Greetings. Welcome to Freshpet's Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to introduce Jeff Sonnek with ICR. Thank you. You may begin.

Thank you. Good morning and welcome to Freshpet's third quarter 2024 Earnings Call and webcast. On today's call are Billy Cyr, Chief Executive Officer; and Todd Cunfer, Chief Financial Officer. Scott Morris, President and Co-Founder will also be available for Q&A. Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements related to our long-term strategy, 2027 goals, and pace in achieving these goals, prospects for growth, timing of capacity expansion, new products and new technology, and 2024 guidance. Words such as anticipate, believe, could, estimate, expect, guidance, intend, may, project, will, or similar conditional expressions are intended to identify forward-looking statements. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements, including those associated with such statements. Please refer to the company's Annual Report on Form 10-K filed with the SEC and the company's press release issued today for a detailed discussion of risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please note that on today's call, management will refer to certain non-GAAP financial measures such as EBITDA and adjusted EBITDA, among others. While the company believes these non-GAAP financial measures provide useful information for investors, presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for how management defines such non-GAAP measures. Why management believes such non-GAAP measures are useful, a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP, and limitations associated with such non-GAAP measures. Finally, the company has produced a presentation that contains many of the key metrics that will be discussed on this call. That presentation can be found on the company's investor website. Management's commentary will not specifically walk through the presentation on the call, but rather as a summary of the results and guidance they will discuss today. So with that, I'd like to turn the call over to Billy Cyr, Chief Executive Officer. Billy?

