Freshpet (FRPT) 27 Feb 192018 Q4 Earnings call transcript

Greetings and welcome to Freshpet Inc. Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. to for conference opening like host, to now Turner Katie remarks. would turn over the your I Please go ahead.

call Chief Thank you. Chief will earnings today's also XXXX Freshpet's Financial fourth Billy Good afternoon Chief for and conference welcome Officer; Scott be call. Operating Dick available Officer; and Executive to Morris, quarter are Kassar, Cyr, Officer, On Q&A.

XX-K differ annual Commission, the These that statements that expressed statements the release from forward-looking from Form statements. presentation www.freshpet.com. this these management's discussion filed press Company's call, federal make forward-looking discussion, a slides Please to within Before Exchange current of meaning there beliefs of securities risks are or of in today. Company's based expectations today forward-looking we could differ on in management the and and are the results materially Freshpet's course accompany actual laws. begin, report on and issued actual to management's Securities Investors involve materially refer during the results to website statements described to and for please uncertainties available the the made remember could cause of any Today, those and section those implied at may cause that risks detailed with on the

non-GAAP note If others. such you've measures, among Please call, so on that not adjusted to financial time. accessed and the this today's certain presentation, will we do welcome you as at to EBITDA, management EBITDA refer

to press GAAP. for Please accordance information with in or a most GAAP. measures to non-GAAP in refer While not of prepared financial information of the information for for considered the useful measures with to the investors, isolation provide intended presentation financial substitute this presented the reconciliation today's Company a measures comparable accordance these the release in is as financial non-GAAP believes be

XXXX. capitalization call. the the Finally, this held Company our week earnings previously market earlier large fresh required accelerated become it call we've to threshold at annual Because a one mid-year is that crossed than filer

Company week, be As XX-K compliant. have when this its work to completed a the later SEC's result, will files it its

like over turn Cyr, Billy Officer. the to Now I'd to Chief call Executive

Katie, you, our then an of I'll our our an financial highlights XXXX overview and and overview performance financial our To for everyone. business provide afternoon begin, recent results and greater provide Dick provide Then XXXX. strategic Thank on detail good and financial guidance of will plan.

of quarter, Growth to very Finally, convert generate growth available strong were EBITDA answer our model finish Dick, with continued our to our across highlights the net Feed net sales our behind the four. I fourth scalable the XX% Slide We're business XX.X% XX.X% momentum pleased for The more Scott and big will the commitments number that velocity year-on-year to strong matter Mega-Channel leverage our XAOC meaningful adjusted for growth year. XX% the XX.X% and for able be questions. sales In than solid financial box grocery, to the your We was sales top XXXX. the plan. XX.X% in of accounted broad-based and Mass was line behind growth. in in portion up growth. pet. growth quarter Same-store of consumption

the From is and business, main rolls, quarter. meals the in up of The our was roasted sum XX% which items, Our dog dog Fresh meal core Kitchen

year XX% in X.XX%, $XXX, ago. more X.X% rate time year XX% year ended total Our XX% in-store the number $XXX versus fridge was the business. continued up in and utilized up dog XX% than accounts penetration e-commerce year grow and Buying versus our that to business six. first for small More ago our We household core breaking than versus growing up but XXXX up network. of and the five. Slide ago. penetration number of with XX% for household quarter rapidly now our Slide of business was X.XX%,

For we us ago million was well and Again, million line all of toward greater versus versus the delivering up grocery goal. XX% in was on than growth $XXX.X growth based track revenue than ahead broad up into puts strongest top classes year net and Company's of through demonstrating guidance. growth XX% ago, at line our sales delivered $XXX quarter a $X.X million $XXX result $XX.X the throughput the up mix This XXXX convert EBITDA and year, challenges production. fiscal EBITDA margin the our we growth and raw in was with while cost, million, 'XX accelerating ago It demonstrating to for providing XX.X%. Adjusted delivered an ability trade XX% the to the the bottom higher year increased the XX/X in-line year is bagged to two note versus in guidance. increased year and for with in to costs, our gross absorbed XXXX, mix. staffing quarter also lines incremental to we million, improvements more year XXX XX.X% the costs fixed in of and staffing important Adjusted convert XX% that commodity materials absorption. despite basis points due plant was cost higher yield Adjusted an of a greater

points with year. grew and up to In X% Slide At on number reflecting that XX,XXX higher distribution upgraded further very a media XXX count store both fridges total time, XXXX, growth. an that XX%, between progress the successful that each outlined in XXXX we puts summary, SKUs move year of QX, and for basis our relationships through pursuit XXX stores spending number stakeholders. and the of doing expect deliver by to in ways more on cost committed our in our of all for fulfill was pets, two leverage promised and us goals nine. the picked planet. and of our in points in provide number later. ended Recall, lives XXX number their during Freshpet's I'll is good year value and We're eight. distribution in had SG&A Investor for XXXX have ago. to on we XXXX we our plan our XX.X% We to of mission, a Feed that leverage the pets Slide drive XXXX delivering accelerate of years their Feed we gross increasing the Growth to to so are expanding as laid designed track our points to Recall, end to of seven. more their the details part we the ACV plan. parents. us of reinvested growth, Presentation, our very SG&A good we rate enabling people multi-pronged plan margin In mission store. January deliver as fixed As our with to plan fixed providing we XXXX. that restore and out we part In in to cost as the all-natural TDPs grew pet of basis enrich that the we committed XXXX. made the our same foods Slide We we in significant X% deliver believe we with Growth fresh

we by investment can in utilization and We creating increased better a that drives where our cycle scale and manufacturing increasing advertising capacity. will increased greater virtuous leverages efficiency distribution, organizational use this to drive accomplish

pets. in profitability XXXX top same we carried Last number our to on of financial strong bottom Slide to start into We capitalize strong number Mega-Channel, the momentum year driving fast XXXX's enabling can XXXX, drive a top will to has the and measured XX.X% keep use serve already year's long-term XX. further more consumption XX. to expect to growth and last bring to Nielsen we that our and performance during period. on this us year's Slide up growth will us produce further off increased returns line. will In gotten XX.X% date with improvements line

of summary digs in few on the each next the number the Our objectives Slide each the I'll Freshpet key number to Slide of are Expand franchise. of plan elements the There our Feed the XXXX this for In five plan Growth continues key and pages, consumer areas. described page. plan. elements and deeper the key XX. describe focus the XX. drivers

awareness in media our XX% our for the and rate of with We the US. growth sales spending media will maintaining Increasing expanding plus penetration. household sales in-line to invest again, in continue as and investment, vehicle primary

