Freshpet (FRPT) 4 Nov 192019 Q3 Earnings call transcript

Greetings, and welcome to the Freshpet Inc.

Third Quarter 2019 Earnings Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Katie Turner, with ICR. Ms. you, Thank Turner.

begin. You may

Officer. and Conference welcome Billy Quarter you, for Chief Freshpet's Chief will Operating also be to and webcast. Earnings available Financial Kassar, Call Dick are Officer; XXXX Morris, On Chief Executive Officer, Thank Q&A. and Third Scott today's Cyr, call

and press these any of Laws. during to XX-K management's Before forward-looking the or Commission statements of differ meaning those within that of could Securities risks and the These are call, company's on the Please beliefs company's Securities based for statements begin, implied expectations expressed in and to in Exchange that described results made results filed we issued detailed could a remember statements management risks annual this current release report the the cause cause today the discussion course with our materially refer from please on actual to and uncertainties those today. Form may the forward-looking from statements. forward-looking involve Federal and make materially differ that actual

Please measures, as and call, refer EBITDA, management note adjusted others. such among EBITDA non-GAAP certain that on to today's financial will

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

call. the the discussed key a summary a be presentation produced be contains at results website. will The to the rather metrics this commentary presentation, company's Management's not investor presentation they will that in will specifically can the company of of many today. found on discuss the has refer Finally, that

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

our of an financial recent performance, begin, results. everyone. provide financial and I business will will Katie, then our overview you, To and good on afternoon, Dick highlights Thank provide and detail greater

and be Scott to Dick, answer I available Finally, will your questions.

our pleased with very are We quarter third results.

been ago, gross continued line Feed years scale. QX, the from We top since the bounced three the comes we strong we dip our that our and strategy, back is Plan and added Growth delivering we experienced is almost with bottom adjusted momentum working. growth began the margin demonstrated line That essence of in potential it the have

both increased increased the cycle, which We provides have drives our drives the business bottom advertising and also to a added scale created reinvest virtuous to velocity, that where in distribution, and increased line. strengthen

for also Our the pet pets who care strategy is and working them. parents for

in scratching surface lives. the food that the to firmly of provide parents their enabling tell more now keeps are food number Freshpet about differences for to million write category, pets. pet's designed X that We Pet opportunity and We healthy, us less-processed the believe to call that producing fresh, us we pet continue households, pet are change amazing growing. the makes just parents food than pet for and to

sales XX% in XX% more accounted velocity and household in big QX we in gains growth. the XX% penetration up XX% The box continued growth this of XX%, mass delivered and Nielsen-measured the consecutive eighth we was by top quarter, of XX%, of third those of had growth was XX% grocery, in grew growth quarter of particularly and generated year-over-year pet. excess behind Mega expanded growth channel, consumption consumption than line a growth in in This X growth our for year-ago and XX% growth was XX% by In excess was delivered quarter. in driven the again have top quarters QX. of strong the of strong in growth XX%. on Same-store and

our Our business, for more is up in meal main XX% of rolls, meals items of fresh-from-the-kitchen our dog was core than and quarter. and accounts the dog business which sum roasted XX% the

Our programs business fresh key our through small of services home More and e-commerce e-commerce via Instacart fridge a XX% network. X.X% Shipt in-store delivery versus accounts Prime ago and and which and than our but year with was like business, customers, includes our like growing Now went curbside for rapidly Amazon up now business. XX% FreshDirect of that

year demonstrated in quarter from scale, $XX.X significant the are where excess million, able leverage point, generate net was of the we we XX% in ago, in have $X.X a reached particularly SG&A. adjusted EBITDA we or up million inflection indicates an Adjusted we to sales that versus get growth as This EBITDA growth.

XXXX. that recall goals. We for of good X made our set will each against we objectives strategic progress You

was to Our ago our against One, a advertising Total are the versus strong buying specific we those expand progress the Freshpet increased delivered rate franchise. new consumer goals product year up penetration includes: X.XX%, as XX% penetration and very message X%. working Clearly, in quarter. gains the household and innovations household

Our core dog to up year a X.XX%. versus ago was penetration household XX%

influx was year the ago. expected, versus rate core flat of new buying buyers a the limited rapid dog As growth, which

are advertising new expect already to many price similar mature, robust. and And very there more franchise This in at consumer who we the even building whom is the very consumers so more potential users rate. to of those the data attracted growth the shows effectiveness the future see look in the we consumers As increases face of loyal a February. increases we continued buying took in our have bigger

year. addressable market We will next more on insight provide the the of growth total early

added strong of net second distribution added quarter strengthen drove that net fridges year-to-date new to into and another retail with XX,XXX. second X,XXX XXX we stores, needed bringing target new with of And to or program in half, our our continued a total our to our upgrades hit fridges another small another upgraded store QX, we medium versus count stores from Second, number with year-to-date bringing XXX large momentum or stores second quarter more of we X,XXX the XXX bringing fridge increase the started The our strong stores, presence. XXX to stores. high. the new in We ACV fridges to fridges the last first new retailers XX We total upgrades stores our to and upgrades X a to Freshpet's since stores half to XXX year. total

that growth. the Growth productivity a on that achieving level X% where evidence Feed that grew This increased our responding it or distribution TDPs where our scale growth impact as XXXX, increased grew X-plus distribution, meaningful are very since and our now also can Freshpet to increased years retailers of to have and And of is ACV a X.X is It biggest increase points, X%. intended. clear is is strong XX.X%. investment loop, drives working drives total advertising their category velocity that

our gains As in a distribution we years. result, delivering strongest several are

