Freshpet (FRPT) 13 Aug 222022 Q2 Earnings call transcript

Greetings, and welcome to Freshpet’s Second Quarter 2022 Earnings Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jeff Sonnek, Investor Relations at ICR. Thank you.

You may begin.

you. Thank welcome Quarter and and Earnings Freshpet’s Webcast. to afternoon, XXXX Second Call Good are Executive Cyr, Pomerantz, today’s Billy On call Chief Officer. Chief Officer; Financial Heather and Scott available also Officer, Morris, Q&A. be Chief Operating for will

to to remember Form we to XX-K make and expressed or materially and securities in materially beliefs current release discussion forward-looking refer may within differ press laws. a today’s from any that on company’s Before implied statements detailed non-GAAP statements actual today. will made that EBITDA, please management during course forward-looking on with to could others. results based adjusted filed measures call, Please forward-looking the of of of statements. that meaning the described risks and certain the expectations could are Please those financial and differ uncertainties in the annual the today EBITDA, cause as among the call, These that report company’s note involve management this for SEC federal results those from issued management’s begin, risks on statements the these actual such refer cause

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

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

The economic expansion. you Thank that long-term take in unwelcomed have and derailed our everyone. from afternoon, you, Jeff, slowdown, away not margin and our significant I call results good in challenges which today’s ability to inflation is resulted volatility our would to goals, have the of message including dual like deliver

this first, that, is price with has growth will accelerated net with expectations, are penetration our consistent During in household call, goals. learn and in and our modest more line and with is strong long-term sales and growing also line our you sensitivity expectations

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due Second, we June. quality was quarter in adjusted media and investment below the had EBITDA to challenges issue logistics the expectations inflation, timing, in

We adjust have to the issues, critical the third including for already necessary taken a increase. announcing actions price

of our from issue to the adjusted quality inflation and timing us guidance year the However, new $XX on the $XX our lower pricing cost require EBITDA the million to million. for gap versus

of the estimate our timing and with various addition to actual our best capacity projects. Third, reflect expansion our we will updating are we expectations current CapEx experience fridge

opportunities in room of this have spend of initial approximately But expect impact sound. underlying previously $XXX minimal flexibility. deeply missteps, and are the Freshpet that through million million we growth and significant not margin rates X year the structure on Despite we the projected. CPG above sector. broader admitted And and and projected. litany or new of ample health underlying give more were fourth, conservative and at the its the we space, that capacity year, than be growth potential remains the to leave we had will to Our the The the that than our estimates designed both still available now believe remains us obstacles we grow halfway business greater own if our very the $XX will much best less visibility consumer the

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the I I over facility the call in also Freshpet guidance the how on QX of our a recession. discuss want comment turn to the make for perform Ennis we think to Heather planned year, results start-up to and will Before a the and

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production to with highest to in be increase quality even significant business. is our the most facility capacity, to it larger sustainable, cost-efficient, support and most designed addition In an grow room

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business. the Turning impact potential recession to on a of the

I perform is recession. food food pet recession-resistant well safe in and is that should History has X is grown say number stop the most of to each in of the Freshpet businesses dogs think unlikely a very it consistently a to shown a and category are as the that pet of brand years. through of XX their the as past eating consumers pet recessions households has

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the the highlights to over quarter. to take me let Now Heather you it turn through of

had will quarter, good of with Thank you, Billy, adjusted net line below EBITDA but was strong the the was itself and afternoon, expectations. of our We everyone. spend meaningful sales our in in by year-end. and timing guidance, correct A portion this shortfall marketing

the Some the issue of quarter. due in it quality was we had the to cost of

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pricing. to our due which And exceeded some inflation was that for of it are plan we taking incremental and

growth this that consumption ago. growth sales the was period size measured Let what and time. XX% $XXX up between rate year me take pricing Nielsen the sales net XX%. consisted refill The we The versus Net up year you XX XX.X% rate measured a growth. of consumption were versus a difference piece ago and occurred in of year. is unit through points approximately Nielsen each growth the in at the of million in the quarter, inventory did the growth element trade quarter X rate

X pricing in about represents full with CPG is growth months other have modest of pricing While line and only this growth our to we price in balance effect, compared expectations between still sensitivity with businesses. very unit data and

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ago. weeks, a by the Over has versus XX% increased XX our year past penetration household

reporting our it that franchise previously Nielsen now is is indicated, and had the size quickly. Billy reported, than larger growing we is of more As consumer

have support when consumer to foot get downturn with net did have patterns in but prices to in this average would from consumption a that July penetration Our and a hit defer retailers and also of or been feedback growth $X, summer established the gains in is gas seem we see data those we as in August. we gains. patterns traffic are in seeing seasonal flat sales that. as note but interesting consumers seeing gas line during resuming a household trips consumption the we in are penetration pre-pandemic and late consumption back strong June, retail shipments prices with have again. strong the on going impact months era, as QX our seasonal due both We are year June, feeding saw the to the dropping household bounce did modest then a and consolidate national in It That are in

