew we couldn't supply that. And for us, it's really, really important to keep growth within the capacity limit and also to execute our capacity expansion plan in a very measured and orderly fashion. And we feel good about it. Our team has gotten really good at designing, constructing, and starting up lines.

Speaker Change #105: I would say if we would spend at the sort of comparable growth rate on media to what we had last year in other words grow media in the first half at the same rate of sales growth you would've seen more demand, but we knew we couldn't supply that and if for us it's really really important to keep the growth.

Speaker Change #104: Within the capacity limit.

Speaker Change #104: And also to execute our capacity expansion plan in a very measured and orderly fashion and we feel good about it our team has gotten really good at designing constructing and starting up line. We want to do that reliably we want to provide very high level of customer service because we know we provide high level of customer service our costs are lower our fridges are folded.

Billy Cyr: We want to do that reliably. We want to provide a very high level of customer service because we know we provide a high level of customer service. Our costs are lower. Our fridges are full. The sales are better, and customers are happy. Consumers are happy. So I think for us, it's really important that we measure or manage the growth to live within our capacity. We are adding capacity at a very disciplined rate, and if that all works together, we think everybody wins. And you should expect to see that from us going forward. Okay, thank you.

Speaker Change #104: Sales are better customers are happy consumers are happy so I think for us, it's really important that we measure or manage the growth to live within the capacity, we add the capacity at a very disciplined right and if that all works together, we think everybody wins and you should expect to see that from us going forward.

Okay. Thank you.

Speaker Change #104: Thanks.

Speaker Change #106: Our next question is from Michael Lavery with Piper Sandler. Please proceed.

Michael Lavery: Our next question is from Michael Lavery with Piper Sandler. Please proceed.

Speaker Change #104: Oh.

Michael Lavery: Thank you and good morning.

Michael Lavery: Good morning. You talked about adding shifts at Kitchen South. I guess this is a two-part question. How is your relationship with Kitchen South?

Speaker Change #108: And I talked about adding.

Michael Lavery: Ships.

Speaker Change #109: Kicked himself I guess, maybe two part question.

Michael Lavery:

Michael Lavery: How is the relationship with the kitchen sounds like if there's better.

Todd Cunfer: Like if there's better overhead absorption or efficiencies from that, kind of in an operating leverage way, do you benefit from that on the cost? And then I guess the other part of it is, do you have opportunities on any of your own lines to add shifts as well or at least reduce changeovers and maybe do extended runs? How should we think about that as part of an opportunity for you?

Speaker Change #110: Overhead absorption or efficiencies from that.

Speaker Change #111: Kind of at least in an operating leverage way do you benefit from that on the cost and then I guess the other part of it is do you have opportunities on any of your own lines to add shifts as well or at least produce changeovers and maybe two extended runs how should we think about that as part of an opportunity for you.

Todd Cunfer: Sure. The Kitchen South relationship is terrific. They're performing exceptionally well. We could, you know, could not be more pleased with the performance coming out of that operation. They've been terrific this year.

Speaker Change #111: Sure.

Speaker Change #112: The kitchen South relationship is terrific they are performing exceptionally well we could.

Speaker Change #112: Could not be more pleased with performance coming out of that that operation they've been terrific. This year, there is a little bit of a leverage as we add some shifts there its not dramatic.

Todd Cunfer: There is a little bit of leverage as we add some shifts there. It's not dramatic, just the way the arrangement is set up, but we do get a little bit of leverage. So we'll continue to lean in there, just not on shifts, but as I mentioned earlier, if we have another line coming in in Q1, and then we have, you know, room for a few more lines if both partners choose to go that route in that facility as well. So we look forward to, you know, many more years of great performance and additional capacity coming out of that facility.

Speaker Change #113: Just the way the.

Speaker Change #113: Arrangements set up when we do get a little bit of leverage. So we'll continue to lean in there just on on shifts, but as I mentioned earlier, we have an underlying coming in in Q1, and then we have no room for a few more lines.