velocity for near dilute store want makes our Freshpet but it strong will to consumers the and that term, In consumer term, produces franchise choice. the sales it a net and gains, of the in sustained specific longer they find their easier supports broader growth, item

this are and of new early a year. queued deep and for fridges that second year opportunities pipeline have up late next distribution We

and year, annual of our this gains rate long-term ACV deliver our expect stores a upgrades should to with stores cumulative This since more net We XXX excess result last in X,XXX growth of started targets upgrade X,XXX total new year, ACV in distribution X to growth and we during X,XXX X% excess of our average of XXXX. in or of X% fridges. program TDP

in gross and adjusted points EBITDA gross margin margin Adjusted Third, adjusted the year-ago margin. up period. basis XX the strengthen was XX.X%, quarter versus

earnings QX quarter. time issues the the manufacturing the first we've of August on by issues call, part indicated have the resolved call third we As the successfully into the but of bled the

in have fully we implemented the improvement gross of labor earlier then the in and stronger, and been now full margin our remain customers' to restore our of customer deliver enabling plan, track since we depleted has continued inventories. performance much adjusted utilization increases, margin gross margins the each hired Our to on of price replenish year. as QX innovations higher our We us service including in improvement elements

schedule We QX add the our additional on start-up line for will, January. a of in however, labor XX/X in final

of that seeing Development Process talents their Midwestern Lynn of end, Quality; late August, capacity and the VP and Strategic we in we As started them new manufacturing. competitor efforts. continue already to General we develop our of advantage. Both we and top mastery of two fully announced our to Manager to the hiring We have, for Willie that level we and we intend QX, critical strive a a match expertise that is expand indicated at of difficult advantage and the are of food the Bingham, believe manufacturing very new Everett, pet in to our expansion. end benefits our technical fresh of To it make of August.

absorption in the we gained points this excluding XXX ago basis significant absorption, media, on quarter, SG&A spending. XXXX. absorption quarter a XXX ended cumulative we of delivered SG&A also a XXX versus We where points and Year-to-date, basis by increasing gains year have excluding versus adjusted points in SG&A, basis media

are track by XXX deliver the both basis of cumulative to goal We are points total on confident that our projected for XXXX. this plans and our year

scale that believe benefits accrue are beyond also additional we there We can XXXX.

investment XXX points EBITDA margin adjusted despite this points a versus to is basis basis EBITDA up up X.X% year was advertising Year-to-date, XXX higher Adjusted XX.X%, margin ago. significantly year.

the QX. in U.K. measured development margin that Canada to expect Fourth, We in and further continue grow

media Our businesses behind steady the the is was advertising that seen those made and Canadian in that the investments growth the air. each have consumption see rates investment impact behind and U.K. and the growth went with our front-loaded market U.S., We sustained progress. advertising we after off in investments consistent

increased each benefits the working it to with has awareness. is seems in now to cycle capture in are conversations of U.S. the and ways that be We virtuous worked elsewhere. in the expand for about distribution Freshpet to market That same retailers the key

potential once markets is that productivity major each laps thus capacity achieve be the consumer have we but several and it done, we've distribution we everything U.S., support both and of our And of a have that strong both in those take the to a to for in franchise. highly to will markets. contributors success have created It development the scale will experienced profitable when large around foundation business far production presence loop have of that suggests these a the we the to

capacity longer-term support expansion. build to accelerated Fifth, capability

to said single limiter demand to As with for times, Freshpet. biggest consumer keep our fast capacity we to have ability exists we growth is that add know the many enough up our the

scale food facilities real and plan in invest continually technical we why our we to pet that investing expertise both expand are is believe fresh and also in That year. competitive We this that advantage. advantage, to making and talent is a

Bethlehem on start-up construction of on is campus X.X as our Kitchens QX under and to in Freshpet XXXX The planned. track

for our a hired new in incremental geographic land our acquire that we have diversity indicated I Manager, Additionally, to next capacity development start-up and lead are will Willie create as General negotiations distribution in supply earlier, site site. already the Everett, that to at And system. of a and we

highly his of planning is the is a site year that also ground. first running of be will growth would few break manufacturing up systems assist underway. well current experienced facilities and sometime site in the our we spending in before. technical is Freshpet to kitchen the relocate developed team who has and rates, support getting Willie need off to years new Bethlehem, At over the has the past He and our full learning kitchen that him XXXX. have leader up He and once the to in started culture we ground,

announce location the kitchen of in QX of XXXX. that to expect We

is XXXX potential. summary, to going us tremendous well position our In year another and Freshpet strong for deliver to long-term be goals and will

our for opportunities priority mission foods enrich make their challenge Our our of all-natural lives people the and more planet. fully with potential their with that are and pets, parents pets right our doing realize in that fulfill pet greatest ensure so is our and relationships growth choices, ways abundant, our are for and for the and providing fresh, we that to good

out on be I At hosting you it capacity will post-XXXX Before will concert on Investor expansion time, our QX turn our that Freshpet and Day you on let lay XXXX over earnings provide XXXX, plan the with update to XX, that an we and market in with an for morning to know of February provide Dick, XXXX I outline want our guidance, we total plans, release. addressable the our goals. an update

be will invitations So save date, the and forthcoming.