expect this lifestyle. We see that to This consumers normalized to that pre-pandemic returned again more have year. suggests

period. You business. steady volatility performance of last in X-year of this Freshpet and and X which can compares growth the compared rate growth years rate smooth reinforcing to by XXXX the the extremely consistent, the when chart the accompanying That on growth stacked week helps shows to see presentation, the is our the pre-pandemic our strong

retailers to in We fridges. placing interest from get continue strong Freshpet additional

of running budget holding into before now are in power. fridges. they space increase focus some of placement waiting retailers the to our towards issues us we both sets come will of upgrades this increase Many the happening, replace highest for a are That multi-fridge some third necessary for That sections are supply over Those of that strong accommodate less into we they the will been can year. stores deliver net that retailers number installations existing fridges launches so assortment will that multi-fridge have improve stores on turned has Freshpet. light next and will and and very the of upgrades labor focus the many in the issues labor renovations of volume but second, Our year, the planning by pet second the bigger likely expand push retailers that and either on or those and in of bit year, more fridges because next major so half be can but deferred in managed retailer result require prevent year is quite food a their within many first those budget. new significant likely to will the

Based quarter, almost the a price this the below XX% quarter sell from our given up is It does spending the issues. retail and sensitivity We Adjusted our gross next has most This the to the expected with the magnitude million. through marketing timing this year. our year-to-date. sensitive the the strategy is we very for incremental household $XX we the unit bullish not QX investment The that for in the reflected of the margin at when price the coming were or had about XX was penetration that gains was help into Part timing our limited shortfall to XX.X% XX.X% that increase this generated was increase us of of in on price simply the $X.X was pleased quality to follows, and in at produce price was mid-March, This months the feeling and in expectations. EBITDA prospects effect with over in we investment sequentially improvement so. XX.X% consumers the made million adjustment. encountered. which are quarter adjusted we reflect All to not but movement went increase.

some adjusted processing anticipated. However, well well affected to be higher. cost suppliers that about labor to natural have Further, as in set when well The had when some We points recently, very we was estimated for above related we been But gas inflation of lab we was And costs, increases got cost the for into budget work approximately to transportation balance while has gross and much underlying and additional than year. it our and moderated basis diesel products production XX.X% small. retrieved at and testing initial year. gave issue, the some you the energy cost bigger the market experienced of is due it expect and continue amount of input still the cost excess in supplemental would and at the the those XXX exclude our was or mainly product to our this guidance. of costs, disposals diesel increased of as beginning the our them where the is when margin

more margins third much is be Our face XXXX. and much of of late as increase, effect pricing the we year to ourselves to into a position balanced goes expect we will which the with in end designed and and X.X% enter set September, in costs, costs with our stronger price margins protect higher and those

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freight have the of indication have may that be encouraged begins impact potential we benefit the rate Diesel have a might Spot be mild This a quarter. peaking and been dropped the and hearing past if we early X cost that suggest inflation third gotten get we significantly moderating. are cost emerging slowdown the We since in trends some in over recession. of us most have result the an declined the about have in months, we may costs rates economic reduction by that mid-June. materials that

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have We the quarter total achieved quarter the points the our during number history strong, in of position us highest retail performance production and availability. Our which better maintained puts them. in the with a in during quarter, increasing throughput on distribution much was

an As Billy to has a indicated, up real strength. being labor be issue for in gone us for

our costs, have significant turnover increased diesel the million lane and drove dropped QX. the $X.X we rates We the training of of now we diesel also higher cost June lean recruits, in since This to incremental products more pronounced to productivity. and by the and in reductions return quarter. including in issue costs, and the much Diesel soared prices invested then, cost most in new $X.XX to normal warehouse of rates, seeing higher when approximately up and segregate successfully talent considerably Logistics costs in was their needed including logistics quality are our those warehousing starting and in have incurred Dallas. should affected and warehousing,

to inventory intended. us as had inability our our start Additionally, filling from tool we up allocation trucks prevented

fill While to $X inability order rate improve, natural continued to completely million. trucks us our our fill about cost

this bulk expect as rate have rates continue continue to the allocation our fill naturally. but of inventory we improve later turned our will improving year, to the get benefit to our We tool on fill hope and

For perspective, our most was growing. fill recent XX% and rate over week

points, we are leverage quarter deliver the by continuing million. as our it our requires. totaled as XXX has that sales plan We to net dropped year along. continue improve of goes a Year-to-date, in Capital SG&A in SG&A percent benefits basis the $XX and believe will spending to the

expansion, less previously efficiencies CapEx this be expecting delay the projected. are capacity instead maintenance in we $XX total spending we million noted, and in adjustments projects will our million both free Billy CapEx multi-fridge year’s As to on approximately about and million larger $XXX $XXX timing The cash. of up the