Thank you, Jeff, and good morning, everyone. For those of you who are wondering, Jeff was gracious enough to fill in for our VP of Investor Relations, Rachel, while she is on maternity leave. Now to the business. The message I would like you to take away is that we are beginning to establish the kind of consistency and reliability in our manufacturing operations that we've been delivering on the top line for some time. That has enabled us to rapidly increase our margins while simultaneously generating the kind of growth you've come to expect from us. As you know, our objective this year was to continue our strong top-line growth, but do it at a rate that would enable us to live within our capacity limits while strengthening our operating performance and cash generation. The result would be category-leading growth, outsized improvement in profitability, and more effective cash management. We describe that as disciplined growth. If we do that well, consumers will win, customers will win, and our shareholders will win. And that is what we are delivering. In Q3, we delivered our 25th consecutive quarter of 25% year-on-year growth, a significant expansion in our adjusted gross margin, adjusted EBITDA margin, and sizable operating cash flow. In fact, this is the third quarter in a row where our adjusted gross margin exceeded our 2027 target and our sixth consecutive quarter where our logistics cost was better than our long-term target. And we've generated more than $100 million in operating cash flow so far this year. I suspect that many of you are now wondering if or when we are going to adjust our long-term targets to reflect the early achievement of so many of our long-term financial goals. While we are very encouraged by our progress, we don't want to get ahead of ourselves. We want to see sustained improvement across the full year before we conclude that we can deliver more than what we have already committed. We are also very mindful that we are operating in a dynamic environment and would like a bit more time to see where the current trends, particularly on inflation, settle out. So this is something we are giving a great deal of thought to in consultation with our Board, but we aren't yet ready to update our long-term targets. I would now like to call out a few key highlights from the quarter and then Todd will provide a bit more detail on the financial results and will update you on our thinking on guidance. First, I am very encouraged by the net sales growth we saw in the quarter. We grew 26% and virtually all of it was due to volume growth. This volume growth was driven by strong household penetration growth, particularly amongst our HIPPOHs. Overall household penetration growth was up 17% despite lapping a sizable gain in households in the year-ago period, and the HIPPOH growth rate was 24%. Recall our media investment is more backloaded this year than it was last year, so you should expect that household penetration, which is a 52-week measure, will lag our long-term growth rate in the back half of this year due to the change in media timing. However, it should reaccelerate in the first half of next year, we are getting the benefit of this year's second half media investment in the 52-week measure. We continue to believe that we are well on track to deliver our 2027 target of 20 million households and are increasingly focusing our attention on the 5 million HIPPOHs who now represent approximately 90% of our revenues. Second, our team did an outstanding job managing the balance between capacity and demand, allowing us to simultaneously drive strong growth rates and strong operating performance. Recall that we chose to limit our first half media investment to a rate that was below our rate of sales growth so that we could reliably meet demand until our new roll line in Ennis was up and operating at the end of Q3. That plan worked. We were able to grow 26% in the quarter but did it with a customer order fill rate of 99% for the quarter. As I've said before, a strong fill rate is a very good indicator of overall operating performance for us, and that was definitely true in Q3. We were able to deliver this strong performance because the reliability of our media model provided a very accurate forecast demand and our operations team generated strong throughput on our existing production lines and started up the new roll line one week early. In essence, we were able to thread the needle, generate strong growth without exceeding our capacity limits and while maintaining exceptional customer service. We expect to apply that same type of robust planning as we bring on new lines over the next few years, carefully managing our media investment and capacity to ensure good customer service, strong net sales growth, and healthy margins. Third, the production, quality, and logistics teams in the Freshpet Kitchens continued to drive improved performance, including yield, throughput, and quality costs, while also delivering exceptional customer service at our lowest logistics cost as a percent of net sales ever. On a year-over-year basis, the sum total of our input costs, logistics, and quality improved by 790 basis points, and that contributed to a 630 basis point improvement in our adjusted gross margin. We believe this is the result of the investment we've made in our hourly production workforce and their training, i.e., The Freshpet Academy, the Freshpet Performance Excellence program we began about two years ago, and a more stable external environment. Finally, our customers continue to believe that Freshpet is the future of pet food and continue committing additional retail space to Freshpet. At the end of the quarter, we had 22% more total distribution points, TDPs due to the addition of more than 1,000 new stores year-to-date. More than 750 additional stores with second and third fridges year-to-date and a sizable increase in shelf space and retailer-owned fridges. We continue to also see a strong connection between the increased retail visibility and the efficiency of our media investment as our retail presence amplifies the media investment. This is visible in our customer acquisition cost, which continues to be in line with our long-term targets and is helping us drive a strong return on our advertising investment. Now I'll provide an update on KPIs we track for our main and more plans. Focusing on the idea of mainstream, Freshpet is becoming increasingly mainstream but still has a long runway for growth. According to Nielsen omnichannel data, which includes e-commerce and direct-to-consumer, as of September 28th, 2024, total U.S. pet food is a $54 billion category. We only have a 3.2% market share within the $37 billion dog food segment, which is the majority of our business today. Within the fresh/frozen subcategory in measured channels, Freshpet has a 96% market share. Fresh continues to outperform the broader pet food category, and many retailers believe it is the future of pet food. As a result, Freshpet now commands 66% ACV in Nielsen XAOC, and we continue to add distribution breadth and depth with second and third fridges. Our household penetration gains also demonstrate that we are well on our way to making Freshpet more mainstream. Our HIPPOH penetration also extends to the main meal part of the strategy. Currently, 39% of Freshpet users are HIPPOHs and they represented 90% of our sales in the third quarter. Of those users, about 325,000 or less than 3% of our total users buy more than $1,000 of Freshpet per year. And this group grew 23% over the past year. They now represent approximately 27% of our business. We are increasingly focusing our attention on this audience and trying to create a much larger cohort of users who look like they do. Adding second and third fridges enables greater distribution of our wider assortment. Based on total U.S. pet retail and data from Nielsen, we currently have an average of 20.5 SKUs per point of distribution, up from 18.0 SKUs one year ago. Now to the more part of main and more, more profitable. We had another strong quarter of margin improvement. Adjusted gross margin improved 60 basis points versus the strong results we posted in Q2 to 46.5%, and we ended the third quarter with an adjusted EBITDA margin of 17.2%. As I mentioned earlier, the margin improvement came in our key focus areas of quality, input costs, and logistics. It is becoming increasingly apparent that the improved organizational capability, improved analytics systems, and intense focus on those drivers of profit improvement are not only working but generating better results than we had expected and sooner than we had anticipated. We are very pleased with this progress but also believe there is significant upside that we can deliver over time. I would also like to give you an update on our efforts to expand our capacity. As a reminder, we continue to focus our capacity expansion plans on three key drivers of improved capital efficiency. They are, one, maximizing the throughput of our existing lines; two, maximizing the capacity of our three existing sites; and three, developing and implementing new technologies that generate more throughput per line. We are making good progress against all three parts of that strategy. In Q3, we achieved another milestone with the startup of the fourth line in Ennis, a roll line, giving us two bag lines and two roll lines at that site. That fourth line started up one week early, under budget, and ramped up faster than we had projected. We have also largely completed the installation of the fifth line, which will be our third roll line in Ennis because it was more efficient to install two roll lines at the same time in the new space. That fifth line will be commissioned in Q4 and between those two new roll lines, we will have enough roll capacity to last well into 2026 once we have fully staffed those lines. We are in the final stages of installing our next bag line in Kitchen South and expect that to start up in late Q1 of next year. We've also added staffing in Kitchen South on the existing lines so that we will have adequate bag capacity for the balance of 2024 and into 2025. In Bethlehem, the team is focused on increasing capacity utilization on our existing lines. Our Freshpet Performance Excellence program has driven sizable gains in throughput, yield, and quality since it was launched almost two years ago, and we believe that investment has unlocked a sizable amount of free capacity. We believe there is a significant upside remaining and are increasing the resources we devote to that effort and reapplying the program to Ennis. The Bethlehem team is also in the process of remodeling some dry storage space in Kitchens 2 to accommodate a production line that uses the new technology for our bag products. That line is on track for startup in the second half of 2025. In summary, I think we are making good progress at proving that we can reliably deliver improved operating performance and strong growth simultaneously. This disciplined growth is the result of our strengthened organizational capability, improved analytics systems, and intense focus. That has enabled us to generate outsized gains in productivity and profitability. We are increasingly confident that we can sustain this type of performance and deliver the levels of shareholder returns that we believe the proprietary Freshpet business model is capable of generating. Now let me turn it over to Todd to walk through the details of the Q3 results and our updated guidance.