Western products Additionally, that U.S. financial Europe Beck our and of have in I in September all consumer we that sure thinking the and both a wealth of announcement strategic want to late to Board. added be in and Olu saw has our brings Olu skills. experience you deep

to the Freshpet thrilled team. agreed We join has are that she

in over in to for turn more now discuss financials XXXX. our QX outlook will detail Dick to it I our

everyone. Thank afternoon, you, and Billy, good

million, This the run quarter As XXXX, is Billy puts deliver deliver greater indicated, $XX.X goal to now If were very to million keeps us as three than rate $XXX million. we in sales achievable. three million the XX% in achieve our we We our within XXXX our versus end in believe sales on of year quarter would million distance to and us our annualized the striking net $XXX in have deliver growth XX% is $XXX XXXX up that of at sales million track goal. net $XXX year-ago guidance period. $XXX for

retail in advertising our the our presence this Our innovations. product continued the result strength of strong is in the of and made strong we continued improvements earlier year, investment growth increased

investment our once repurchase growth. driver invites to single As And know, they the our you consumers of high. incredibly advertising Freshpet. try rate biggest it, is is It try the

our quarter earlier While in quarter. - expanded than investment built and both we the three year investment this made quarters, from this advertising of from we the X benefited investment in we the first made clearly the the we each less franchise in was

We We in in ran of typically invested quarter $X.X in quarter. the three, million August. the much July half second advertise early in and of don't most advertising which

we providing we And a Freshpet. the once conjunction of last gains into As our this momentum we quarter. the appeal penetration, quarter as went portion consumption significant That new have on again message increased growth year, X. back we discussed message, our particularly effective head historically, strong campaign, Letters with investment household seen advertising behind expanding advertising was the Awakenings in and the in of established is at experienced

a international seeing advertising similar are our in from We impact markets.

in for with us working U.S. the results. gives net foundation sustained the in our run is those since strong have rate front-loaded is growth both markets, the was those established and confidence advertising went next advertising in year. in also accelerated is comparable and While markets our - the the off This our model the air stores and that benefits distribution in increase sales provides

levels, of it we hard high of quarter, Our XXs quarter, we reduced growth, the added that growth between at trade inventories of to replenish lost customer year-to-date now exactly stocks. It the service same levels shipments X returned X end that two. by about contributed the year-to-date in say and the amount growth. to points believe customer-depleted the enabled and how our At matches normal has consumption out to quarter the us but end quarter, and and the inventories of is were much to our

year margin gross XXX XX two. was a the and than better bps Adjusted for up quarter bps quarter XX.X%, from ago

issues quarter three, resolved well. call, We those are and had produced As of about we scrap had production high-quality we have the But in some we we reduced did product. on operating still our a indicated in quarter we two throughput impact the part have first quarter of but our them. issues two the progress greatly in working consistently and the improvement, and opportunities quarter, We for made. feel we are good record now

gross all deliver margin quarter, That our track adjusted to we track adjusted XX% that. contributed plan year. margins on to Additionally, the in requires X, we for margin and believe we're adjusted slightly and deliver above that of a three positively deliver gross improvement are the we on quarter XX% elements in gross

full that employees the our have fourth support to in we and production. will necessary operation to forward, taking begun a already XX/X line Looking hiring January be

need employees year. three hired will we small X.X quarter Kitchens next start to of in We of portion the a also have

XXXX with picture We a will of that associated Investor it our when of plan we provide and investors the at late in with clear Day onetime costs February. our timing startup the outline

improvement versus XXX points points the media in than the $XX.X SG&A spending Adjusted XXX having was to you date. basis we of basis year-ago in SG&A year-ago spending, versus versus points ago. SG&A Media more delivered of or flat period. invested points When in XXX XX.X% have improvement the Year-to-date, of an sales, quarter improved basis net the by despite basis media year year-ago a was exclude period. XXX million

points position year deliver advertising believe of comparable to goal we of beat our by year, this the part spending virtuous our last Feed the basis will a that that is XXXX. as cycle we we essential from percentage scale in of Growth this Given next need a points us This to on be total basis absorption sales basis year final track and improvement an to will SG&A of are XXX will embedded XXX XXX meaningful of to SG&A of improvement year, Plan. our the well points benefit deliver

million, scale grow future. the we'll investments XX% time adjusted to Adjusted the period. the EBITDA part the indicator that in to EBITDA opportunities, for we from excluding of significant added a year-ago capture expand some to year. the those up expect our EBITDA we sales as we meaningful have quarter the from in foreseeable P&L leverage $X.X scale. or and benefits in a P&L excess was every our From achieved benefit incremental also ability time, million $XX from scale last since of meaningful to the generate adjusted increase but to continue showed we opportunities, good growth is to margins virtually have of This get choose net That demonstrates now scale

EBITDA adjusted greater million. we are results, delivering strong these million than provided the XXXX of at end quarter than sales including net two, the and reiterating guidance we $XXX Given greater $XX

working million X.X. Kitchens normal seasonal in variations our on and investment net year-to-date cash in of the credit repayments cover We facility our flow, our funding drew capital of $XX to

$XX invested X have $XX designed against project of our million million. year spending and those and year-to-date on projects this other our increase projects We capacity, is Kitchens X.X to capital total

operations was $XX.X year million, from Cash up million $X.X ago. a

expect to produce cash to continue flow year. operations each We positive from

operations investing their people to Freshpet. In us future strong we capability delivering growth and this our to to fulfill meet improve our is year financial conclusion, and mission for another going be the that efforts our top doing to are the continually goals, Those the sustained expand pets. line way changing help XXXX of realize financial is growth. while build will The enable benefits anticipated us to feed will

company change industry once-in-a-lifetime and our a responsibility. that a also grow to is an attract growth. helps us and opportunity we new our To opportunity need opportunity relishes, support comes With that that team employees the

and the are pets to for planet. improve for families for We working do forever. of people to lives We and it need right their the pets,

That concludes our overview.