planned We our deliver to instead some do push year, plans capacity but expecting still push back of XXXX spending need also same into previously are increase year’s will the back can later. and or will not so for delays We for the and CapEx additional CapEx, next the fridge next expansion this without the the and say worked I’m flow million, through And which those invoicing inflated end. to levels, we reporting that cash inventory which the were Operating in and in ERP issues inventory delays quarters was our system. the by of quarter used new first the challenges some pleased second equity. X since receivables driven in was $XX.X result

and to our million in gross That various second facilities need on our by to significant by the end in we credit due our hold We of Dallas. product drew $XX At of and part of which the the quarter. $XXX subject was addressing women. QX. the a inventory large improvement the the are had issues, in quarter, start-up to on borrowing center We line, of distribution in availability offset is have see in to amount part also expect caused the quality a issue million

continue Looking our for track forward, are net to we sales the on year. for guidance believe we

year-on-year net net our we to XX% sales are QX comfortable date. comparison, feel achieve up the was toughest year. Our guidance could for sales our but we that

adjusted the to effect. underlying In We us a $XX are than undoubtedly very are and inflation have EBITDA the rapid have adjusted incurring built account but and is we to enabled our lowering greater our guidance the million EBITDA growth, about optimistic guidance from our to also incremental heard going this quality Thus, and strength we are closing, continue the our from pricing others, have time, lowering of infrastructure for brand into as cost are greater the issue than Freshpet you the the of turbulent million. $XX and future. prior increased to and capability we us organizational we

continue short-term we our each to this pursue experience long-term and as of them, we significant, they we become learn less goals. from hiccups, and makes While stronger us

by pets are goal. believe We concludes to on their forever, motivated That and that overview. we the delivering mission notice change way track our people our to we are

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

Wissink question from Instructions] first Jefferies. with line Steph [Operator the Our comes of

second of how related expect both maybe EBITDA If to on time talk already account would revision to it’s like come? year? spend in the what’s to versus us resolved to already for balance is still has of already to deferral mismatch I occurred just And of And the think EBITDA of about more been occurred settle I if along Slide the also versus but year. I yet much revision. help much the the a the overall much come CapEx to the and you that what Billy, the for at in just on this, burden terms lines, X, you down in and same Heather could timing little what’s the break bit do look how that that, quarter bridge, the how then

Heather, do to that? you want take

So of guide. the -- course, with, on EBITDA I’ll the start

$X So $X.X the reduction issue quality is million. The is approximately million.

in question? incurred of the of maximum] the one half. time that about balance June. So the the the million of second that occurred [missed with has inflation and comes balance has change $X course, in from can the CapEx the already expectation state Steph, The already of price more first half, just in that versus you coming

Yes.

Just how occurred versus yet the much to CapEx. lower occur. already wondering in is revision much that of has how I’m

the below? the is quarter, also in realized back in it of year in the all the left be the meaning come for revision of CapEx below, So is the did Or to deferral what’s half?

Yes. Yes. it. Got

around portion second half around the and a phasing first then that second is in So biggest of of of the main second innovation of driver half. about the shift -- kitchen. is it we’ll the in That’s already the the the occurred reductions half the balance in driver the have of spend The shift X/X half.

Okay.

kitchen So event? that a going be innovation now XXXX is to

the will Most but second small of there’ll a That’s half, spend be correct. in majority in the it. Yes, be XXXX.

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

the we it around next First the sense the a question, be year? should for think just think can you and year? the costs And maybe expenses first sense we should What $XX in what full us of look for start-up could there million expect what launch were year? just give like should a half. plant I about for full

Sure.

now, second So with Peter, for a -- first is to the first well, for the in half. QX. sharp half we’ll But provide be issued very all, is the that assumption we the revised view of largely the when best going line clarity

start largely costs, sort to you expect, there going What as So with it. you course, then, double of would back you up. of on have we you could starting up, start-up in as up we But adding QX. Ennis have increase the is then in stopped ramp

the that cost anyway. sort And come there’s structure the cost have costs into increased by would offset so of

of we start the we mean revised Phase line some when in that’s expect. it’s -- we last plan starting of year, up. But next provide I you less main have year, year At that next have have we that start-up. -- X a next will Ennis we’ll start-up exactly the For again, point phasing to up. should for

is Ennis It’s really that next given operational. adding X impact start-up fully year. just line significant last less much a So

it. Got

Or tell the just to in your about of what’s that? kind -- know terms of using terms maybe the it method Okay. in just growth of as Is us flow through, continue way incremental getting sales this how noise Like now right mean the on and some And a can going there to then with here. we out does there -- sales think you the That’s that’s then margins of what thinking model I kind new on over EBITDA helpful. just business. you’re in the incrementals of maybe I past grow about help of several don’t next margin kind years?

Yes.