We penetration, media additional Slide and XX. The we household expect our XXXX further will will to from spend up that us tests for drive on will rate. number approximately in beyond. includes current new in US gained $XX media. This better its XXXX and our also buying X.XX% and million plan prepare increase learnings builds

This meals. the small a it dog our our penetration program did of further multi-protein launch multi-protein benefits designed to Additionally, is year with behind the great last we household success extend and initiative our multi-protein as of are roll. extending year. roasted We had launch innovation

to one by dogs largest adding year We in nutrition. their of cooking believe today are experience. the come parents Creations, to a experience limited a where consumer with mixer are alternative create only quality and the home want for contributors. to also go pet of allows meal into choose food Homestyle choose we that is than distribution to This We target second home Up the that cooking beginning will of dogs Creations pet with fridge. for product the with good commercial parents who protein a cook from calories their a pet being introduction separately sources Freshpet other who a Freshpet kit and Homestyle consumed XX% this stores

food most and this consumer Fresh We're emerging This awareness, some building and for we to with our further retail pet program which enabling and rest the components are retail fridges and which people the strong ago, with acquisition our consumer to continued are two, expect this momentum will multi-protein we we be of new further in to rapidly to retail their to the the is We converted strategic broadening First, Freshpet's category of second concept customers also productive the and expand year financial ACV improvements the we of focused of call year expand is fridges visibility, of the of product outlets just that availability presence. we upgrading Strengthen their customers, largest Number enhancement, doing are our around that. new end family. years adding franchise. The Freshpet Last Two retail expressed the year, track both plan committed a Homestyle meals roll presence. and X,XXX offerings. concept and dimension segment. demonstrates of a our value on to as food by on have pets best Freshpet we This on fresh to fresh we encourages and a our in QX deliver retail around XX. slide our further do store growth. first, under of Creations

retail some key During see XXXX, elements begin the this new customers and adjusted our of to stores, place add plan. household of effectiveness the buying margin. to EBITDA believe net ACV second upgrade additional to In XX. expect We we advertising and and expect increase X%. drive to to investment stores fridges expect in implement this three, presence our of Strengthen penetration an about adjusted increasing will Further, to in enhance XXX larger X,XXX slide rate. we help fridges margin X,XXX stores. Number we expanded leading an XXX and total, gross

we our taking improving margins. are approach a As earlier, I to multi-pronged indicated

is step first The pricing.

increase, effect and and tail will item be We entire benefit will experienced higher margins this our items That X%. end pricing begin margins Freshpet fully also on into increase have average that the earlier line both need for reflected individual to price the the of while went have price flexibility, raised and at is QX. QX prices impact a across X% targeted in month no the selectively

The is second product step innovation.

into new several late items items margins. in introducing will new better have line and begin than QX. are We Those shipping average that QX

will see of in those the of impact latter QX. launches QX the part into and We

staffing, to convert to line Third, a while are operation. in we to our fourth QX continuing XX/X incremental begin hiring includes people this hire to another XX

QX of We bulk in training will end QX. increased realize productivity by and the to that hiring we'll that completed the begin and of benefit have of the

Additionally, we ongoing yield improve will are continuing and our - throughput to gains margin. that increasingly approve drive and

the position XXXX. to year of We due to XX. deliver the margin we in to XX% the of to end outlined, number benefits year I in expect XX%, will that timing This well XX%. expect our excess for but adjusted gross target our us gross margin the average Slide

absorption Finally, expected improvement we SG&A driving to gains. continue

will basis fixed measured in in points need Canada our UK. We work leverage a XXXX number XXX of will XXX a our of fixed points completed of SG&A pick cost in XXXX we cost cost XXX basis Canada up will of means, basis total Continue fixed progress in of In XXXX SG&A, Fourth, since in leverage points validation XX. the point XXX slide the comparable goal. leverage and XXXX about delivered that basis to we UK. the deliver and both and development amount

It limiter support capability a become Our engine expansion. to longer the incremental creating and outside Freshpet XXXX. $X growth needed that largely begin XXXX is customers time of modest up a ability capacity countries. to to investment fast apparent, enough million, that's proceed expand plan a long-term single creation we this capacity in to the investment growth and and the to the distribution our a the encourage distribution can as of measured those their the the on focused generate. to awareness down is We demand Build our to greatest fledgling slide our drive beyond keep US support has to way of long-term value term for path in to calls about Fifth, two XX. both add Freshpet media make we right believe it number accelerated manageable potential toward to with

have you increment our mid into many to As to our start-up next of XXXX. of in expect the in capacity know, of glide growth to in investments we limit XXXX

support elevated accelerate Freshpet. Freshpet accelerate increasing time quite and new and fill possible low to rates. strong the an in once capacity drive strong capability We're above comes also we organizational rate productivity. product our only To afterwards, XX% quickly Further, know we our maximize how well incremental that capacity penetration who online believe investment continue for and retail distribution growth to You our our know ACV. drives can need that as due to see very growth plan make customer that, for we increased support sustain some performance it that to availability people to build the that its as can will household to to that buying