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

[Operator Instructions].

Our of Peter from line Robert W. with question comes first Benedict the Baird.

bit, Dick, you addressed expand want bit. you of I think but little Billy, I little this one just or - a to on guys a

at greater of of did the of and have at part that the what year QX guide that guess, given just the know should number, that level guidance? something would revenue Or expecting, some of of million you be full on XQ we some back the order to kind than had number least in I Is fill $XXX you're done, take that in I in below kind you've the but that $XXX the at focused you million. if revenue position under-inventory out retailers? sell-in, in up it Just you're you the is least XQ. saying - did

of it a we from catch-up a are is first just have at in QX. products and small than bit we but inventory part bigger probably would been QX QX because And doing what fourth in their because of - QX you a the little piece. QX all, take retailers there's year, it's between we as if look Peter, from QX, not the said, huge in increase last the that's relationship quarter. down And the First, refrigerated

we business relatively at expect hairs get is close it other. splitting we in did guidance each our of to updating more than once And point. could doing to midyear. to also be this don't year any the And I them you think with this want So difference

I to you've Billy. I in that's household of buying hook - new starts It think next, about the Okay, when buying mean, the with think for that terms reflects households for household? how And back helpful, know, that Is do we persists stabilizing, kind core you don't up been I guess, to Like core you dog kind the adding rate hook that. year? spoke rate a - of do the that dog here. of dynamic the

bit you slows I the the little lot people been the But a so the recently, flat on the They're in down the see go XXs, they're using because go the so the time product rate you people more buying buying buying add growth see rate rate beyond then because when in a rate push you buying rate penetration just have the And that grows, of penetration the franchise Peter. product, when high up. or up fast. when spent - you'll higher-value that moving who are frequently. many

are seeing see we had group metric more stores continuing we - their that to would if of than that purchases. increase So open a year, a we

of very I right. think plan media assume But year, the what light that's Okay. is least as terms at the I to media you - to question capacity, you're I about least thinking mean, great. XXXX, in willing are normally my as spend guess, new how to plans, here be will just today? so you're next it's that's this All on bringing the QX, sit year. XXXX last No, spend in you the you continue generally speak in at as compare

what by - the Kitchens will to and of new able roof be online. we'll end exactly figure idea of Day at That's our on going come we the then, be come at talk under about our to to February out when we'll is capacity not yet when we're what because still online. to because do should have capacity We're a X.X, our firmer much ready trying that Investor

the Moskow with Our of Suisse. comes next Crédit Robert from question line

number if the rate there be? are single about I really public you've that the obviously it term? just how chucks should big sounds forward Billy, penetration the made How every - you longer year. X% you you've past, like low. is in or kind it Maybe very but it a medium that brought think mean, is do targeting of in

Yes.

the the you've that shows to we core in I in that track out use that that deck a number. time If X.X%. I we seen that of around the - think the the as X% rate, penetration over total there dog we investor little a household each the out put we of use dog is media tend million in it - chart how spend your in and in But have penetration penetration quarters, sort call measure together. run a And we $XXX penetration be would is that I higher, range. And core deck the show put theoretical at measure

biggest us. frankly, opportunity the that's for But

them household just so add it rate the small, consumers ability is significant to getting correlation is our continues we advertising The - to to the number see. gains to said, stronger. incredibly spend actually at and points penetration you As that an of rapid grow, and opportunity

just best indicator single And see so single being biggest is long-term of driver our - that the potential. growth that the we and opportunity

we'll will talk about end the that that Day and one provide February, When we what our we the an market, total is key of is Investor addressable on at metrics will potential. the update of have be

delivery, dog that. that, have? I've expect Maybe lot you penetration more food brands you as think that in your There's home for do And competitor? looks like sense to do but your primary of continues a yours. Or of a brick-and-mortar follow-up a is than fresh talked you is of kind a advertising you've you it - have what think like one. competing competition noticed more do probably evolve? And rate about those that this past, it's lot the to

way look total of is a Rob, so groceries bit X% the that their to the and fresh fresh you the people be like their and of the click they do sales buy are that know way being Today, picks into somewhere way is now seeing fresh pet about think fresh future this through or - doing they're companies food, the We primary will done way food. X% buy and we frozen, between kind vehicles. at that online of most handful and if focusing doing are for more. what and out see how a obviously easier very eye of see the are to that. it's We're couple and interested and some evaluation people close growing that's other of do it kind evaluate We'll quickly. interesting. from to new our continue little on even own direct-to-consumer testing vehicles people a standpoint a - that but making in We've keeping it and very years. over plays it's if now, small, next of Right done

more that But it maybe is premium to you Day. to. itself Okay. I mean, but would if of yours, positioned me very for even Investor well extend could even in looks you chose than mean, food it as type arena positioned. the Yes, I right. premium All the that seem

comes SunTrust Humphrey. Bill the Our next line question of Robinson Chappell from from

you changing little whole of especially a really And you as And the and starting this it then the about year? next this to driven seems pricing pricing look of sales category talk that's last time bit like category. you growth you sizable both both Do you for quarter back see you took Can mean, Just kind products? to start you year, do that, rolling just you of you see pricing? incremental some outlook with the what gaps see lap pricing? I the whole price taking category. and we see Do your as the

We We a greatly consumers. the mainly talk it increase, think we year, move velocity. about accepted really we and we're this effectively more potential doing of were took encouraged kind price saw our thinking. impact the time very Earlier I'll by demonstrates the And maybe what that. through Well, pass it and on pricing. we over Retailers we're no able consumers business to price were to and of small increase. to

organization make our as is and widely as We an said, people and as are grow to as have we and being possibly want possible. by can. the as as to consumed That continue many as products often goal penetration fast picked up sure that increase to we available