Speaker Change #113: Both partners choose to go that route and that facility as well. So we look forward to many more years of great performance and additional capacity coming out of that facility.

Speaker Change #114: And is there room to add extend bruns or add shifts.

Michael Lavery: And is there room to add, you know, extended runs or add shifts on any lines that Dennis or

Speaker Change #114: The lines of dentists or Bethlehem.

Speaker Change #114: Bethlehem was pretty tight at this point and it's yes. There is there is room and we will not we will add more shifts will get the efficiencies and the.

Billy Cyr: Bethlehem is pretty tight at this point. Ennis, yes, there is room, and we will add more shifts. We'll get the efficiencies in the Ennis facility ramped up over the next year or two, so there is some capacity there. Michael, think about it this way: when we install a line, we ramp it up by putting on one shift or, in essence, half capacity utilization for a period of time, and then as the demand grows and the production efficiency on that line grows, we ultimately take it to a 24-hour operation, and that happens typically before you bring on the next line.

Speaker Change #114: Facility ramped up over the next year or two so there is some capacity there Michael think about it is our operating model is that when we install a line we ramp it up by putting on one shift where in essence have capacity utilization for a period of time and then as the demand grows and the production efficiency on that line grows.

Speaker Change #114: We ultimately take it to a 24 seven operation and that happens typically before you bring on the next line. So at this at the same at the same time, we're doing all that we are working as we increase the number of lines in our system to make some of those lines more more specific for specialized and it was.

Billy Cyr: So at the same time we're doing all that, we are working as we increase the number of lines in our system to make some of those lines more specific or specialized, and it reduces the number of changeovers that we have to do and allows us to deliver higher throughput or higher output per hour of operation and also extend some of our runs depending on what some of the products are and where they're being produced. So there are significant benefits that we gain in each of our operations as we gain scale.

Speaker Change #114: It uses the number of changeovers that we have to do and allows us to deliver higher throughput or higher output per hour of operation and also extend some of our runs depending on what some of the products are and where they're where they're being produced so there are significant benefits that we gain in each of our operations as we gain scale.

Billy Cyr: Okay, that's helpful, and just to follow up on what you mentioned in the prepared remarks about Dallas DC. I think the way you phrased it was it expanded its coverage area. I guess I hadn't realized that maybe it wasn't serving all of what it could or was meant to. Is that now optimized, or is there room for even more, you know? Could it expand further to get to, you know, a more optimal service area?

Speaker Change #115: Okay. That's helpful and just a follow up you mentioned on the in the prepared remarks, the Dallas DC.

Speaker Change #116: I think the way you phrased. It was it has expanded its coverage area I guess I hadn't realized that maybe it wasn't.

Speaker Change #117: Stripping all of what it could or or was meant to us is that now optimized or is there room for even more could it expand further to get to.

Speaker Change #117: A more optimal service area.

Michael Lavery: Right now, Dallas, D.C., exists to take the product that's produced in Ennis and ship it to the states that it can serve. So as we add production in Ennis, Dallas, D.C., is able to supply more states. So, for example, we're right now in the process of converting the states of Utah and Colorado over to being shipped out of Dallas, D.C. Ultimately, when Ennis is up and running to its full 10 lines of production, Dallas should be supplying more than half of the United States.

Speaker Change #118: Right now the Dallas DC exists to take the product that's produced and earn it and ship it to the states that that it can serve so as we add production in N S. The Dallas DC is able to supply more states. So for example, we're right now in the process of converting the states of Utah.

Speaker Change #118: In Colorado over to being shipped out of the Dallas DC ultimately win and it is up and running to its full 10 lines of production the and it's out of the Dallas DC should be supplying more than half of the United States think of it as everything west of the Mississippi and probably parts of the South East. So we will continue to get great efficiency.

Michael Lavery: Think of it as everything west of the Mississippi and probably parts of the southeast. So we will continue to get freight efficiencies from Dallas, D.C., but they're 100% connected or linked to increasing the amount of output from the Ennis facility.

Speaker Change #118: <unk> from the Dallas, DC, but there are 100% connected or linked to increasing the amount of output from the NSS facility.