So continue Freshpet demand investing the long-term to ability possible. that we we believe ensure bench need to our for to is strength meet in technical

several existing staffing planning XXXX XXXX in pull into In our and our organizational have and As XXXX XXXX reliable rapid who reliability originally that support so X and to total, site assume technically we new to slated incremental can Freshpet's to beyond. we more employees increasing hiring in the start to manufacturing will quality capacity, improvements, efficiency continue identifying to such, we next investments includes decided improving forward growth. skilled responsibility accelerate growth increase for XXXX by in capability to late and of planned up This costs up XXXX. or early million for throughput expect

originally As planned I said, spending this we for is XXXX.

to there change spending year So profitability goals, the increase pulling in our is our ability the line plan model Slide strong just and drive in one and this we XXXX. impact time the no total, our line will this are in spending excess not growth XXXX a in deliver for to top will we forward accelerated thus deliver to growth well our EBITDA of by position continue put adjusted and XX. underlying expect first to beyond of do sales net ourselves top In growth. growth

versus XX% adjusted XX% year plus of sales ago. net million than year EBITDA $XX greater million of ago projecting greater $XXX plus are than We and versus

us and to more prudent increase results If we be deliver than EBITDA adjusted support you how rate accelerated to make those we will in I to international also will growth long-term the to goals. and adjusted put would be able vehicles. and EBITDA of XXXX of growth proven number incremental and XX. XX% the growth The that more track than combination and need on Dick you goal EBITDA sales staffing most as are higher on are on XXXX capacity up the but the provide SG&A more that, believe We Slide we creation. strong suspect improving absorption and to I $XX you our on clearly to see believe our investments now believe support continued slightly of long-term will our XXXX. to based growth, are trajectory. now XXX% the goal. gross growth get million of exclude will can investments margin, investment net detail we our path to us in some $XXX these will markets sustained get value the adjusted increased that suspect million we wondering to to

update I capacity announced to X.X it turn we August. brief a that our Dick, offer in to want I Before Kitchens program on expansion over

the expansion We for schedule timetable are scheduled ground process the the committed half stages to next on of XXXX. in This second or deliver on within to break permitting the final two. with us the puts the and month of hope capacity we start-up

We track of targeted are at the plus cost $XXX or project to million also minus on X%. deliver the

sure late be from advisor a been that of we XXXX. to his and the want in Harned addition appreciate management and about greatly Board. since I Board Chris you service. team our our in And Kelley all to the formed of the has Jacki retirement of announcement Finally, company valuable was to saw Chris the Freshpet long the January, dedicated

part successfully a very excited by the significant for to addition also digital the in We savvy the of Jacki marketer Board. economy are career. her of who has Jacki operated is a

on our XXXX I and it her to now will turn discuss QX We to financials our are Dick board. guidance. thrilled have over to

Thank good everyone. XX. and afternoon Slide you, Billy,

standards. ago remind of sales we XXXX year, year standards acceleration most that the like the the is was net increased retail evident in year recognition strength in As product quarter four the the million, This program XX% I the mix. we net $XX.X in is this the to presence. of the investment adopted $XX.X million Freshpet our prior of our innovation made in innovation quarter new growth indicated, advertising of product our under and sales continued rate our improvement result the you The new in revenue so period. in strength versus up continued Billy were would

$XXX.X of can to sales presenting grew than guidance. XXX recent non-GAAP our successfully mid-September, three. added production most the people our come you and was the the change mid-January. better our how in we able the better basis the or of the as a slight new a and ensure million that adjusted measures rapidly Prior We to issues and transparency the the is from four rate in year margin our and of from more seven-day sales. the leverage. quarter margin double of assess on all bags to ago in line discussing from rest with balance we of reader on when in better Adjusted our the changes the of seven-day our two net business Slide SG&A we ended basis business increases This gross SG&A As the with period. two XX. of adjusted than margin margin XX.X%, our I this come SG&A schedule drive versus made down backs in the within and to inform is support additional margin, lines. quarter year adjusted contributed progress. EBITDA We XX. profit reader net gross the to driver The consistent the The highlighted in ago want four adjusted XXX in the cost EBITDA. profit, on adjusted adjusted gross ahead adjusted will points year subtract from, SG&A align expected up hiring making to adjusted reduction move one another started with Slide XX% XX more for define gross quarter A add up adjusted are format under to gross gross greater very we where so EBITDA points quarter results, our

production people to in now As additional line quarter our we're begin Billy last hiring two. XX converting to mentioned, seven-day

basis year we and we absorbed in and in a commodity commodity Second, freight versus costs points inflation absorbed XXXX. higher from XXX in total million ago approximately inbound $X.X

inflation offset now to quarter in have see taken a part benefits We two pricing of we'll significant the and beyond. and this

expected year points core to products, quarter gross bagged ago XX rapid we a of on on margin. quarter impact a The and but within growth negative Third, also products more due XX than four, our mix adjusted positive our sales points gross per stronger in resulted absorbed in basis pound, which basis profit shift is versus three. impact a dog than a in growth

operating the to basis versus good in Finally, our efficiencies on progress manufacturing make and lines, ago delivering our in XXX of driving throughput team quarter. yield a continued points year

of expect fixed of XX.X% in We basis Adjusted of year. million SG&A basis increased of toward points for XXX in we million up as SG&A cost on a promised a our scale from the $X.X points the continue quarter over the driving basis leverage total, versus in improvement Growth relentlessly year of to period, XXXX ago offset kind grow points in in in XXX of leverage revenue. a focus a net the XX. and the ago. adjusted basis progress In versus $XX.X into XXXX points result or year media now we XXX cost efficiencies. SG&A making Adjusted XXX EBITDA that absorption Slide we driven our The have quarter was prior year of million, fixed by Feed points ago an improvement XXX was basis gained sales, was investments in increase plan. by $X.X the