So as we possibly want to keep our low we pricing can. as

seeing So cost is. our pricing keep where goal we're is it our significant unless pressures, to really

the will pricing do that time, from on don't We future see put very that and very, when be strategic in will we'll items, It targeted input - specific take typically what modest pricing low continue over ingredients. But we very a increases. very foresee of we we're or and and seeing pricing kind near to costs it significant in take cadence. be from will any

it. on rolls. the did growth better be seems bags give two maybe idea to difference you terms color of an so more kind a kind Got big understanding of narrow, of margins. between as online, versus versus on any ex is could that's you then the on channel, And And growth would starting it those the did great. of having that? not And little in like a impact But just specialty also, how or mix, of us

to on gap a than We're that's kind of specialty a impact about their So And grain-free seeing on is what and seeing we're had traffic it planned a It's down X%. XX% DCM on. we're us year. them be and little increase increase. touches as that's bit, Nielsen seen channel, - about data, going less continues a of bit into little a XX% going basis, overall minus pet we've for the Freshpet. the trend it. of from been component we of We This a believe this little believe what there. off even We that

but in keep other about faster grow XX% incredibly fast, we definitely in we'd mind sales. been like it's segments than we've some growing is of able that channels. of growth to Obviously, impacted our rates all it great specialty want total us, have - pet but to Yes, the

bags margin was our without rolls a are quarter facility, in last standpoint, bags over there are it point rolls. the will you kind run and our bags business. a When period a rolls, strong interesting. or into on this really margin-neutral From outgrowing But on of a Depending had be now it's slightly get and rolls have year, bags the growing the margin-dilutive. basically time new bag period, - seen so. where We've into our moving at bags

we to will year, pricing transition consumers take on of kind future our from bag When see bags in be to the pricing focused business in last kind order the rolls. we if do we and took of margin-neutral and it may make

the of Our with Co. Davidson next comes from question Holland D.A. Brian line &

forecasting household on step-down math about by in in Year-over-year the growth I given faster QX the Xx versus spend than half. question second First was accelerated media my penetration. in QX

anything so if guys there's in I'm if And internally. and up was spoken there's so I QX, Billy, we've ramp just cadence in curious spend know you media curious anything of what there's that were penetration you're some far - if the when the QX. once if else maybe even in bit I'm don't of there - of a Or fell than there, with in, I if effect number in, seeing word as little and forecasting level effect that get it's higher brand household to multiplying spend know from came about anything carryover you're seeing mouth awareness. you as

Brian, the with three QX there end Clearly, we we had, the the end all that would had household to I with year. is that factors quite play. gain media we're of penetration the household there way several the helped a factors this number very we're us June say happy one Factor very involved. bit. and that are happy up are we ran penetration at gain of at also

cadence a was happened QX, in our on effect then that come there normal So had QX. into and carryover

QX. bit a media of from had to QX in a benefit little longer we the help running So

The second thing we that new had is message. the

we So Awakening, on a air, of about consider of and campaign our doubt had X/X a bit little created a X this quarter. the they start we call benefit more of That as or through as seed messages quarter, for until then well and why the the what people helped should way food. that halfway of end in Freshpet which at the got second again quarter we quite bit. That didn't airing Letters

week June. you in weekly of particularly we biggest had our it third third issue the a QX, was or the on That's look pronounced most And second issue. in if at is basis where out-of-stock thing the

of then be QX. household could the penetration in we to as the we going much gaining as weren't as availability we restored So

with right with growth very the fully about is what now ran distribution, household very bullish in household right So incredibly makes that's think we in this we worked it's have incredibly advertising significant. products a right message we quarter, available, the penetration is and compelling the with stock, the for message, the penetration potential upside us the of And for well us. business

guidance a of you That's Last for of color. point, me. like year. there. in EBITDA fair reiterated margin you'd The came helpful number, QX. have cushion through of mindful the beat gross the It amount this magnitude Dick with at the for guidance one seems the that stuck

front know Is to want know there the of anything on the But I should staff QX the EBITDA? that don't down here. mindful and you've on I ramp of just in adding last so that's make I So of talked we - in if step check sure. in double about might be line, a anything factor the January

we're year comp time we at And in against versus are incentive as budget. can million internal accrue a EBITDA where point in adjusted We $XX see, the our you on $XX approximately the million based guidance.

recorded. to incentive more to yet today greater reconciliation of we are in the and on that's be fourth one a that elements quarter So is fair a where have we amount between comp $XX the than of million. accrue And

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

encouraging really revenue to really, remains quarter, see growth robust. strong a on that Congrats

there. revenue. you numbers margin about didn't there a increasingly sort bit advertising the comments your next for the in I media terms strong you XXXX about even lot for already out of - correlation EBITDA emphasizing your penetration some of the I heard a you to I or spend talking talk though between heard about listened target prepared you plans I talk some talk year, your and are XXXX. off And As about or penetration. I the you've hear a growth. and not hear call, lot put But about Q&A, you really leverage or of unlike last back