I -- think I remarks there some mean, in this. we lumpiness the I still mean, Peter, will it that said So to certainly, prepared be

this larger So in a premiering start-up impact let’s big of we just using first so a the $XX -- like just million proxy. startup. use as plant as It’s a in half, years have year,

efficient next And to to on from a at reinforce look really our again, pickup get started and most you just nice going and profitable -- the it’s facility. you’re being running. margin gross and coming year, As up

-- You’re on then Kitchen, nice things have, going But be really the volatility higher that’ll next get that. year, then come will following again, revenue. and following the the up starting that Innovation will which the on a through to with benefit But like we will year. flow

a X, improvement, with of much we should flow not expectations transparent driver but margin G&A as that as Phase be Phase then through. will, The it, to we’ll I both will and as terms through leverage greater it map extremely of and and benefits bring on the The around change. a are. only continue and move key we more continue will II be flow-through and SG&A longer-term we and visibility Ennis bit provide But that course, the in always be of to benefits road little lumpier. continues leverage foresight We consistent logistics as to of part continued the a efficiency from be even doesn’t

rolling just pressures in that’s peaking then do an of I price. how kind case. And the We’ll if follow-up the talked you And see on environment But expect you’re about of will Okay. you how a kind be may costs -- that here. right maybe in What’s bit? maybe think do down. where, cost of price I if some could, moderate do think this about think to how the about and are you back -- know let’s now? come you hold prices a say, category? you or starting Do

do want Scott, one? take that you to

Peter. Hi, Yes.

term trying it’s done, going -- trying of be been And to use a done just to others how really we’ve of term. as pricing, the is in So it’s all as one and and been land we’ve the to to we’ve said wet category near and We to amounts thoughtful this as eventually. it’s XX What really place. a know. some a been little dollars take longer reasons the all good when end days, want couple out, kind us where we to in action. to mid in any food, pricing leveled bit is quarters slower Because or in we’ve this in of that is up put anticipate don’t many prices, of we you XX the we’ll in and adjust promotion significant both promotion and do dry behind

very that’s kind really -- of how XX it. we the don’t that want our want has portfolio about of in of approach that to to to up pricing a be sure to thinking careful products really, wide And million So plus really appeal making we create we we end consumers. been we’ve where how

Bill comes question Truist. the next line Our Chappell with from of

think trading at the as down prices pace recession. that and consumer just want customer. hear dog the Billy, they that into Scott, that, potential will it’s is go the slow or And will existing at the new what they’re with eating. loyal to you’re most don’t I worry obviously base change not -- we your know -- trading that consumer I and deep analytics highly and because the guess, premium their a the is in the But least up you higher concern see than super I I are waist

So seeing little slowing talked past unevenness? well are much new you you’re where I small spikes point. recessions, except about base can consumer up down, at you hold guess smaller and obviously Or that from anything you through some but -- a think do growing the really you you’ve that for seen

would be have So to you any that -- just back to or great. trying any color fact

a households, Bill, remarks. a actually, topic moving at by the dog penetration very watching look look we’ve since seeing. thinking XX we a all we’ve give is seen when back Yes, we moving But in bounce it slides see gains large bit of ago. virtually slowdown XX% what -- we’re across saw up. last that We’ve up, at then, the variety a about of hit demographics, We $X, that in Heather prepared in and did June it glimpse little spending as at We included up household presentation the a a small we households, are gasoline a it number year today seen look in most. said been we’re you it, been dog a The millennials, a the bit have both bit the little of generation. the lot When weeks, this up. we a The generations versus up data few closely. of of the time

traction we the not join buy group, any little were to came gloss at income in their that was groups. There to in dips I June. don’t across income willingness across back franchise. it in in And look getting and like, or Freshpet seeing want little bits June are most right groups, the that but a significant We’re July. bit would than differences we Freshpet we and over lumpier

So and hope the far, to that’s would be in so darn what our expect pretty about or is line attract it’s with good we’d because we’re proposition But is users data saying pretty to to to ability new the be. franchise where feeling the attractive.

some a is of what prices and kind kind that just a maybe is I had impacted diesel question. hedged educate not I then or hedges little you minor surprised of guess done what thought on I’m diesel me And intra-quarter. Okay. hedged? you just

that’s And a diesel in exposure. have a at currently some so roll we don’t -- but But natural certainly as hedge ought face gas by end bit hedge but our even to do hedges year. November, those for of the will diesel, we any we our production But have consider, something not. so scale don’t don’t that any portion We our of facility. we’re we of off the larger little we we going of end that in distribution the far get on challenge to hedge

Our next JP Anoori question Naughton comes from the Morgan. line of with

said of this year? clarification if penetration the million the but what then And quick the my for on shape does the this of question the call, your you additional household household jump you new trajectory for is, compared versus on of the and how Freshpet look first metric $X.X question. A back which apologies set does quarter from your households? out Thanks XX or target million is of sizable it goal like to are to X.X% penetration longer-term today. was still ‘XX, XX% where closer track when believe its in get plan that I with you

need I the question guess catch for up, than to Freshpet of spend couple So XX% spending on to the the is, speak. will years ad so of to cost more next

Yes.