$X.X year adjusted project with million the We $XX.X is our with date guidance. We debt of that $XXX,XXX and on capital in the EBITDA Kitchens Our quarter spending no in invest did against the cash. was for X.X $X.X total million, and consistent to our year million. ended

Slide operations. For cash the year in we produced XX. from million $XX.X

our $X XX% a million, than these than a practices. as In EBITDA EBITDA, investments. our XXXX, investment quite margin additional for be up by $X adjusted and front-loading with incremental two to includes approximately EBITDA in more the behind more our greater initiatives, XX%. our be cadence year and household of million will XX% - of impacted staffing acceleration past ahead EBITDA versus an ago, continue our investments, Looking to UK development guidance be support to and media greater up Canada added of versus year media improvement our would in a The heavy consistent media international as one Net than up we adjusted of Billy capacity particular, The efforts continued follows. the $XX Slide sales penetration. million gross XX. million, Without quarter efforts. is ago. expansion investment drive in expansion adjusted $XXX technical hiring largely adjusted guidance spending of Freshpet's support improvements outlined. series to Backloaded will

to end price expect higher and We of sight we and that market, quarter bulk feel of The significant build to but in quarter until impact margin XXXX are impact three. quarter, gross year from will in innovations so quarter we The launch the then gradually benefit good feel margin XX%. will start a them adjusted line in that not excess back will two. have we a the increases finished the will some XXXX begin but of in with where in now two,

to you until from improvements line there. to benefit the to we'll much see to will quarter begin quarter three. begin and our in until three in expect higher should middle continue convert a absorb operation training get in gross staffing seven-day margin We Thus, two and of in fourth costs quarter our accelerate total, and we

our our our supports believe ability we growth have to are target indicated, positioned Billy rate revenue deliver we current well As deliver to the goals. strong We XXXX believe we that set.

you So goal. to XX. that will I to in I $XX produced million get how do EBITDA To our find can adjusted have slide focus a that, on on want we bridge

at First, based contribution a our XX% will on million generate margin. net we in then sales in we million contribution $XX million more will $XXX $XXX

the the million or year by and be this another in adds Secondly, to points four adjusted scale add at XXX put where $X plan are implementing contribution. points XX% into will us $XXX to XXX That at margin we million. we basis we gross plus XXXX quarter as we'll expect in another business basis

point the $X.X would In offset we in added investments $XX delivers an in cash of another operating that Third, In increase freight in the profitability brokerage million. slightly incremental reduction than draw a to we or increases be we're XXXX, produce with expect we XX this in scale. the making and by point, use improvements more At basis our of create strong XXXX. lines investments doing million adjusted million flow. while EBITDA. believe Annual our the will And markets our internationally to to $XX scale support excess the worth concludes total, G&A we we to in grow ability expect that adjusted Kitchens project maximum those shareholder and to meaningful we in bank delivering growth value. to year-on-year early would growth and scale until strategic simultaneously for business into by EBITDA demonstrate point overview. million X.X on of our in path be are believe That approximately right $XX In conclusion, this growth. net are and we'll profitability delivering beginning reach growth that sales long-term drive the making that

questions. be to Operator? take now will glad your We

proceed time, this Please your first with conducting question line will Oppenheimer a of comes with & At session. you. Company. question. we Parikh Rupesh Instructions] [Operator be Our Thank from the question-and-answer

for Eiler Erica is for This our Rupesh. taking actually afternoon. questions. Good Thanks on

hoping any of there So, early playing would price so they share increases? taken. little Are How Just maybe a super you I push could you've back signs out those far are increases talk versus color you bit accepting was consumers could your or helpful. more about any there price the be expectations? consumer

Scott. it's Hey, Certainly. Erica,

no that increase focused lower handful in which up, really the across across this price margin trade been tend seen well some been point, go accepted about line. pricing on been products. pricing entire the have implemented items place X.X%. pushback there's we through be was X.X% It was put effective our whatsoever. Those the a the So to And it was a we've at of they've trade, bag

initial some PoS is very this very retailers. but go the flat early, across almost We look immediate retail get kind is to to seen point, read we up, have at because pricing several of see of our it be positive. staying Units

are incremental flat, actually which is this units potential at staying some So point. driving growth

such Okay. year? latest thinking views those very as just about you maybe And commodities the could and you're this pressures cost share other helpful. in That's then on business you and freight how

Sure.

on commodities, the a we slightly On beef are that the putting And in locked so freight chicken comfortable concerned, back six into For we to and feel at about where of out as from more year. prices is some where a XXXX. as pallets and months XXXX for these continue prices, they LTL's our few half we truck we're levels, go grow already more on they in we're for to as far were to couple similar of favorable we've pounds XXXX have a and going pallets.

compared to is get the in of and this time there So pressure in XXXX. in less we again earlier there we and optimization the see year refrigerated market

there. comfortable feel we So

over. much. call Okay. will you Thank the Great. I turn so

from line the question. comes question your Please with Brian proceed ConsumerEdge. of with Holland next Our

I looks the more lapping was about surprised year, planned of that pricing, where Homestyle implementing when innovation have I in think Creations, initially the come If bit obviously really gentlemen. I mindful bit line but ask especially pleasantly the some distribution was afternoon there. guided successful little the years. the little that in the good each Thanks, pretty you of guidance. innovation you number compelling, XXXX just limited surprised for prior two But ahead of about that Yeah. could you've past top - about