EBITDA pause there whether continue as not sort you're me has of step - want also or put investment XXXX reasonable of amount the me that and back to year. a question gives rethinking It next interpretation? anything to you Is rethink business and you is that into the

all, that potential start February, related the to the be change biggest other anything at in at First what want XXXX, we out having or guide we not or said But what we beyond single for business trying And get past. closer that - to lay will of way for of as we've what the to nothing we bigger. looking looks the but are the one seeing us is to we're XXXX, like, of is barrier mindful and in we're opportunity XXXX and deliberately everybody to is layout that the end capacity. this opportunity that guidance fulfilling getting that

demand. started the need grow We've be continue because us we got we very XXXX for as becomes to and that get to fulfill capacity tricky up to it able online. quickly, a year to bring

can use glide trying is put tricky media big as how the XXXX, of glide successful balancing we're as much into thinking on media, to capacity. be - you to trying term, year. as the and we're you in about that that so the to air build So the when And sort you that do we're business

year, no that the the there's the interested. we get to have of end we doubt have know capacity the we is consumer that online, tools. But We when and you know

bringing to capacity XXXX capacity don't need make Freshpet. to outstrip to tricky the of It's with we the those the that fulfill We making. to will marketing just heavily XXXX invest and we're of very that going one be we're beyond on continue potential sure is investment years where

you substantially capacity $XXX million Am would be to for that? Billy, roughly enough had I million target. revenue, $XXX I fulfill your of which thought above off-base

is bag - And million business we'll folks have. of bags it's growing in capacity about capacity. have The for - talked what is us out on we've that previous the it rolls issue We out of we we has before depends as told but nicely. quite that run for mix, question, in biggest the run capacity capacity been we $XXX about

we of we So rolls make or line to run come six capacity. before on. sure We'll we get the bags, out capacity that probably of bag so months out the those to need run

is the bags So the total it's the driver. on a That's the of the capacity not - what lines. capacity what is, facility important

appreciate context. That's helpful. I that. great that's And

question & comes Rupesh next the line Our Parikh with Co. from of Oppenheimer

XXXX, for you at, you And I have fridges curious it's in look for So if next reads we early are like what the was as obviously, any a in constraint then, guess, capacity year? of looking at XXXX. I terms

managing you're also to a use as was through fridges I year. So capacity if curious next lever potentially for going and

So strong really growing fridges and we've a had year our ACV. adding year, this obviously

use that our back of are by the and sure We'll advertising advertising produce. our encouraged the be able forth end that to can product we much kind this every definitely year using start The drive we and probably of that are start to lever move of to kind make to point. year as of really goal revenue We of is lever make back the move and sure at this next to selling and the we of as driving revenue growth. as kind possibly a as can to we the forth are a

manage aren't pull do Yes, won't to use would advertising the that. going on we we a to - lever capacity, fridges the we as back to

XXXX innovation your have versus great. Okay, on Billy, expectations. curious far how played front, your then innovations out so And the just

we contributed of in look we're them exact They're the - had quite We a total done lighter that they to a We that SKUs this innovation. anticipated. year. well actually at kind year. of so of We have They've happy. this brought and at really market we were X cannibalization, little net rate

much I really innovation growth over to to our we've have as that component enable the the mean, core they will us year, consumers time. to very This innovation we a probably then quite use And into tool that of to past as attract well. innovation next delivered past, in but new franchise. had has we're in quite like continue enthusiastic didn't handful items a as have about new 'XX, year, we been a

pieces. those taking to away of And business. We core bring that our don't the space from just those innovation just of recognize tenets sells it's we're fridge, It's very one bring We kind of often. of key ourselves, one innovation. that

as we of coming are do goals want enough to innovation have fridges as we possible. space that to with that utilize third as that we is effectively in retailers One the sure and some make second even

comes question from the line Astrachan next from Stifel. Our of Mark

bit of mentioned in broader maybe I talk about mixer, penetration bit consumers, a a context despite bucket the the dogs. rate the about And the visitors that buying of guess, first, as commentary rate increase before the buying the each the for could percent sales. loyal, of a amongst you percentage core talk was about flat

bit mixer. larger as there's a more great dogs smaller So on size and being what us more a and is loyal buying using see dogs dog the see typically rate. we attendance people a with We as little much

- things to One on not more order next kind a to in coming but working targeted to that to us see innovation over you'll us think of large only dogs dogs. innovation little even that's an We also the is the for years an opportunity couple of small from standpoint of us.

size. dog we've by rates think talked actually buying don't I about specific

buying the from think something about I we are, dogs the next in motivated what the the over rate it's the are, lot but However, dog something, several and of of future who better they're the are. presentation. only will a even the who we of talk what a February about that by not done that. and around in makeup opportunity, rates work probably know their growth the the and the potential as penetration investor they it's We've organization we years, household have graphics, we share And consumers who

in more a into frame, time February that Mark. around we'll So lot get that detail probably

I'd patient that. you So me be ask on to with

question. Okay. then different Maybe a asking

what So of current buyers the end Freshpet percent at loyal, the at rate least or what's and XQ? repeat today of are

to repeat the refer typically We rates.

rate XX% rate. businesses, - and this packaged goes interesting. down. a is you when have very goods, drive So repeat most we we we your In consumers goods so have repeat In new - packaged in, most

We quite dynamic. that have interesting. seen been never It's actually

loyalty. within on strong buy of So we X will that XX% means the us see year, do more or Freshpet typically And repeat that people a times.

of We them that we we their time; they moving of do consumers only exclusively after buying actually continue and followed to mixing see buying year. over at people be all pet we they over to the may food. kind those more time, have more follow be buy They and more as year the us When product groups the time. way may through

- as think It's XX% I of data is about And older, of that every are behind we you. number acquirers past, the the I we are our of data see an numbers dollars. total - our year number half yes, some that a average buyers is and and probably shared half buying some have of is currently. grow that I'm we tell our increase in will our sorry, about the in we've rate, buyers That they we XX% of spent past our represent shared of $XXX.