old the method in the method. the from of deck comparison June a provided we all, the new of First data to

can difference. period see So new don’t for QX. the I the you of end have at the the method

data has new what about the also come which data And rate more a old it’s years say. the old XXX,XXX similar over piece the than the seen couple of method. method more have method would XXX,XXX total, the hard was from like we’ve to shown. and been out, the the it’s has in of last What users in gain most and intriguing of Numerator. But way So in

the of what So consistent household a had includes weeks it do were your And to up to XX the million that has households? our get it in second going the XX that in need mid-XXs, of that do of The gets been bit that where we’ve XX%, rate up into to is what growth the more is, validates they we households in get over past. need it last is to back projected. June. little than dip and kind your which last penetration occurred to of a question X answer been been years And previously -- more we is growth part has

which going year, the to as expecting and end I’m up of provides will with the moving their number XXs. low a we into more similar larger towards So is the with continue go go into recent panel to us you’re the XXs showing already move further data. data Numerator, see that

moving growth We feeling plus we the to back up there. need pretty we’re and mid-XXs good rate, get XX% about there. the need into stay into So I’m and to stay

be is to simple thing XX%, other consumers achieve and can allows can our easily. fairly take But keep obviously, bigger, consideration this gets just as that to the -- do. you the business that more into dollars to One is a starts we it start basically math be the XX tremendous, If be and CAC drive it us able we in. number more range, in should to to a million similar

spending second of And you’ve the to quarter. clarify accelerated though, your ad some Understood. just into

little move the incremental as back So into presumably, half. very would be there spending

if square be how trying dollars penetration see back guess to half. through So move just I’m to between we’ll your to incremental spending less the you’re I here from accelerate going start household

this always soft too. -- comparison, year area. ago pretty it’s Yes, The the remember in was

Yes.

was And are fear in of fairly are advertising very as and healthy and with stores. we is big anticipate soft than fuller very there I them stores of to period, this wise. the like going making think then have a have Look, prices, we’re some now and consumers calmed with go into We looks actual next fridges this see kind recession stabilizing traffic can their consumers into back we’ve stable, their down, it our progress quarter. see behavior had, itself. ever in gas prices whether have we disruption a as typically it’s fear in that a advertising. We was -- we QX Billy is in thing be bad amount as marketplace the the recession mentioning, And QX tremendous the of may

Our and next question with comes Holland from the Cowen Brian Company. line of

net the guidance. So maintaining if ask I could first about sales

comp would little fourth seem here, that better got it Pet track from year drag. to quarter. stake the part sequentially I’m better. appreciate bump how Specialty that second tougher that But comfortable why X Specialties and/or get another we the half, that get Pet or just compares in prior volume of because both appears driven. of track is But get curious volume I be a to price get in assuming get will you need to Given there

volume balance next? the you the understand help can So the over path and us year of

Yes.

it I And way until media we’re because fourth expect consumption horizontal think we’ve the we to to as I better the in ramping period the end then purge the I’d done, quarter. see of because summer made, went be on you again, the Remember So it this probably because conditions, of in-stock last through August. is the the of about going of that up that hate to very investment recall warehouse year, start issue strong if talk year’s disastrous of end year. because of go spare had the had fortunately year, in and the a survived December. issue -- about had then ability July of a you back last and July. November, them ship And fourth that, quarter last this But that on we the year, the parts third-party we warehouse top that last we our impacted July our to lapping placements in

us as need where now to it end that ago give see year. basis a expect some the basis numbers, a we the to give strong between kind little And should you of And guidance. sense year while consumption able a anomalies you’re and numbers see good room. deliver rate on on to the in the the of well that sales and growth There so a of are consumption frankly, as consumption bit net

then or headwind not far And what I’m forgive in half think also what you’ve curious it quarter, this that, the like out the maybe can XXX the first us lapping at the obviously, was remind follow-on as second side, some help us, me if data gave elasticity in then I half. you distribution whatever them bps you’re as at inventory, But the it but of called that that looks year just that trade a site also moment. growth impact a in And there? to I on like was you the as appreciate looking nice

of growth keep but unit you the maybe Because same, if can the what to had us benefit some was apples-to-apples up benefit math and first might you the through that. you of in distribution have sort half, the the how you distribution to wondering -- would walk discern kind between that it make that’s I’m logic look is? be So

going get and velocity, continue velocity though you’re what I’m whatnot. to the the to the the about Yes. lost best your talking we some there. in way Brian, in on velocity questions neutralize, And $X of probably period nicely on this businesses we’ve gas quite business. measuring had is to where the But been do even

So that. didn’t I it don’t know you’ve the time. include deck We this in if seen

in velocity point distribution have healthy. but We dollars past, have done in business been of the fairly the per of

and the So the yes, we’ve going think, gotten have coming year, we have behind half distribution advertising. in more of I we’re gains to distribution the back velocity where

though. to where not don’t know So if think I addresses I we us that gets to. the all want or to question get that

I was was getting confusing, at. be I what Trade it. was there. inventory exactly and one to helpful that’s but no, trying the other got No, you