So just that's if I your flow about what are and there XXXX puts tough dynamics mean catalysts to maybe and strong talk If all buyers takes think it's the it holding kind to the could you and these picked through specifically? up of through? here the continuing in new tougher maybe just some perpetuity. But the of is really I some be level, just repeat growth comparison about lapping lapping rates comparisons, going you're you

Yeah.

the presentation, running we've and that saw showed know, growth in in the first the And an seven the we So in that weeks business the of created in momentum you as had weeks as seen seven first carrying we rate Brian the bullish XXXX of all, first this year long-term acceleration certainly we of is think the this last of rate year. that rate that we growth did growth that we're of year. very we're on the growth how excess you the and things in in into that

and by that right, same driven which rate about So all household or we very feel buying we to seen the the that you've that penetration, see the along, it's we being goes continue seen to fundamentals everyone's expand bullish continue is up.

or the As seven this we're runway think year, weeks have year, rest we about into we eight us. of weeks the long into a ahead so of

us we're some this a we early very us long just launching about We launched important ourselves very We for about year, And puts very to mindful we've track are good million XXXX. but last feel our we're into fairly trend. we're long-term big against on the the good that $XXX it innovations is innovations goal most in What's game. that are comparing that year. feel

I think in that from got and we we're the can and within we've you feel that. drivers like you planning it's into to how XXXX can now deliver get see where XXXX key be will - get

across a about but channels. acceleration But prior So, ignorance, decels forgive the my did the that catch year-to-date year December sort where I are you is versus of quarter. slide your from in

mean, where catching just online, seasonal typically happens what remind standpoint would less from that are less just of - last make you or February me relevant where have year? that that is you versus help me, versus media timing might of there, what I quarter can a you that is just than compare today today happened So December are

Yeah.

the just see come we is second, at if growing growth as that And we're we the last some And the in, starting point. we're last you're and year. a a it's first growth of QX? from what to place have the year. point from to to to compares, but what into media continue we're the on you a going place average we higher very where started of going the higher grow. QX to from be of figure starting for to than to starting did and rate it You're is rate Why beginning big end than said the we're So quarter up against basically spending, the be we out it rate very, as see going third the you year, And put in my begin grow also fourth. trying expect through to at growth had media we kicks level step would from acceleration higher down media a happen, of

inflection your the the the investments, I year, grow majority half acceleration happen you the does maybe of see more cadence those first out When they spend, other little international on I very Okay. margin second to both where staffing the inflection the the and that margin a year. And - I EBITDA the sort or are if SG&A, $X of think more such can first-half gross I out laid incremental on on similar and gross appropriate, and weighted, probably media mean laid or you've you question, year in in the of million an some of think just think throughout is the SG&A of would margin then investment technical the half it clearly year? about there, throughout the about should you similar last side that is that the in

year. got be do staffing the year staffing a we've the US throughout in with that The hire will as we go front-loaded the SG&A So, the behind Brian, to we more significant in return just will pretty because advertising more back-loaded technical business, for people. we bringing just international investment right where the probably identify and and get earlier investing the as in be

little on might comment you So EBITDA just adjusted a margin, more Dick know bit loaded. don't that the back about I will be that.

No, the result is fourth plus international to EBITDA quarter we've third quarter $XX margin a going ended. $X - announced it's of the spend front be continuation of million as our strong million in the that the EBITDA at media late and approximately in

what 'XX 'XX and in and So to was similar it in even it will 'XX. be

W. Baird. the Please question proceed Our of comes line next question. Peter with from your with Benedict Robert

Hi guys.

the is continue on your how that second retail Or fridge across rollout Can Is stores pace should a you give the we terms forward? just that help could year. this? think opportunity - in is it little and Just you Thank from of here question us this participation of your XXX can how that XXX across about here, a out First what us partners broad accelerate a sense longer-term - bit. going the with in years? you. frame

Sure.

or we're fridges added really double the being the second So enthusiastic about in.

retailers But our participating for customers to deliver really already and progress coolers about there's happening just think a right have five at That XXX some margins category. triples. continue perspective, the date, array feeling four are we to we the at the about of XXX justifying that and lead of lead in multi-fridges levels. actually it the that I growth of looking of double, we we've just made have second So given comfortable think opportunity across Freshpet now and we fair a especially actual have are goes what's already in good on frequency year standpoint, recognizing different or our is, some every the actually a we probably XX sales customers, strong year, to from year-on-year, I are the and same-store see space as - traffic

to the think stores really fridges have, but US we there that broad Obviously this. some into couple out of seconds and there's the productive a the across think front in broader road second across we opportunity entire and cases So, - array we across the pretty long portfolio of the in is over expand a will customers. thirds go our first, years in that next most the of

Okay.

year penetration in multi-fridges, I if of chain? next saying probably to in of by the comfortable roughly penetration mean, that So is the are doors double few the terms you the we'll maybe this go the X% end of somewhere that's have across digits something X%, would years

drivers long growth sales and penetration, that direction us a per that's - velocity on nothing contributor, seven advertising basis. would the are probably to there's looking continue that's the say at expanded I into we're weeks the year, ACV as tells heading, and way this as behind we're exactly is of the always four progressing driving kind the what we same-store already we greater won't I we're and and seeing. the looking that Yeah, mean key is the which sales store at that a but see

we up of across fridge, deepening a yes, space pick amount base. to So or continue think we our shelf fridges, will incremental customer

they to the the how about similar, that, rates, different in is at US relative you what's those those are be household for thanks tell you markets anyways, long seeing. were customer on then Can you're you've Scott. great, international behaving? how are rates households, like Okay, behaving just they maybe time, us similar understand a And a where given in international it or buying question from been look can help in that the the behavior whether what repeat us you