that look detailed the too we you'll and at don't a we it the it's at We basis. will fine question, update Yes, Because, a then. versions. have sort cut. it to update the February, on of have Investor quarterly when quarterly share more data basis we'll because the look your more updated we just Mark, But a of total Day segments on in a each

Got it.

then based a your half, half Okay. stronger online looking outlook you're comes sooner. commentary, at capacity second on year, would like getting unless first much for on seem numbers, than without it into next the And specific

guess business? then spend you like you're right, spending about on but how into do can you on a you the is, get split capacity, rough I question that just in is ability secondly, case to And gives What the as sales, first So back versus "glide" half it it B, you and flexibility the sound think reaccelerate comfort maybe A, the is turn can't plan online that? there sales if doesn't second do you to less to half anticipate?

want leave our any definitely to back that I Mark, impression really to next off don't year. significantly the with spend we're going during period So anyone

that and We do advertising, there's has component of are very that a component high we have advertising fortunate a the the or components flexibility. -

C the shared. are kind from and And we that really kind are obviously volume there's B, we that capacity numbers - longer-term a the or year we alternative a plan through of we have of There objectives plan in very do can So may plans standpoint what standpoint. confident depending from our implement a be. have many even on we've a basically

you're you're seen unless So look of maybe it far and media to year in maybe consistent of when good kind spend going even the up year, and going seeing end you've to at think the as ahead our this year, a so you game, next throughout example. spends that we're very see -

we've the a You slightly is use little bit in see spends past. off back as And may fairly of those done consistent a spends advertising we of we've - that and ahead the way if throttle. some we're that of game,

between And I volume is is connection for want to reinforce us. advertising One tight X the spend incredibly points. and

plan. of under that capacity, going to the a gives to about we it how roof matches good we a and it ability that know very really have is base with when looks we the we plant plan us make lot once before we that to make sure know concrete the and we spending. up, like, So that we going But we're come that running, steel have in feel we and And up what want determination. lay up a have idea

taken the second our going a need able that we facility the by very get that. in able drives we've which that's steel weather We and to the X up on do be running. and of be making good we are to process. up we'll is can see we'll months, point, out who And progress. confident Anybody next the know of that risk in just feel to lot that Bethlehem, And

Got Scott. it. follow-up And one just then,

capacity comment, little confused. then a year? I'm your next mean a does constraint bit there So plan isn't B, that C necessarily

put we will would more that done than flexibility have place allow a we in We constraint. capacity high-end some if us a little there's plan that. had bit to not Obviously,

for And working we've on comes comes is It so months little that - mentioned a a what down at I to a where more bit put will over and which X it this X bag plan of months, maybe us have been have we little Billy give we've to done think flexibility the in, up to kind B all earlier. down availability bit point. capacity. And to bag really mix more issue

us And a used in is facility later earlier make Bill we've very This number to in that's then ability much have it's didn't the do affords cautious on been But kind that. position. term of be the to What - up thoughtful the the to have us flexible of we want kind and the not around for come - rushing more have capacity and year, the glide. put year.

a to glide would and have we able to cadence to a kind call plan even be throughout more able what if been good much really it's year. think for next I I'll We're the to growth year we have have B. term going than didn't the of

Jon of Our comes next with the from William Andersen question line Blair.

couple been have quick questions of my and answered. of Maybe asked a ones. Most

messaging? It's And Just different? rate? more. bit to that trying mentioned between the little and On a Letter. just the talk you other drive new intent a about buy the advertising campaigns, penetration campaigns, campaign you to Could is difference drive household to Awakenings. One the the relatively X understand to those relative

Yes.

and an purchasing. is sure So product incredible of day is product. use advertising to and want penetration. the focus advertising out on we help driving make of day experience buy having consumer our - or We don't someone's eventually awareness all that the in our our to very, repeat very then encourage And rate focused we really on

penetration. benefit piece, the people and work So a we've delivering really food, as goal company past. to obviously message Freshpet on in different benefits the educate than The We're the have spend food, to the of the to Freshpet a Freshpet we slightly driven the advertising done. back on the the is focus is

amazing is done received no incredible little business really of we nice that that from we kind them bringing consumers. a on as modern-day process them as letters campaign job product a and this have been keep standpoint market, a from them a Letters had as really about And use which we pasteurize that seen testimonial fresher, formulation thing concept thought we pretty The we is with possible, to and have were that's refrigerated is brought results. preservatives. to people less-processed ingredients, The market,

pretty So on our have inspired today, terrific. It's and results they about in And website X,XXX the amazing. hear the we testimonials that's actually come And are we unsolicited. first over really campaign.

for why felt we they tried food more where we healthier food. fresher, fresher, do food be now a do pet pets. around food could ideology the natural you wouldn't communication. to lessX-processed eat and And messaging what for at and an were round and feed eat about pets out And diet. our and they to to is we We something formulated or opportunity also we Obviously, people need thoughtful them, our less-processed get our how the but similar

be the get to in worked interest around what is their it Freshpet we their code does we their gets pet Awakening. in spot And and times it break had food. people why might is reassess And to and we So pet. maybe current of what trying better food many to on where just concept thoughtful were second food it the pique be really to we're it people finally Freshpet actually able call that for -

on good different advertising well received. really incredibly to our and It We closely, message. be results very check slightly seeing it. a seems it's So we're

business now is grow year for and Freshpet that. investment, or we're to to incredible time the than payback of of in really advertising so the I it optimize, provides interest of think, food. there advantage think level the Our less in over a proud - out continues provide opportunities - our take We

longer-term achieving Are Last markets helpful. I important maybe Europe? you appreciate the that aware you other goals you local such in should for of international talk And you - be is considering over kind we principally there be in how as international, those to make your of it. can you Canada is it really on the capacity may serve is me, That's for it about markets? - in I growing one large to predicated mean, that Continental time investments any And may U.K. and business?