Thank you, Billy, and good morning, everyone. As Billy mentioned, we are very pleased with the third quarter results, particularly our ability to deliver on profit improvement. Now I'll give you some more color on our financials and updated guidance for the year. Third quarter net sales were $253.4 million, up 26% year-over-year. Nielsen measured dollar growth was 23% versus the prior year period with broad-based consumption growth across channels. We saw 24% growth in XAOC, 22% in U.S. food, 11% growth in pet specialty, and over 70% growth in the unmeasured channel. Third quarter adjusted gross margin was 46.5%, up 630 basis points year-over-year. This was driven by improvements in input costs, yield, throughput, and quality costs. Specifically, input costs as a percent of net sales improved 450 basis points versus a year-ago due to better yields and lower commodity costs, and quality costs improved by 220 basis points versus a year ago. We did have a timing benefit in our quality costs that will reverse in Q4, but it was a strong quarter nonetheless. Third quarter adjusted SG&A was 29.3% of net sales compared to 28.6% in the prior year period. We spent 10.8% of net sales on media in the quarter, up from 9.5% of net sales in the prior year period. Total media investment was up 43% year-over-year. Recall, our media plan was less front-loaded this year than in years past so that we could manage our growth to live within our capacity limits. As a result, our media investment in the back half of 2024 will grow significantly faster than our sales will grow and that will position us for a faster start in 2025. Logistics costs continued to improve and were 5.6% of net sales in the second quarter, a decrease of 120 basis points compared to the prior year period. The majority of the improvement was due to strategic actions we have taken to increase fill rates, reduce miles driven by increasing the number of states served by our second distribution center, and negotiations with various carriers, with the remainder being more macro-driven with more favorable lane rates and lower diesel costs. Other SG&A, which was 13% of net sales, increased 60 basis points driven by higher incentive compensation. Third quarter adjusted EBITDA was $43.5 million, or 17.2% of net sales compared to $23.2 million, or 11.6% of net sales in the prior year period. This improvement was primarily driven by higher gross margin as well as improved logistics costs, partially offset by higher media investment and incentive compensation. Capital spending in the third quarter was $34 million. This was lower than expected due to the timing of projects and payments. We expect a much higher rate of spending in the fourth quarter. However, we are lowering the estimate of capital spending this year due to the timing of projects. We now expect CapEx this year to be approximately $180 million versus the previous guidance of $200 million. Operating cash flow in the third quarter was $56.1 million, and we had cash-on-hand of $274.6 million at the end of the quarter. We continue to believe that we have adequate cash to fully fund our growth through 2025 and we will be free cash flow positive in 2026. Our strong improvement in adjusted EBITDA this year also makes it unlikely we will need any additional capital. We generated $11.9 million in net income in the third quarter, bringing our year-to-date net income to $28.8 million. Now turning to guidance for 2024. We are updating our outlook to reflect our outperformance in the third quarter as well as our conviction in our ability to execute in the final quarter of the year. We are raising our net sales guidance from at least $965 million to approximately $975 million or growth of around 27%. We are able to do this because of the significant improvements in our operating efficiency and the strong startup of the new roll line in Ennis. Collectively, these efforts will allow us to sell a bit more this year than we had originally projected and still maintain strong customer service. We are also keeping in mind the capacity needed to support next year's growth and do not want to get too far ahead of our original plans. As far as cadence, we continue to expect net sales to have sequentially lower percentage growth in the fourth quarter of 2024 as the lower first-half media spending will result in slower growth in the second half, something that we deliberately did to manage our growth to live within our capacity limits. In our business, the first-half media investment really dictates the demand we will have in the second half of the year, and the second-half media investment will drive the demand we experienced in the first half of next year. For this reason, our second-half media investment will be significantly larger than the investment we made in the previous year. We are expecting second half 2024 media investment to be more than 50% larger than in the comparable prior year period. For adjusted EBITDA, we are raising guidance from at least $140 million to at least $155 million to reflect the over-delivery in Q3. We now expect the adjusted gross margin to expand by approximately 600 basis points for the full year compared to 500 basis points previously. Capital expenditures are now projected to be approximately $180 million compared to approximately $200 million previously to support the installation of capacity to meet demand in 2025. The reduction is due to the timing of certain expansion projects. Some of that reduction will push spending into 2025. In summary, the third-quarter results have continued to build our confidence in our ability to deliver our long-term financial goals. We are operating more effectively and more efficiently, and you can see that up and down the P&L and in the way we show up to our customers and consumers. We believe that is the result of our investments in capacity and organizational capabilities as they are now delivering the scale benefits we believe are possible in the Freshpet business model. That concludes our overview. We will now be glad to answer your questions.