Just what... help understand us

of skewed was significant refill kind our to in some ago. more But It amount drawdown trade when third had There’s than the fourth fourth had quarter. quarter end quarter was the Yes, there fairly we of inventory in was year trade problem. inventory. odd. It supply we the of even the the

the throughout back year. half the to going lumpy it’s of be So

sales do need excess in to of compensate to have growth we our it. So for consumption net

on hold is over we the year-on-year get XX% year to more customers was business, the a clear as it’s of exactly inventory weeks big X have to bigger but well some distribution going and X and it weeks be trade that a number business be larger delivery, to grow because going there’s So how than as not number to a bigger needs inventory is ago. the inventory

So inventory be there well. trade year build this happens some will that as

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

just wanted back I to to So cash operating flow. go

sense about looks mainly of So the It thinking how at little you OCF you’re year and of I -- end due burn inventory. a by a cash level? guys this AR on want just the get over to the year-to-date million. burned the to like $XX

Sure.

receivables. I So first is thing the the think

allows the or the had pains new place as So caused terms now, ERP shipments obviously now by delays We Basically, our a we our as that you call, on done already collection. has time inability driven our it’s have with invoice in us on cash inflated invoice to of to growing significantly previously. mentioned we time solution basically in from system. real

we DSO on what as run are back our so due invoicing payment of collect our XX to based to clients, And past rate expect terms. normal our customer and we be days about was

that’s the piece. first So

on The capital. other piece working

team that through. should not impact. need some you a here On In on inflated objectives is implementation dedicated materials our improve -- about to was and ensure is where that we X the the we finished X inventory post to now have on what by the have from day the this a sitting up to we are very to impact. weeks ERP QX, inventory we to movement $X raw perspective capital did in customer on hold million that will also we be to we with in And of growth an sitting attributable by And will be inventory inventory. finish to service. driven goods worth inventory hand, in the see but we But really from on is as in to Again, side, work packaging solutions, [indiscernible], and place ERP around. around and business that have needed incremental build some needed a largely line on we’ve that at to what of planning of turn needed working

Okay, great. X additional And then just question. maybe

guide. now just risk for you remainder for what bigger curious is see the I’m the on guys the guide the year. of Just a

But all positions. absorb captured diesel be think captured We natural we customers. our to could feel we up. our guidance, of trying produce caught whether we as we’ve -- that it’s ready ability can’t, mean and interruptions, we’re that is And we prevent because that’s is be things things Not come Ennis same the had all the of to and risks those that any Heather us. our But net remaining gas would us. to the about -- year, we’re We the in our looked keep for flipside some risks sales for in startup like but our if get. enormous, the thing went could timely the that, need we’ve and upstream those inflation think absorbed to I thing I us they produce The or be it. supply supply for it. wild, Rupesh, few elements at to we very We need all and product -- on that include the the where are, and deliver line have built ran us. of a said, year. roll we I there And are we’ve it that the to to we facility. think absorbing that good through start going for we a don’t could hedge we’re like we’ve inflation We identified in to of that of conservatism beginning at it’s

supply. the on come side, Scott it would inflation. come So risks manage make if any differently. the and to side, don’t there demand there it but we Heather, see come they have you are, Not any them, it on on know the to we sound don’t out don’t because want I go are would supply and think or and it on like I would

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

about I ask volumes. to wanted

of of I scanner ad bit decelerated. the said inclusive sequentially So second if take at earlier a slower look at have data thought, we the quarter. X-year than they more in you would just CAGR little a And has volume spend that the seem least

April. since, I call March, each period early it, think late

how your I that stacked has curious So I’m expectations. up guess versus

on the but touched elasticity elasticity. don’t updated You on I prepared actual remarks, think the

you potentially that? you if incremental how do about if you And then talk think So pricing getting perhaps not today? could to about worse talked with it the that

Yes.

in we provided the stack. and looks to that’s why the summer said the think, X-year we go remarks, I expected, flat XXXX, we it prepared expect We during like as because

expect came saw we’d see whether eating you XXXX, so we about frankly softness, we on and back We some back summer, you up continue. June, dogs bouncing late come back flat, to household in then said see consistently saw in again flat shipments that XXXX saw it’s gas, up. very, you it see July. So in from very but goes $X in we very did August to could the But strong saw went We vacation, And also saw September. consumption people less. early into penetration July and

data and about good there’s the -- a increase where whether is The price be is we So camel’s expect. breaks of don’t the X the or After if all is know that we we you’d about the get back. we to you’d included of next is straw we’re the something We know feel going recession. pretty X that which But the to at a to if there’s and I pricing going beyond that this expect stable have uncharted place. trajectory sensitivity in about waters, mean, the what we to balance be year. in it’s don’t deck that shows stable point. fairly months, data the that have is pretty

well rates our we think that projections we’re guidance and know the trends what going up it we order match know and And so like, we the and forward. we look And looks shipments think with what like the pretty giving.

with sticking just about maybe broader thinking And strokes just on that, affordability. Okay.