Yes.

beyond think are as we U.S.-based all our as our XXXX, metrics. First of our prospects and guidance, going of fundamentally greatest dog be built core, the to provided food about we that XXXX gave all, we best original where and we the guidance strength off when have business the

U.K. say it bulk that and that's to essence, do, we lead and take first-mover But in grab. But the a we in we think would once-in-a-lifetime the that advantage also done have And position where our a that land very we so to of of I that's opportunity our a way. do responsible believe have we We guidance. want Canada in and

next. out the and figure market We continent been on would said have come to what prospecting previous in quarters, we've been, this

to about that We're all each investment disciplined works that works, we it and going that we have and then done together U.K., where and But then model will Canada we all going cycle as of validate put build validate up. and begin to continually very it and we're be ramp it. together the component model the in the the

folks situation pleased we've got. with we've investment upon did and very first the at markets, we of we of and every advantage we're have It's a But intention those and working years this we to expand year the that mover intended, we results told have results As year next point, the where contemplate working. as this beyond. fortunate model have is to will now the this got. we taking feel those how very year, in We make an

out local of which our getting right we is are. capacity beyond the on be fairly we've facility number is focus would mentioned would support that of sizable now growth a incremental to squarely years And X.X radar terms through remarks the where In in And Kitchens as significant and prepared expectation, next our our able running. then I be that capacity, up next facility said the before, screen. today a

enough need build like that's focus. in not So to big long business our the on term, in for capacity if Eventually, there, our anything and but local a you'd isn't currency the Europe you near-term horizon. source ingredients, local in

source that future. is focus markets Our the those U.S. to out foreseeable - of for the

next And our Bell question comes Edge Research. Consumer of from Ryan the with line

deal second the do the good strong for don't second of room capacity there to opportunity bridge seems the is Is So support It to just where, first about We of like updated heuristic point see ability the of within a to fridge a continue to velocities fridges? I presence was a the there's growth. or there in the think aside, How turns that fridges decision? second expand grow number. growth we wondering, the say, think about an U.S.?

I'm tiny memory So people first down for there say years small for trip fridge. we a lane take first ago, to a room - many would going to started when wasn't here If a second.

well high-XXs we're hurdle. are hurdle large, out. the thing fridges. over think time over small think the going fridges full-sized - very us door really, the XX-something over fridges people few that I really There's percent that's very, And into are going out of that over where like now now, the gotten I

only seeing sales, velocity not and in So velocity, seeing everyone I year in fridges have we're our have have, to but is fridge year, where increase And growth our single actually leaders will third some year of this we're a double-digit even thought continue one put as think time, large kind in if every they'll same-store over - after locations. velocity, leaders second fridge. then we're we able to

we more feel confident. So more really and

fridge this a - of business and to need that And enormous, to the I the right see in think we'll we're that number. is number. day going build third every potential second that fridge even situations,

confident appropriate large addressable is having we We folks - updated just new not come of multiple has market remind very a we And that the investment an good we is when update in reasonable store is. thing, total fridge do then. we feel time and was having and and and period like I'd We addressable say Day, us a when view but the fridges one since over both folks, market lot the a for provide happened you'll of in our a the XXXX, last on feel retailer. time a what Investor that

makes I ask sense. more. And one That if could

have are that the your With up pet And in your premium of might to any what competitive dynamics really competition in heating difference maintain category the thoughts you impact food side ability the category, moat? the you? the about overall noticed

rate it progress. - proud is So billion the of call growth we're, incredibly million proud our But our we're in rate. we're reality a of $XX category. run a $XXX We're like

we we're we recognize potential So has It's that to to and long-term go and so - very challenging more a have develop. more get forward. we been - have much business kind very to This very, of into. today

capital they think potentially fridges, I I in fairly effort. think at presentations but our over expenditure, think it's to and opportunity supply development talked We to it. chain, the and would that a heroic for many returns that investment We about for there's you time. of make someone it's enter name some it's it's manufacturing, enormous near-term hard Whether see. point, some they of I them the challenging. think see people And

some know else don't will ourselves the where about we We more day not think really and to may purchase as many more thinking point, thing we with we purchase. business there more look that at show or similar. and it an someone mainstream, like, So that and that's is nice we're we're has competing an as become that have and every be Today, we products premiumization very business up. make are may someone and challenge what sure developing a the been

retailers that's So the we play the category. actually are in been that time. comfortable us with I getting more help role a over to think And

lot us, a of we're there's But So long-term where work the obviously there's more a hopefully, in fridges we that for potential land a partnership. hard is great us, good and it's it's Freshpet to what there. sure developing in very to and make out tremendous we addition retailers, think front

back queue. call remarks. for are questions the hand the further There to management no in to like closing I'd

I'd thought. and very much you you "If attention. give interest think very dog Freshpet you try "And of for your you they will once said, Will three putting can't time, dogs count, try much. think in pocket Thank I them," Thank then skipping to with tell Rogers a one two and can't you if your leave mealtime." give add, him only which biscuits

today's does gentlemen, participation. Ladies Thank this teleconference. for your you and conclude

time, a You day. this have wonderful at and your may lines disconnect