Thank you. Our first question is from Mark Astrachan with Stifel. Please proceed.

Yeah, thanks, and good morning, everybody. Obviously really, really good results here in the quarter and the guidance. So maybe taking a bit of a different path. I wanted to ask about the expansion of the business from a top line standpoint in kind of the less focused areas. So I've seen some things about looking at expanding the US D2C business beyond a test, it looks like there could be some incremental news potential at some point there. So maybe talk a bit about kind of efforts in that space, what you see as the opportunity path to success, kind of what you've learned so far? And then looking outside the US, in particular, Europe, also it seems like there's some efforts there around accelerating or refocusing on that business. I think there's been some kind of starting stocks and focus there. So maybe talk a bit about those efforts. Thank you.

Yeah. Mark, this is Billy. I'll take the second part of your question and Scott will take the first part of your question. Recall at the beginning of this year, we said to folks that we felt really good about the European business and the business model that was there, but we didn't feel very good about the reliability of the supply chain. So we endeavored to work on ways to create a more reliable supply chain in Europe before we make any decision about investing any further in that market. Those tests are underway. We feel very good about the progress we're making, but there's no conclusion yet, no definitive plan to do anything more than what we're already doing today. We like the consumer dynamics there. We think the Freshpet business has long-term potential there, but we want to make sure we get it right when we actually do it. So at this point, we're still in the testing and validation phase, particularly on the supply chain side of it. Turn it to Scott to tell you a little bit about the D2C side of things.

Hey, Mark. The way we view e-commerce is primarily through click-and-collect, which accounts for about 60% of our total. Most of our activity, approximately 87%, is coming from our fridge network. We recognize that there is significant potential to expand and offer customers various purchasing options. We are continuously testing new strategies. We have recently begun to expand our direct-to-consumer efforts to evaluate their effectiveness. Currently, this initiative is in a test and learn phase, similar to the approach discussed by Billy in Europe. We are exploring different models and assessing how we can invest in them based on the returns we observe. At this stage, these components represent a small portion of our business. As we gather insights and build confidence, we will consider investing further in these areas to possibly exceed our typical growth rate of around 25%.

Hi. Good morning, and thank you. I wanted to ask on gross margin. The commentary is now being focused on consistent performance after the obviously excellent improvement in that gross margin rate. How do we think of the comment about consistent performance, which I think some people might interpret sort of as, hey, it will be kind of flattish from here. In light of the prior comments that you're looking at new technology to help with throughput and efficiency, maybe you have that new technology coming in later next year, it sounds like. So just kind of wanted to balance those comments and kind of get a general sense of how you see the gross margin path ahead? Thank you.

Yeah. Hey, Ken, it's Todd. So look, we're obviously thrilled with the performance this year hitting year-to-date almost 46%, and that's our guide for the year. So we think we'll have another solid quarter in Q4. Clearly, we do not anticipate that's the end. We're obviously ahead of our long-term target of 45%. So that's fantastic that we're three years ahead of schedule. But we still think we have tons and tons of opportunities. What that path exactly looks like over the next couple of years, I think we'll talk more at year-end. We'll be at CAGNY, so we can kind of explain that in a little more depth. But obviously, as we talk about all the time, there's three areas of focus here where we think each of them still has upside. One is getting more efficiency out of the lines that we have. We made great progress, particularly in Bethlehem where we got a lot more work in Ennis to go, and we've seen some positive signs in the last couple of months in Ennis and feel good about the future there. It's getting more capacity out of all the facilities that we have. So we're going to use every square inch to make sure we have the right capital efficiency there. And then as you mentioned, new technologies. The line should come up at the end of next year. So it's going to be early days and we won't know exactly kind of where we are until the end of next year. We're optimistic where we think we have something that could be very, very interesting, but that's going to take a couple of years to play out. So in summary, look, we're going to hit around 46% for the year, which again is terrific. We're not stopping there. We think there's significant more upside to come.