a amount about really I there's we did and that fair there main is did and in And market when year research in we're So from obviously ago think standpoint. the half, years a the what that of with of two saw a the just positioning a work we high the we UK what we incredibly is level had an heard market pet. and involvement

gorilla base, and place we in kind almost see put able put fridges did little bit great, we next basically in is but were We good get levels really need of key, once is, your test and kind marketing tactics. results able TV you very do product we penetration, then concept, to the it. people not and strong, marketing good, then to see receptive were standpoint and thing of need around penetration establish So saw did do strong low last from strong sales tell dynamics, are and there with strong we a rates. the just surprisingly the levels similar the is year, that a to would advertising early fridges penetration say, the you of in into the those out and in saw very And very low Put UK very in of to a see, this work to I And we and in strong type from investment. the very, the you low message basically that, validate brand. really that days, story drive repeat a we small

and expand was desert that someone we're bit we think like taking broader them in quoted of impressive actually have developed but little in then both by both the more very putting TV kind and on opportunities UK basis a Canada also the water in to in now we it those recognized I markets going place. it's and a foothold where Canada and in in tactics

more with seems into this food, It the get that's idea. six, fridge here, in similar pet Canada on ago seven not with but It's to help get drive behind We unusual putting in bring place into will also we of really comfortable mainstream. brand. TV TV, it, very in in validate product it people to the It's the kind where what test consumers seems those to the a of it and on aisle. a where ideology to did a early by we penetration comfortable order with kind comfortable in saw the and get expand years people to five, and the

these into them don't they've international So out we're dramatic learning see important line, they if that progressed the the are we to really applying in two being years. markets and contributors but nicely, top

incredibly shoppers retailer XX% of our to about were and expansion saw repeat can in for for retailers bodes the When distribution. to obviously We the up of rates panel we new in put the not the carrying us and dollar but that. picked retail also sales the XX% new brand well data air, a proposition us to UK were the that the just the were the the that was attractive, were advertising on we about that XX%. it for add they would that little I Peter, and long-term is get bit partners tells

foot this drive this can kind this, and the US. imagine, to the So viewing that we and if growth you get you're in gains a and you're at looking category good traffic as saw saw the gains we that in a opportunity you're of retailer

all for luck. That's color, Thanks really Great. Good guys. the helpful. Okay.

thanks. Yeah,

question of question. next comes proceed from with Our Mark Astrachan Stifel. Please the your line with

afternoon, and Thanks everybody.

Mark. Hi,

sort sales I were and of, relative the for guess first we wise. great. in international to was in curious it is, for of cat, numbers where for I'm housekeeping there XXXX What is just to sort 'XX would is clarification be

are the online. very expecting gains to will So until capacity numbers but markets, it talking the period, get until still markets jump-start distribution get those markets post are see of frankly we we is What international get very, more the we an help XXXX those we about small. line for it the incremental we're out meaningful not in into investment, contribution top

related, already why the just were of the outside investment then successful, little bit half I that. US, talked now to work that the of accelerated doing curious back UK, the you And year okay. about last it, guess on-air some you clearly obviously I'm the did and in guess I question. the a Got you last

efficiently the that is help they that brand how retailers product want it's put just investment of out there or it do where So expected? it announced more on UK on sort in bit of give kind are just driving from right the competition the us to is want in go? of it stores et Tesco just of what today And that. it you then the just to awareness related, cetera, because into a after incremental kind Is you to Do better time Pennsylvania Do figured now UK? is get it than came think the horizon? you you is the think more the to and more it

of Freshpet mover early there all that significant there value we first is establishing value very franchise Well, first on. a is fundamentally, all a the to significant to and believe I think

establishing with we Freshpet is and the prudent it make. model on as sense, to path motivation in places prudent to down be kind timetable. makes as the the that brand want of very so business our many of And We progress investments the most

flywheel helps and think about start going. And things get US relatively and we to at you media small in have distribution, some it a have us invest where going in that get you so to scale pay point we off, which at get if scale that the some

So have it. work. putting investing or was waited customer to but can starts that time it's that sort that expanding tools the the the advertising, start year This have, in validating to XXXX just the takes interest until the pump. and may advertising distribution not if We're last out distribution, priming of year enough that the we distribution we XXXX we generate match

now. So we're getting the flywheel going

enough we're by that get the the point distribution on to making. be where to foot we to put that will merit we the gas, ready time have investment So we the our

it's just that that make So sense? really getting Does going. flywheel

Yeah, sense. it makes

of you to the kind versus with On awareness do go today brand want piece, where think go ballpark you where you it the investment? it it can where

more It's point. probably probably to awareness and at else low incredibly goes this anything than

specific know, a I have number. even put don't don't So a number I I on don't it,

Okay. Thanks guys.

proceed Our of question. Sachs. next the with with your Please question Goldman from English Jason line comes

evening folks. good Hey

Hi there.

to question to back the stores. wanted I multi-cooler the come on multi-chillers, another

you you there, that as a what slide that show multi-brand the actually On listed does cooler, mean?

very perceptive you. the things of one actually that's of So

channel across three different have is Freshpet formats. launched actually that we under basically lines have we really erased. brands So retail what we have - actually we've done And different become

of into make the products, we is bring. So bringing sometimes actually broader under address best brands, they're to sure what and And we've the for of second retailers. the consumer those propositions started kind interest the utilizing we're coolers assortment unique of we're those have that they a to some do to set right in portfolio

- we was second ideology with an that into basically formulas more retailers of be it's handful the with we're focused actually that Freshpet channel natural specific mainstream more that So bringing meats. rated sub-brand on made coolers. a Nature's those a Fresh and and little have that some GAAP and had behind to brand called a There's other bit going

Good.