Speaker Change #119: Okay. That's helpful. Thank you.

Michael Lavery: Okay, that's helpful. Thank you.

Speaker Change #119: Thanks.

Speaker Change #120: Our next question is from Jon Andersen with William Blair. Please proceed.

Jon Andersen: Our next question is from Jon Andersen with William Blair. Please proceed.

Jon Andersen: Good morning, everybody. Thanks for the questions. I just have one.

Jon Andersen: Good morning, everybody. Thanks for the question I just have one I wanted to come back to an earlier comment on distribution.

Scott Morris: I wanted to come back to an earlier comment on distribution. I think, Billy, you mentioned that we should expect to see TDP growth exceeding ACV growth moving forward. I guess my question is, are you now seeing that the brand is represented in the stores that you need to be in from a coverage perspective? And at the same time, are you seeing more of your large accounts, particularly in FDM, proactively moving to add second and third fridges? I'm just trying to understand a little bit more context around that comment. Thank you.

Jon Andersen: I think bill you mentioned that we should expect to see GDP growth exceeding ACB growth moving forward.

Speaker Change #122: My question is are you now seeing that your brand is represented in the stores that you need to be in front of a coverage perspective.

Speaker Change #123: And at the same time or are you seeing more of your large accounts, particularly in F. T M.

Speaker Change #124: Proactively moving to add second and third fridges I'm, just trying to understand the kind of little bit more context around that comment. Thank you.

Jon Andersen: Hey Jon, I made a brief mention of it before, but I think as retailers are looking and they're starting to think about their growth in the category, not only this year but next year, I think they are clearly recognizing that Freshpet is delivering on not only our growth, but now we actually have a nice scale behind it. I mean, if you look at the last 26 weeks and measure it, we've added $100 million in growth to the category, which is by far the leader of any of the, I think, any brand by far, which is really exciting.

John: Hey, John.

Speaker Change #126: I made a brief mention of it before but I think as retailers are looking and they're starting to think about like their growth in the category. This year, but next year I think they are clearly recognizing that fresh pad is delivering on not only our.

Speaker Change #127: Our growth, but now we actually have nice scale behind it I mean, if you look at the last 26 weeks in and measured we've added 100 million Bucks.

Speaker Change #127: Growth to the category, which is by far the leader of any of the I think any any brand by far.

Speaker Change #127: Which is really exciting now they start looking forward and thinking about next year, what do you do.

Jon Andersen: So now they start looking forward and thinking about next year. What do you do? We know we need to tighten the mix of the products that we have in existing fridges, but we're also having, I would say, really productive conversations about second fridges and expanding distribution, not only in stores we're not in but also in second fridges and even some cases where it's third fridges. So I think that's what we'll see going forward. There are also a couple, very few scenarios where there's a retailer or so that has bought some of their own fridges, and we may be going into some of that space over time.

Speaker Change #128: We know we need to tighten the mix of the products that we have an existing fridges, but we're also having I would say really productive conversations about second fridges and expanding distribution.

Speaker Change #128: And not only in stores, we're not in but also second fridges and even some cases, where its third fridges.

Speaker Change #128: So I think that's what we'll see going forward. There's also a couple very few scenarios, where there were some a retailer. So that has bought some of their own fridges and we may be going into some of that space over time too.

Speaker Change #129: Okay, if I could squeeze one more in.

Scott Morris: Okay, if I could squeeze one more in. On the media front, can you talk a little bit about how, not the level of spend, but maybe how you're changing or evolving the type of media that you're buying and using, and the messaging, and whether it's working? Because I think you've taken some different approaches over the past 12 months or 18 months, maybe than you have in the past, but an update on that would be helpful. Thank you. Yeah, hey, so I think the answer is

Speaker Change #130: On the media front can you talk a little bit about how not the level of spend but maybe how you're changing.

Our evolving the type of media that you are.

Speaker Change #131: Meaning using and the messaging and is it working because I think you've you you've taken some different approaches over the past 12 months or 18 months, maybe than you have in the past, but an update on that would be helpful. Thank you.