Thank you. And then for a follow-up, thinking about next year, I realize it's too early for specific numbers. You have talked a little bit about the cadence just in terms of how you expect the second half of '24 media to kind of influence the first half of '25. And I'm just trying to get a sense, are there any other kind of tailwinds, headwinds we should be thinking about right now? You did talk about inflation a little bit or at least mentioned the word, wanted to get a little bit of color there if you could at this time. Any kind of insight that you're ready to provide them, I'm sure would be appreciated.

Yeah. So look, we're still in early days for '25 planning. Everything we're seeing right now in the commodity bucket, and again, it's still too early, but I'll just say it's looking kind of flattish right now. So we'll, as you know, we kind of lock in a lot of our commodities in the December time period, particularly our proteins. So we're getting closer to that period. We're obviously talking with people every week on that. Again, it feels kind of flattish, but that could change a lot in the next month or two. So no other big updates, but we're not seeing any surprises right now.

Good morning. Thanks for taking my question. So maybe two macro questions for me. So just want to get your latest thoughts on the pet category, what you're seeing from the pet adoption side? And then your business continues to see tremendous momentum. So just curious if you're seeing any shifts in consumer behavior?

Hey, Rupesh, it's Scott. So on the pet category, basically what we're seeing is, look, traditional brick-and-mortar is not doing as well from a growth standpoint as they have historically. There's definitely a little bit of softness there, but it's in the kind of couple of points down versus prior periods, et cetera. But remember, there was a ton of expansion for a while. Where we are seeing a lot of that growth is definitely some more and more of it's coming from online. So if you look at kind of any type of omnichannel piece, you're seeing like still a couple of points of growth. The long-term algorithm that I've always used for the categories, you're seeing kind of 2% to 4% overall pet category growth. You might not see it within six months or a year, but that's typically what you see. That's typically and that's what we're seeing right now. We're seeing around like a 3% growth if you look at everything like omnichannel. From an adoption standpoint, look, these things kind of go up and down in waves. We think from everything we're seeing, it's come back and it's at a more consistent pace. There are definitely some trends that are starting to develop around dog size again. They, again, they come and go. We're starting to see a little bit more towards smaller and medium-sized dogs again. Again, it's just slightly. We're seeing more and more of those dogs kind of adopted and in consumers' homes a bit more. That's actually a good thing for us. If you look at where we typically over-index, it's typically with people with smaller and medium-sized dogs. We don't do quite as well with large dogs, although we're making a lot of progress with our large new dog product to continue to kind of come out of the gate and do really, really well.

Hi. Congrats again. And a couple of questions. I think the target for sales is like close to $2 billion, is less than that, but for 2027, and as you're evaluating, revising your long-term guide, are you evaluating introducing another time series like beyond 2027? Is that part of the decision-making that you're doing? And would that also entail spending to expand your footprint beyond Ennis and beyond what you have in Pennsylvania? And then a follow-up, please.

Yeah, Rob, we haven't made a decision on what we'll look at for updating guidance if we do that sometime next year. There's everything has got to be taken a look at. But one of the things that we do spend a lot of time thinking about is capacity planning, which is embedded in how we think about the long-term guidance. But I would remind you that within our existing footprint of the three sites that we have today, we have capacity to get us to the $2 billion in net sales. Our guide is for $1.8 billion, but you need to have a run-rate that's ahead of that when you get there. We can get well north of $2 billion with the existing footprint. So any decision on expanding the footprint beyond where we are would influence periods that would go well beyond 2027. We won't need any capacity beyond that footprint until probably '29 or '30 depending on how our new technology plays out, what our efficiencies do, and whatnot. So at this point, there's really no conclusion or decision where we've got all the variables. We'll look at all of them. We'll make the right decision based on the best inputs and the best visibility that we have.

Thanks. Good morning. I believe guidance implies 24% net sales growth against relative media spend of 9% in the back half of '24. I obviously realize that's a bit of a condensed window as opposed to looking at it more annualized. But just curious whether that dynamic is indicative at all of how you see '25 shaping up at this point, particularly on the media side.

Yeah, Brian, I would characterize it as the media in the back half of the year would indicate the momentum and the household penetration gains we get as we head into the first half of next year. So looking at the spending in the back half and the growth rate in the back half, you're sort of looking at two things that are not time-aligned. The growth rate in the back half of this year is related to the spending we had in the first half of this year. The spending in the second half of this year is what will drive the growth rate in the first half of next year. So we do know that as we get the significant media spending that we're making in the back half of this year relative to what we've done in previous years. We expect that to be the thing that starts driving the household penetration growth back up again, and you'll start seeing them in the first half of next year. And then that obviously will turn into volume growth that begins in the first half of next year and continues through the back half of the year.