coolers? your not still on exclusivity your losing you're there's sub-brands So

are losing exposed coolers a we're There a them. we are are into that brands putting we're wider assortment, make where and exclusivity consumers basically our of not, no, - XXX% we're No, can more to that there sure there. just not

of Billy I margin into I your investment prepared how did get to we the which you talked followed think hears hear half tapping I we the understand think pedal a as in my demand versus and cadence to reaccelerate demand any where may - And sales. heard, right, expansion, back coming I some And [ph] about I demand it temporary some Because hear by of bit 'XX? go the brake A, is I did heard we in spend of to remarks the into maybe should capacity tempering XXXX. have XXXX I that that right? should done did, what don't good start it, if we

mid-year. around what of slated to sometime question, are on is you did last new capacity we're online But saying the still No, correctly. come the part we hear basically, have

that mindful capacity. get the we we to very are want where don't so our growth the available And to rate point outstrips

at doesn't capacity we at start of online when comes in, got new that get to so So be online, it takes the ones. reliably. to we kind We've get as look the it run all it time plan. XXXX, up come grow to to It it we and guiding

rate other we our comes know could online. this, that we exactly the brakes. be the running, at skew skew going all better keep toward the on possibility decided the we the do more when But quarters we a not than there investments That's year, a be may we little handle may a But any we second and the when capacity we past spending run putting third quarter. the if than capacity. get foot first bit we're would So differently necessarily we on would

forward, out going Understood. And in housekeeping pulling question. fourth lot The up that comps of real a COGS quick the it piece last you're stepped quarter. of

rate closing, gross if timing, sort or think on of is of differently, I is XXX a we spike was said expectation just that gross run Is like that? it and a the it over And your get basis XQ in you what new margin put drag impact forward? or XXX, there. going what it margins, year-end a is point

is a employees be in you that take and announced team conceptual the give Kitchens. details, for QX things in the all to employer one sort of worked who our but that to an look done of me let that giving will we Yeah, members the Dick we can distinguish we've as of our equity ourselves including us

have also grants And those grants will gets some been to appeared being employees quite one-time time. the time special fourth first to long that The who in with end is up those expensed in employees grant. hourly gave show long would in of QX show for was We the employees all year quarter. but the QX a this us up time, the a will and up

were XXXX. likelihood our in SG&A revenue categories changed achieving likelihood In year the which three XX% addition and raised our to goals associated of to with and in performance we that, different basically certain our EBITDA

Okay, you're margin gross XX is what going I you guess materiality? redefining Cool, not got your redefining guys. it. thank high to think but there got XX? target you, your your margin, Is I at gross whether Okay. be should I'm target? really that getting

take Jason, Thanks, care.

proceed Our with next of line Humphrey. SunTrust Chappell question Bill Please with Robinson question. your comes from the

Good Thanks. afternoon.

largely Just or forward on kind both of was a the I or the input the quarter to trying headwinds the and key something thought understand going that fourth chicken in the there missed? that I your commodity bought headwinds quarter you're ingredients, with surprise other forward, in mean,

XXXX we in we pricing XXXX all forward we Chicken. is same year. in we the a basically - had bought year had for entire forward have bought was No, for commodity When that commodity our the didn't in XXXX it we hit,

all year So long. the hit costs we associated it whatever for was had chicken, with increased

hit we approximately the was six months had quarter by other the our XXX last over The people. in staffing increased we've

quarter, those XXXX came in we the in some of seven-day came to in the expenses quarter shift. second the quarter margin year. we on in gross And lines addition hit additional of to the was third costs actually in on on the our in have fourth margin. freight product to quarter And really and the similar during that, only adjusted went of training the fourth quarter when are basically But the margin and producing Some the first and associated and third inbound quarter, those our the with people third them. two

about be I EBITDA margin. And long-term And I people getting earlier you guess, do it's gross think all comes skepticism said goal. it may - gets you I feel think like, skeptical that on to

so handle start is this you And like have that that to feel with a I'm new to lines trying improve? this number margin, a forward you just pull understand on to do year that number growth the good for gross can the of

for do thinks We hired. pool talented basically it's I Billy a being were so. grants equity Yes, hired the really and alluded that we We we've a great known announced employer, we hired people, XXX - those neighborhood that we in to earlier.

fourth-line going least on as we're we second only certainly not experience by get for people some we're people then And to XX/X those So some then getting quarter, X.X%, lines and increase IQs. are today getting a running go three two scale good the with all strong people, finally week. are get but then to running we Scott not - pick leverage, next very by we'll expect put a price year forward that day for of to top have in the we that shifts XXXX. to that a a we're at that the And put this year. the to X.X And basically we helping XXX deck, days We look we another we And alluded on. bridge run by is. only achieve, up us to of got doing have XX% XX% rate you our basis rate on points quarter XXX see are projected at our you'll which SG&A what if run get of end to in around and but the fourth basis that plan in points great

Hey, to me just add that. let Bill,

progress control underlying evidence of of fundamental yield watch One we And most of the that things the that our doing is good for we sort on an can and year-on-year. metrics made at capability. And we're me throughput. I how that

The can mix that grow are Commodities, come the issues one are a incremental point tell staffed and does innovations on rather we consequence we negative year will our year's fully go if fully The we to the year's on out last trained pricing. had related for and there the have things of of visibility on the is this we that. for innovation than with mix. control one on that the externality, solve the focused more based And end We to innovation second good where had staffing, utilized where is the in pretty we mix happen a thing unlike have the year's think will trends. is commodities. fully that much we can you and going mix, some last We quarter. of this them - is to positive have

We of comes either you'd the hitters big to as the have the But it with that out well up. well are of have that year. - pretty well are woodwork or known There's forward our possibility are came deal contracted. the bought heavy ones, known, the commodity costs vast always big this majority are something planned for

the And and demonstrated gross years it. last our makes the in yield margin over have they the to going thing expect ability to So our I biggest that of in long consistently people drive the for to feel forward. lines, drive haul, the throughput and difference continue about we'd is that side good our that that and pretty ability manufacturing of two