Scott Morris: Yeah. Hey, so I think the, uh, uh, let me start with.

Speaker Change #132: Yeah, Hey, so I think the let me start with <unk>.

Scott Morris: Great work by the marketing team overall, across the entire marketing team. And the work has been done not only on creative but also packaging. It's not dog food; it's been a tremendous campaign for us.

Speaker Change #133: Great work by the marketing team and overall across the entire marketing team and the work has been done not only on creative but also packaging.

Speaker Change #134: It's not dog food is is it's been a tremendous campaign for us it's producing incredibly well we're seeing great performance from the creative we're seeing also great performance from the buying and how were planning our media and we continue to expand opportunities to place it in different spots that are like actually on the face.

Scott Morris: It's produced incredibly well. We're seeing great performances from the creative team. We're also seeing great performance from the buying and how we plan our media, and we continue to expand opportunities to place it in different spots that are actually, on the face of it, more expensive, but the productivity has been so strong that's what we can deliver on that really consistent CAC range that we were talking about earlier. So we're seeing visits to the site up, and we're seeing conversions up.

Speaker Change #134: More expensive, but the productivity has been so strong that's why we can deliver on that really consistent cap range that were talking about earlier so.

Speaker Change #134: We're seeing there.

Visitors to the site, we're seeing conversions up.

Speaker Change #134: Every metric that we track is performing really really well and it really goes back to the work that the team has done across both the creative and also the media buying.

Scott Morris: Every metric that we track is performing really, really well, and it really goes back to the work that the team has done across both the creative and also the media buying. So yes, we continue to kind of expand out different targets. We've also recognized that we've pushed into sports; you're seeing us kind of push into sports a little bit more. Every one of those has worked really well, and the way we typically think about it is we want to test now, and then we really want to see the productivity of that, and then we want to buy that in the future. So the next quarter or next year is when we're getting into a bigger buy on that. So we're constantly in that mode.

Speaker Change #134: Yes, we continue to kind of expand out different targets. We also recognize.

Speaker Change #134: That we've pushed into sports Youre seeing is kind of pushing the sports a little bit more.

Speaker Change #134: Every one of those has worked really well in the way. We typically think about it is we want to test now and then we really want to see the productivity of that and then we want to buy that in the future. So the next quarter or next year is when we were getting into a bigger buy on that so we're constantly in that mode.

Speaker Change #134: Yeah.

Speaker Change #134: Thank you.

Speaker Change #134: Yeah.

Tom Palmer: Our next question is from Tom Palmer with Citi. Please proceed.

Speaker Change #134: Our next question is from Tom Palmer with Citi. Please proceed.

Speaker Change #135: Good morning, and thanks for the question.

Tom Palmer: Good morning, and thanks for the question. I wanted to first just follow up on the fridge cap discussion. As we look at the next couple of years, it sounds like you have kind of some visibility both for maybe new stores and adding these second units. Which one will become the bigger driver here over the next couple of years?

Tom Palmer: Wanted to first just follow up on the on the Fridge count discussion as we look at the next couple of years, but it sounds like you have kind of some visibility both for maybe new stores and adding the second unit, which one becomes the bigger driver here over the next couple of years.

Scott Morris: Yeah, the clear driver longer term is going to be second fridges. If you, it's actually an interesting point, but if you look at the productivity that we get out of the first four feet now, we are one of the most productive four feet in the pet food aisle. And when you can demonstrate that and have category-leading margins, that's a really great cocktail for expansion into a second fridge. And when we get into the second fridge, the number we typically quote is, within six months, it's running about 60% of the first fridge.

Speaker Change #137: Yeah. The clear driver longer term is it's going to be second fridges. If you. It's actually an interesting point, but if you look at the productivity that we get out of the first four feet. Now we are one of the most productive for feed in the pet food aisle.

Speaker Change #137: And when you can demonstrate that and have category, leading margins. That's a really great cocktail for expansion into a second fridge and we get into the second fridge. The number we typically quote is within six months, it's running at about 60% of the first fridge, it's really productive for the capital investment is great.