Thanks, operator. Good morning, everyone. Given the, I guess, some of the comments and things you've teased out in terms of updating long-term targets and objectives, I guess bigger question I was thinking about is, it's very rare in consumer packaged goods for a category to develop and gain substantial shelf-space with really just one player in the category. Retailers tend to like multiple options, multiple price points. And if we think about fresh as a sub-segment of the total pet food category, just how does that factor into your thinking about expansion, gaining share of fresh gaining share of the pet food category? Can that happen with what is effectively at least in brick-and-mortar retail effectively like one horse in the race?

Yeah. Brian, this is a thing that we've been spending a lot of time thinking about since we launched Feed the Growth in 2017, which is the reality is that this is a very scale-driven business and there are enormous advantages to somebody who builds scale in it, whether that's in manufacturing, whether that's the fridge placements at retail, whether that's distribution and logistics that go with it. And our goal was to get ourselves in a position where we had an enormous head start and a significant scale advantage against somebody who came behind us. Clearly, anybody else can enter this category. We've seen that from Mars and from General Mills, and we'd expect to see others come along as well. Whether they'd be able to compete effectively against what we've built remains to be seen. But in terms of you look back over time, your observation is a fairly good one. But the reality is the category creator, the guy who creates the category, if they do a really good job, which is what we're shooting to do, ends up with the lion's share of the market share, whether you think about Gatorade at 75% share or you think about Keurig Green Mountain. Any of these guys who really created a big category, they own the lion's share of the category and the bulk of the profits, if not more than 100% of the category profits. And so that's really where we expect ourselves to go. We do expect to have competition at some point; the question is how good they'll be.

Hey, good morning, everybody, and congrats on the quarter. Two quick two-parter on distribution. In the presentation, it shows a 9% increase in cubic-feet, but a 22% increase in TDPs. Just wondering how you kind of square the two. And I think there was a comment in the prepared remarks around absorbing some shelf space from retailer-owned fridges. If you could talk a little bit about that dynamic? And then the second part is, I think 22% now of your locations have second fridges. How would you expect that to develop over time based on your conversations with retailers and where is the white space for second and third fridges in terms of channels? Thanks.

Hey Jon, it's Scott. We have been focusing on the cubic-foot space we're acquiring over time. While having one fridge is notable, we see the real opportunities with adding second and third fridges. We're observing a significant increase in these additions, not just this year but expected to continue in the coming years as retailers reassess the category. Retailers are analyzing various brands and segments and recognizing that fresh items are driving growth. As they do this, many are questioning whether they should have a second or even a third fridge, and we're even discussing the potential for a fourth, although that's still early. We're seeing steady growth from the expansion of fridges. Currently, only a few retailers are experimenting with different fridge layouts and formats, with Walmart being the standout in having a substantial number of their own fridges. They initially invested to support Blue and their private-label products, but that investment has proven to be a significant challenge in terms of both capital and maintenance. The products didn't perform as expected, which led to some disappointment on their part. Now, we're finding opportunities in many of those fridges, and our products are gaining substantial share and performing exceptionally well, which has been a pleasant surprise for us. We were previously limited in space at Walmart, so we are pleased to have secured additional space in those fridges. Outside of Walmart, few retailers have their own fridges on a meaningful scale. Most have become comfortable with our value-added and well-managed offerings; and importantly, we handle everything, including repairs, quickly. We can fix a broken fridge in hours rather than the days or weeks that others often face. Our fridge team has done an excellent job, maintaining fewer than 1% of our 33,000 fridges down at any time. We view this as a valuable asset for the future and as a benefit for retailers who aren't planning to invest in their own fridges.

Hey, good morning, guys. Thanks for taking my question. Wondering if you could talk a little bit about the hiring of Nicki as your Chief Operating Officer a couple of months ago. Just kind of curious what she's bringing and what her maybe initial observations are. I know she's somewhat restricted in what she can do initially, but just kind of help us understand what you think her impact can be on the organization as you guys look to continue to grow over the next few years.

Yeah. Thanks, Peter. We're thrilled to have Nicki join us. She's bringing a fresh set of eyes to our business and a different set of capabilities than some of our management has or our team has collectively. And so that's been a real breadth of fresh air. As you alluded to, she does have some limitations in what she can do until May of next year and those limitations restrict her ability to work only in the grocery, drug, mass club channels until then. So we'll be a little bit limited in the total impact that she can have until that time. But between now and then, she's digging into our existing business, bringing fresh eyes to it, and we think that's going to be purely additive and adds to our bench strength. We have really big ambitions as a company. We want to be a much bigger player in the pet category and getting a talent of Nicki's caliber is a huge win for us. And we think, frankly, it gives us the ability to project further a much bigger business, probably much more expansive business than we have today.

Good morning and thanks for the question. I just wanted to ask on some timing items you kind of noted this year. You noted this quarter there was a timing benefit for quality costs in the third quarter that's expected to reverse. Just any quantification and detail on what drove that? And then secondarily, in the first quarter of this year, you've noted around 100 basis points of operating leverage on the gross margin line. Has that kind of fully reversed at this point? Thanks.