teens this But or of with months what for think So out at earlier increase, XX new consistent heightened with increased deflation to potentially potential inflation ago, seeing price dog/cat across the versus it, were points the guess period I something, up high you’ll roughly category. pet of that’s I about where food, promotions be call you coming some we’re point.

affordability others at the they relative forward how not do You that. then going to doing it, that point. for half going don’t you you’re promote, are if of promote do But the product it about and back think

you to that? do Scott, want take

Yes.

but that things had everyone tiny the affordable still we on sizes the all a that. we even that in I increase it about couple of items -- one When we different as couple last we so Peter, not about, bit product different that get of did sure along, And We price of Mark, a conscious forms. possible. were as details. of and So made conscious this handful were a with touched for this a didn’t really and were we and into really

brunt. no but and have be to the have where products seen So the matter increases, increases. carrying settles, amount dust biggest will price they the They’re not modest they of available those price bear people the not

our chicken or We’ve we make We It some think that. of that to those tried I place. X-pound to in will be mindful to tried sizes. in our remain put X.X they affordable. be anyway, X, of and accessible continue So roll pound sure

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

cover of lot about talk food maybe for $X I guess a recall slowdown from except companies, a hearing any them in don’t Impulse. of and I I consumption gas,

in products some then to for can gas their your there reduce more make sense within volume type more the saying the their Are portfolio. So what than items look little consumption That of your be to a portfolio and me -- that at pets. of you discretionary as specific felt more price impact? that are of would people that

foot doing people it’s down what we was trips. consolidating what was -- saw and Yes. Rob, traffic were

what were sizes. and move was they less people seeing our were we And so frequently, to bigger shopped

phenomenon so -- -- back. at I it it was in it you And we a because look temporary if business look if was think our July, bounced

works sizes frequency in behind psychology and fact, but consolidating In might my happened are of June. units at shows. the people of up we on in July. I It that drawdown that suggests that the data buying it know happened. don’t it making and put why have that little it, filling size larger was they’re like trips it’s exactly a And the for finger hole the the But a pantry that can’t been and that I that buying. how trip they’re made clearly or what looks happened, data Again, who trips, the inventory there look on when that’s they but created

then maybe more And one follow-up. Okay.

increased consumer? why like the the that for trade it order the for sure who you price said of increase? that benefit not sell to Is to. you do increase this I increases. media your trade through sell help is helping spend with the the Or in like is spending it You through to media I’m -- price Because don’t know

around sure prices that the we’re looking things look right? rate rise we looking as intact, pounds, now. you’re And It’s And looked keeping you’re your stay in get at teens, when at see and et of high even the been early into a the X teens we’re kind same-store making little right is seeing volume. growth you’re because of XXs rate growth we similar handle make sure at we’ve able cetera, to that at that dollars bit units to sales, to units, with that hard are high a your in

I at actually, if period strong. way, And able go, I saw been price what at So of I mean, growth a taking you through overall velocity category. XX% pretty of we especially our look keep we’ve and kind increase, it with this it the that’s look that to in net encouraging,

the the or volume pretty remove type-X price if bad celebrating category, category. growth they look in the that units that are bad across place, you kind at the across everyone’s majority of growth. have increase you having units category, pretty If of they’re But high-fiving the -- for look looks

we’ve So out think good I this come in of pretty shape. that

Okay. the category But a you’re forward in do that here’s okay, the is getting half? food just me you’re why -- again I to hurt, Scott. making pull half, it back Like don’t Would is you this pet in by less the more saying know in so the but media? or have raising follow-up. if optimistic back pricing

just It’s literally $X.XX, literally that the increase, as call items. literally an going we’re to X.X%. -- using what year. [indiscernible] it’s back seeing is $X.XX And we it at we I’m we’re on we’re in rounding the call of price if example. It’s

So it’s gap very much.

don’t then one. increase that increase, reevaluate, they One going another than I to this. people is do the big creates away to the increases the need of was experience reconsider that taken one And which price opposed rather think app, modest digest shock modest really or we we an consumer lot second And the add eyelash next pretty this but and more than sticker frequent, I’ve the price noticed the because -- size of And of I the and price consumer did that one more smaller. could enormous price second to for one. a from lessons increase could one, are would as but certainly smaller cause

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

Yes. Thanks for question. the

the in respect a referred rate. is, I the guess, future penetration Billy, some addressable buy household question the of think an behavior households kind First update of by more algorithm just being the as that fundamental to underlying at given and or consumer point with you to and on Were price of referring I or providing -- exercise to methodology or change a mechanical in changes, approach Nielsen you based something kind different both?

yet, looking at and between. addressable go to the are think committed driver. somewhere least going back at haven’t we don’t but to revisit I doing we’re we in that It’s the market,

when to higher I need the together, households or to that’s like? it with just in well CAC buying the we’ve decision. for like So acquisition any we pricing question rate we mentioned pricing the what and put the is that to and as with because net in does algorithm consumers the the billion look that harder what digesting the current lower, $X.XX before we got? the up, as Scott or where million way? know I is lower, is going the made higher What And target. the and our we we’re earlier, are easier Does us higher get. and Do buying is, pricing cost And customer see XX the buying the a And to of in we gets said the to example, change is need think from rate, the framed you rate market? at model that now rate households changes that’s appreciable in higher wanted composition are reconstruct once to up I or sales saying, it the that framed the are running make excess pricing to the because what of get you look any I stabilize