Scott Morris: It's really productive for us, the capital investment is great, the sales are great. And then once that level's off, now you have an ongoing annuity that typically will increase with double-digit sales growth into the next year and years going forward. So the retailers that moved with us earlier are seeing a compounding effect on the growth that they're seeing on Freshpet.

Speaker Change #137: Sales is great and then once that levels off now you'd have an ongoing annuity that typically will increase on a double digit sales growth into the next year and years going forward. So that the retailers that move with US earlier are seeing a compounding effect on the growth of the growth that they're seeing on fresh cut.

Speaker Change #138: Thanks for that.

Tom Palmer: Thanks for that. And then on this year's sales guidance, you

Speaker Change #139: And then on this year's sales guidance you did note a new line in earnest this quarter, but also we're opening this quarter, but then also the continued rapid getting prior lines and the added.

Tom Palmer: We did note the new line in Ennis this quarter, but also, or opening this quarter, but then also the continued ramp in prior lines and the added shift.

Speaker Change #140: Shifts I guess, just thinking about this year's growth how reliant if at all is that new and as slide to hitting your guidance of the debt was just up there.

Tom Palmer: I guess just thinking about this year's growth, how reliant, if at all, is that new NS line to hitting your guidance that was just updated today?

Billy Cyr: All we need is that new NS line to hit your guidance of the that was just updated today. I mean, in order to continue to support the growth that we already have, we need that rolling line in NS to come online. We're very confident that it's going to come online. The qualification is going very, very well.

Speaker Change #141: I mean, we've in order to continue to support the growth that we already have we need that rolls line in N S to come online, we're very confident that it's going to come online. The the qualification is going very very well, but if for some reason that that didn't happen we would be very short on roles for the balance of the.

Billy Cyr: But if for some reason that didn't happen, we would be very short on rolls for the balance of the year. We're very comfortable with our bag production capacity right now and our ability to meet the bag demand for the balance of the year. This becomes an issue at our current rate of growth as we head into the first quarter next year, which is why we're bringing in new shifts and new lines at Kitchen South later this year, and then the new line actually starts up in the first quarter of next year.

Here, we're very comfortable with our bags production capacity right now and our ability to meet the bags demand for the balance of the year bags becomes an issue at our current rate of growth as we head into the first quarter next year, which is why we're bringing on new shifts and new line at kitchen. South later this year and then the new line actually starts up in the first quarter of next year. So.

Billy Cyr: So we are constantly in a position where we're growing into the existing capacity. We need to bring new lines on line in a reliable fashion on time. When we do that, we can support the high fill rates that we've had with our customers, and the business keeps growing very, very nicely. So it's a really nice cycle that we're developing, but we've got to execute well.

Speaker Change #141: We are constantly in a position where we're growing into the existing capacity, we need to bring online in a reliable fashion on time, when we do that we can support the high fill rates that we've had with our customers and the business keeps growing very very nicely. So it's a really nice cadence that we're developing but we've got to execute well.

Speaker Change #142: Alright, thank you.

Speaker Change #142: Yeah.

Speaker Change #142: Okay.

Speaker Change #142: Okay.

Speaker Change #142: Our next question is from Mark.

Marc Torrente: Our next question is from Marc Torrente with Wells Fargo. Please proceed.

Speaker Change #143: And with Wells Fargo. Please proceed.

Marc Torrente: Good morning. Thank you for the questions. Just one for me.

Mark Astrachan: Good morning. Thank you for the questions just one for me non tracked channels continue to grow over 100%.

Speaker Change #144: Much of total does this represent now what areas, you're most incremental and any other new distribution white space are starting to gain traction for you guys. Thanks.

Speaker Change #145: Hey, good morning.

Scott Morris: Non-track channels continue to grow over 100%. How much of the total does this represent now? What areas here are most incremental? And any other new distribution white space starting to gain traction for you guys? Thanks.