Yeah, it's Todd. So on the quality issue we had a fantastic quarter. Disposals were super-low, which really helped. We did see, experience some higher-quality costs in September, the secondary processing piece of the quality component. That did not flow through the P&L in September. Well, it did flow through the P&L in October. That was about a 50 basis point benefit in Q3 that we'll see in Q4. So that number still will be higher, the quality cost number in Q4, but we still feel very, very good about where we are for the year. Regarding the 100 basis points of benefit we saw in Q1 as we built inventory, we've seen only a very small portion of that reverse. Some it's still a little bit of a wildcard. We might see a little bit of it reverse in Q4, but I'm not anticipating much of it. So most of that inventory benefit will hold. It's really just a derivative of how fast we're growing and our need to build inventory to supply the business.

Thank you. Good morning. Can you just touch on Ennis a little bit more now that you've got the fourth line, how much is more significant as your flexibility there? And have you been able to push a little bit on more extended runs with like maybe one bag and one roll line that each could do kind of the power SKUs and then the other that could do the rest of the portfolio? Is that something you've been able to test yet or working on? How does that look?

Yes, Michael. As we have consistently stated, launching two bag lines and two roll lines was essential for us. This will allow one line to focus on high velocity, high volume SKUs while the other can handle more complex tasks. When we initiated the roll line in September, we began to see advantages, although they won't be reflected in this quarter's results, as that production will influence Q4. We noticed significant improvements, especially in the roll segment of our business. On the bag side, we've also started to benefit, but we're still in the process of scaling and resolving issues as we establish the site. Having two bag lines and two roll lines definitely allows for longer runs and greater efficiency on one line while managing complexities on the other line. It’s important to note that the Ennis site will always operate slightly behind Bethlehem due to our ongoing initiation of new lines compared to the more established operations at Bethlehem. Ennis, having started a line in September, will have another line begin in December, along with the third roll line and ongoing construction. This continuous expansion makes it a bit more challenging to reach the performance levels seen in a stable operation like Bethlehem. However, in the long term, Ennis is expected to provide the efficiency benefits we anticipated when we designed and built the facility, though it will require some time to achieve that.

Hi, guys. Good morning. Thanks for taking our question. A two-part question for me. You guys talked in the deck about the conversion from toppers to main meals helping drive the buy rate. I just wanted to drill down on that and see if you could offer some color on what drives that conversion into kind of a main meal buyer. And if you're able to size up the percentage of your current buyers that are using the product as toppers, just so we can kind of frame up how much conversion opportunity there is as we move forward.

I appreciate your question. Adoption often occurs in various ways. Some users quickly become heavy users, while many others, whom we refer to as toppers, engage in mixing behaviors typical in pet food, such as combining dry and wet food. Our aim is to effectively communicate that our product should be considered the main meal. This goal is contributing to the growth we are seeing in the HIPPOH segment, which has reached a 24% growth rate. We want these toppers to transition their mindset and view our offerings as the centerpiece of their pets’ meals, similar to how humans focus on fresh, real food. This is reflected in our advertising strategy, where we display full bowls of Freshpet rather than mixed food bowls. We aim to connect with consumers emotionally and shape their perception regarding their dogs' food. Additionally, we are increasingly offering multi-packs and larger sizes, particularly since large dog owners are the primary mixers. Recently, we introduced a large bag specifically for large dogs, which has received positive feedback. As we work to encourage this behavior change, our focus remains on the $5 million high-profit HIPPOHs, who represent 90% of our business. We are committed to nurturing this segment and reinforcing the behavior we want to cultivate.

Hey, guys, good morning. One, just starting just a very quick one confirming that the CapEx change was just entirely timing and pushed into '25 and maybe something that you're doing differently or a decision you've made on capacity. And then maybe a bigger question, which is on the marketing and I guess effectiveness of marketing. You alluded to it a little bit at the beginning, but there's many different sort of pieces of calculus in how much to spend, whether it's capacity, capacity of specific forms. But also now you're pushing $1 billion in revenue. So how do you think about advertising in the context or advertising and marketing in the context of the size that you now are beyond just sort of the capacity stuff which you brought up?