Okay.

just in your the kind algorithm is maybe of confidence So the margin. underneath billion XX% the to of you’re saying? or level no It’s that EBITDA what $X.XX change

think probably way the right That’s Yes. about to it, Jon.

follow-up. Okay. a direct-to-consumer. guess, on broad I have question just just then And a I

this comments, growth You mentioned at didn’t least really the prepared in e-commerce quarter.

have to could too. a If I direct-to-consumer And are that? you an broader for we do plans get might so, from give -- about If you your update that? want then us When on that hear a perspective competitive standpoint, you offering? just on

we’ve So we computer continued someone which to place in consider a really see e-commerce, any is It’s can sit and growth. -- nice actually product. what order down our

And like through. click the in to with It’s that’s of from that we -- believe I we so delivered and some standpoint, of of like And provide is work over XX collect. to know we really, consumer will up with with new go kind break them. come in line right the think doing our actually the us, we’ve later recognize this to deck, couple believe, that. kind and -- that that market. our working feel believe with helpful don’t this. product we going that retailers materials and kind ton grow. that I and path we’re a invest directly a great that and to of that them paid, Jon, direct do order be DTC and And and for a portfolio partners continuing of continues with is a are differentiated time, path. really we but existing right there’s that’s job Some It’s modifying to introducing XX the we’ll it’s really model be I a product some do into year new or And of piece of of to QX, a But whether

line of next the question Ben Our comes with from Stephens. Bienvenu

Jim of and on into in building back into of million to $XXX CapEx given we guidance CapEx, into this that goes you the for $XXX overall that million cadence is at pushing I look center investment new million, like it the outside CapEx to more year, innovation still I in a looks [indiscernible]. some wanted circle reduction. setting same add $XX year but $XXX just XXXX, the inflation things the facility, would that the that does If go new Salera million, the up that Ben. materials assume the the if into shifted

to think we is advantage. that done our a perspective. as timing So like We to were from actually literally as much get work would can innovation can’t center, with it that we we

cetera, So in we it’s touched deals, steel, whether extraordinary. use materials, our equipment I on et stainless we the building pretty is [strength] amount think of standard that

timing, may that of building a planning down that in So as some cools steel, off may at similar for the materials we innovation we deposits there have we’re or other there’s bit, center through to that put example, hoping advantage stainless we but look some that, be too. savings out, we and little the the commodities, additional as think markets that at those on anticipate of

So of million. assumption to $XX some down? core in that commodities be clear, Is the that’s like those the come

timing the In a $XX bit of is an that million and -- efficiency. little

assumptions. As we a had we said, of conservative set

where pushed -- have know to this get both cost, also further on and get one of we of It’s the some we some next and As cascading the more to back. is timing projects realistic actual assumptions effect along, project. a the you project that leads we

‘XX will but of showed so seeing back fall And just you into there’s that through is what in some XXXX, is case. cascading going out you’re CapEx that stuff kind we

showing you. reduction total horizon the a the in So we’re $XX million is

efficiency, is years. of pushed of out Some the it is it it is but some some timing, into latter of

Got it.

back a I also, think So it past like waterfall out ‘XX. seems

So about you like, of the XXXX XXX-ish I could contain think, some that before? talked of that spend incremental the

we But and that capital meet planned The to out space have. the but have this in grow head objectives spending I we plenty think importantly. of revision us importantly gives -- that

in okay on hit given And continues then spending. the got the If the turning spending questions half ad just such ad there firm margins that a back that deteriorate be real up. back first volume the quick volumes? to support something economy first of year so would focused until the some you’d of quarter would the -- pick on wait to half starts lot year support know was year, feel I next of you guys and Or of on more just to in into of the year. and But half back the that ad rather the back the the on you’re take of we

also make and think plan line efficient manner. we very an on continue we’re we’ve times that media sure top to commitments it good committed There’s hard making that delivering the on very would we to the about feel I do that got. in lead that

So the to. we’re we’ve said, that we line, net the sales pretty to delivering EBITDA committed but committed delivering also

that efficiency I we grow. cash to cash the we’re we we call, erode do and sense -- on we as the So focused get in as said want know, very people generating would the because want we don’t profitability

make we and we And wanted sure we’re so investments when of them. make very we make to mindful the

the back There to to further in are closing Cyr queue. questions call hand I’d over Mr. like for remarks. no the

thank who you Great. Well, away earlier passed of She like today. "The and your I’d your with attention. honor for interest a very close in said, to Newton-John, much statement Olivia lean would if only left she wait be I they easier." and from Peace. my would Freshpet, Rest Thank dogs which much. lift fed you to add them I the very in

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

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