Speaker Change #146: So yes, we are seeing really nice growth in some of the the untracked channels and it's a lot of it is work that's been going on for multiple years that is now coming to fruition youre going to see longer term.

Scott Morris: Hey, good morning. So, yes, we are seeing really nice growth in some of the untracked channels, and a lot of it is work that's been going on for multiple years that's now coming to fruition. You're going to see longer-term continued growth there, and we're hoping to see really great performance from both Canada and the U.K. next year, albeit small. We think there are tremendous opportunities to continue to expand there also. And then the other thing that we have a tremendous opportunity for, and you may have heard us talk about this in the past, but from a kind of a digital standpoint, where someone could sit down at a computer and buy us, we are very, very underdeveloped.

Speaker Change #146: Continued growth there.

Speaker Change #146: And we're hoping to see like really great performance from both Canada and the U K next year, albeit small we think there are tremendous opportunities to expand there also.

Speaker Change #146: The other thing that we have a tremendous opportunity and we are and you may have heard us talk about this in the past, but from a kind of a digital standpoint, where someone can sit down at a computer and bias. We are very very underdeveloped approximately eight 9% of our sales are through some type of digital and that includes click and pick et cetera.

Scott Morris: Approximately 9% of our sales are through some type of digital, and that includes click and pick, etc. We think that the opportunity there is tremendous, and we would like to see really strong growth in that area over the next 12 to 18 months. There's a lot of our focus there. We're just not as developed as many brands in digital or in e-commerce in any way. And Mark, just one call out.

Speaker Change #146: We think that the opportunity there is tremendous and we'd like to see really leading growth.

Speaker Change #146: In that area over the next kind of 12 to 18 months. There's a lot of our focus is there where we're just not as developed as many brands and in our digital and e-commerce in any way.

Todd Cunfer: Hey Mark, just one call out. Obviously, that non-measured growth that's been tremendous in the first half of the year added about five points in Q1, four points in Q2. As we start to lap some of the store growth that we got last year in the second half, we anticipate that growth will probably only add about two points. In the second half of the year, still tremendous growth. And, as Scott pointed out, we're seeing some really nice gains here in the econ world, which we think is going to really flow into 25 as well. But that growth on non-measure will still be really, really strong. Don't get me wrong, but it will slow down in the second half.

Speaker Change #146: Hey, Marc just one one call out obviously that non measured growth has been tremendous in the first half of the year added about five points in Q1 four points in Q2, as we start to lap some of the store growth that we got last year in the second half.

Speaker Change #146: We anticipate that growth will probably only at about two points.

Speaker Change #146: In the second half of the year still still tremendous growth.

Speaker Change #146: As Scott pointed out we're seeing some really nice gains here in the economy World, which we think is going to really flow into <unk> into 'twenty, five as well, but that growth in non measured and still be really really strong don't get me wrong, but it will slow in the second half.

Speaker Change #146: Yeah.

Speaker Change #147: Okay. Thanks for the color.

Speaker Change #146: Okay.

Speaker Change #148: We have reached and then for a question and answer session I would like to turn the call back over to management for closing remarks.

Operator: We have reached the end of our question and answer session. I would like to turn the call back over to management for closing remarks.

Billy Cyr: Thank you, thanks everyone for your interest. I'll leave you with one thought. Dogs teach us a very important lesson in life. The mailman is not to be trusted. That's from Sean Ford. To which I would add, but if the mailman carries Freshpet turkey bacon treats, he'll be the most loved and anticipated visitor you could have. Thank you very much for your interest.

Thank you thanks, everyone for your interest I'll leave you with one thought.

Speaker Change #148: Dogs teach us a very important lesson in life. The mailman is not to be trusted that's from Sean Ford to which I would add but if the mailman carriage fresh pet Turkey Bacon treat there'll be most loved and anticipated visit or you could have thank you very much for your interest.

Operator: This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.

Speaker Change #149: This concludes today's conference you may disconnect your lines at this time and thank you for your participation.

Speaker Change #148: Yeah.

Speaker Change #148: Okay.

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