I'll address the first part. The capital expenditure is primarily a matter of timing, which means it will extend into 2025. Regarding marketing effectiveness, this is a crucial area that we actively monitor, sometimes on a weekly basis. It’s quite atypical for a packaged goods company to maintain a leadership position for an extended period. Maintaining the same level of advertising productivity and marketing effectiveness for nearly a decade is very unusual. I don't believe I'm overstating the case when I say we've seen consistent customer acquisition costs for a full ten years. This stability in acquisition costs indicates that we are continually refreshing our messaging and exploring new communication channels. The customer acquisition costs remain within a very narrow range, which suggests that our overall model is solid and highlights the potential market size, addressing concerns about this aspect. Generally, as you delve deeper into your total addressable market, acquisition costs tend to rise significantly, but we haven't experienced that increase, which reassures us about our strategies. Now, regarding our efforts, there's considerable creativity involved from our team and collaborators to keep our marketing initiatives thriving. Our creative approach tests exceptionally well, and the in-market performance has been remarkable. Todd appreciates my use of the term "extraordinary" here. Initially, we invested in broad market advertising, and we have since diversified into various mediums and target demographics. As we expand into different targets, such as men in sports, we’ve managed to maintain strong productivity. We also have a clear understanding of our direction not just now, but also six months and even a year ahead as our plans unfold. This means we test initiatives that are six months or more out, ensuring we're prepared to implement them across our marketing model. I hope this provides some clarity, and we could certainly delve deeper into this topic.

Hey, good morning, and thank you for the question. Just on the consumer, you continue to see strong buy rate gains. You had also called out a shift to larger PAT sizes last quarter. I guess, any updated color on what you're seeing out there? How do you expect mix to evolve near-term both in terms of consumer behavior and how that flows through the model? Thanks.

Hey, Marc. So it's interesting; it's been one of these periods where there, it's a little bit of tale of two cities, quite honestly. We talked about overall growth rate of the category has really moderated a bit kind of flattened out around that 3% level. Definitely, there are two ends of the spectrum that seem to be doing well. One of them is what's considered almost ultra-premium in the category and we'll put ourselves in that bucket for a second. I don't think we'd like to think of ourselves that way, but we're in the higher end of the category. And then there's a handful of products and more in the value area that are still doing pretty well and actually growing. The middle is getting squeezed a little bit. And it tends to have to do a little bit with people's income levels, but it is a conscious choice that people are deciding on what foods they want to buy. On the ultra-premium end, there's people like us, there's other direct-to-consumer brands that are very, fairly expensive, but people are seeing the value in what we are bringing to the market and willing to spend the extra money on it because of the product that we bring and the value that they see from it. On the other end, maybe people that aren't quite as involved with their pet; they may be in a little bit of a crunch from inflation, they haven't seen salaries go up as much, and they're making some different buying decisions. That's not really our consumer group. That's not really who we're focused on, and that's not really the group we're after. But we are watching this play out for the category. It's been an interesting period. I think it's starting to kind of flatten out and moderate a bit. I think people are getting a little bit more, I think salaries have overall kind of grown a bit. I think people are getting more comfortable with pricing is in general across the market. And I think that we're in a really fortunate position as we've tapped into a need and interest in the market from a consumer group that seems to be really, really large and growing as they understand the differentiation of the products that we're putting out there.

Great. Thanks. Congrats, guys. Can you talk a little bit about the retailers? You mentioned the second and third fridges. We've talked about it over time that the cycle times and the review periods at these retailers when they do their performance reviews, how long does it sometimes take 12 months to 18 months to get these planograms and fridges added to the mix?

Hey, John. Yeah, it really in some cases, it can be a very, very long cadence with certain retailers that are in kind of certain mindsets and certain investment ideologies. And a great example, and you and I have probably chatted about this at one point. If someone is doing a massive remodel in '26, they're not going to probably do a big touch in a category in '25. But look, I mean, there's 70 retailers that we work with. So it spans the gamut. There are times where we could be having discussions now or in kind of Q1 that can have real impact in 2025, and we have seen that very often. I think the good news for us is that we are having great conversations now about things that will happen in '25, and if they don't happen in '25, some of them will happen in '26. And we feel like we're well-positioned to start going into next year with additional fridge expansion, space expansion, et cetera, as the retailers assess the category. The one thing I will put like the paid advertisement in here, the distribution is terrific. The media is what is the vast majority of the driver. It's over 70% of the driver for our growth and that's the growth algorithm. And then what that media does is it drives new consumers, hopefully, their HIPPOHs that come into the business and then we do see really, really strong same-store sales growth over time. We're always seeing double-digit same-store sales growth. So that puts us in a really good position. And then on top of that, then we'll add innovation and we'll add some additional space. And that's really what gets us to the rest of the growth rate that we're always looking for.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Mr. Cyr for closing comments.

Thank you, everyone. On this day before election day, I'm reminded of a quote from Will Rogers. I love a dog; he does nothing for political reasons. So reward that dog with some Freshpet. Your dog's affection will make you forget all those campaigning ads and fundraising texts you've been drowning in. Thank you very much.

Thank you. This will conclude today's conference. You may disconnect at this time. And thank you for your participation.