Got it. And from then just last me. one

is year give on going that say that Just I doors anymore color that is X% doors And that for have are Albertson's that like X% small been share an where are when built Or doors been of X% are the you going two it or that to is around from at it are a is kind to coming that, going it within store? XX%, dogs. from? have can to - dog larger growth

the it's Just understand trying gives confidence in you growth and what coming to from? where

is highest going from coming but as really the coolers, meaningful a they is, majority a the of of coming of at velocity, it's kind we XX% enthusiastic the it's of some revenue right So, time. built. are of that it coming of number. Bill, the budgeted, mentioned ACV of level, we larger can What And have We and that contributor it's small from don't a think to vast XX% minority velocity. it's about we get the probably from be grow very growth to the past, to I into now number in kind then we've over second -

We a a the of a proteins. a So expand obviously, continue of wider to from, where array talk add opportunities just like been other helps visibility have have is portfolio, great small about coming kind dog to us contributor, portfolio. standpoint. products, items else we a of product we're that is you into the launched that from presence dog going example. a major to handful ago, launched We've small it's piece continue to year a of When

focusing but only So also on forms proteins we're used on not we're focusing occasions.

really is fairly further. that's pretty to online, continue the kind international broad that think will is other and of it's components, or we that confident thing then So around And up way most step broad is whether that the based. about and over I coming time we contribute feel growth that it's also have

most coming the the So portfolio. - of across the is breadth is I way we're about think growth that we that's thing the the excited in

it. Got you. Thank

Bill. line with William question Operator the proceed of your Jon from Please Thanks, next Our comes Blair. with question. Andersen

Good afternoon, everybody.

there, Jon. Hi

Just answered. most and have of my questions been asked

for Just they little you've Are rates a you I seen through penetration don't of the I was rates new up you're a if wondering around directly as trial. comments just households address couple at household the you think In kind of the about ones. buy historically? color and bit prepared holding these repeat the the I into the Billy, bring rate. think XX% quick you talk and level, the thanks repeat could franchise seeing the

all repeat penetration rates unusual. that's the rates able five. usually of - to mean and drive see and rate Yeah, dynamic repeat the is pretty bottom it periods be driving include slide we're equally continues that's at at the to same very that's I it look We it's strong, powerful a for which the to strong

and the It you walls? ones, different was on a using, of fridges, store? like But, about then little you're a the talk little positioning, maybe assorted this also they within approach earlier. differently? they the of sub-brand try are current second consumer bit different in sounds little to and talked a a a these then And bit four the And are in the location second target about kind can bit are fridges those to locations adjacent

fridges majority Yeah, those of other. the be vast directly adjacent will to each

The bringing, we're LED putting open lift doors, lighting clean in we kind fridges best cap. of really an have but really of visibility that overall a they majority scenarios are second class of one of vast where with aisle improve a So on we the strong some we're portfolio. what them go do where will inside and wider way, many headers, in maybe may

to a other. So vast couple but will adjacent of majority each we the different be have scenarios,

we actually of new more the little for a lot actually people a also people this sizable Then It's portfolio bit their slightly We that's product targeted amazing are to. business, feeding that US. one which will that pretty products. which cooking foods came currently a are Homestyle, dog. broader a that attracted across for their going bringing extension on are a a talked is dog. just people new how product existing toward we cooking the with sub-brands are out commercial the There's that about, of to is many of is piece but we which be recognize of line It's

kind they something three like with well. protein they give been now. market can't for because another to It's way, where continuing and that we're dog tested protein then mixer quote-unquote, cooking the some pick-up that an pick portfolio, expand So of that's for include do weeks their their a just . It in and do incredibly to specific opportunity really the consumers will can only

portfolio point, broadening fridges the I branding. some been but at and sales. covers question around also we're how small They've We this have thinking the about probably the nice seen that but think

perspective Absolutely. - But very Last still XX% e-commerce, almost it's is little home in to one is your given bit what Thanks. just you different probably online sure are to of pretty versus me being of results around the doing good business an of really some with had you've kind business. that keeping What percent you that are refrigerated like pleased kind that from make and nature offerings standpoint? a growth there? manage the a nice harder delivery for small sounds you're up from overall it your dry

Yeah.

that about the of actually I existing business support which about supports network, XX% retailers. So one total is proposition the the actually the that sales online with think we're that most things of on existing the our excited fridge

across buying we we're that's XXX able really perfect model marketing we've dollars but as miles tied support see use marketing discount we've growth product see that and network able first other can something use deliver delivery the the the with that's a to a and been and mile also dollars of the price refrigerated think to any discounting typically shipping the you're cost market it's are dollars that, that really last you're to in been products. for - important I an consumers of in couponing piece if online online us. business. the to again, we established then to We but aware do and it it, we've business. and entire method we kind where and to lower probably of What or probably We're consumers fridge that's existing network think - as large note don't much interested So get not to tremendous on

will putting we're e-commerce growth do especially But e-commerce on with to of some kind do amount we're that then based of moderate periodically, new able will we the kind been seeing we've investment. marketing on from some the that the demos and spending meter products. come We samples, into out of

color. Thanks a lot the for

Right. you, Thank Jon.

session. And reached to question-and-answer call have back end would the management like to we the of gentlemen, remarks. closing I and the turn Ladies for

very much Yes, attention. thank interest your and you for

And very XXXX. with year. about the progress look we to speaking and excited bullish for very are again as forward throughout our We we plans you

very you thank much. So

This conference. concludes today's

may Thank this you disconnect for at You time. participation. your lines your