Good morning, and welcome to Freshpet's Second Quarter 2025 Earnings Call and Webcast. On today's call are Billy Cyr, Chief Executive Officer; and Todd Cunfer, Chief Financial Officer. Nicki Baty, Chief Operating Officer, 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 prospects and plans for growth, efficiencies of Ennis operations, timing and impact of new technology, capital spending, adequacy of capacity, expectations to be free cash flow positive in 2026 and our outlook for 2025 and long term. They involve risks and uncertainties that could cause actual results to differ materially from any forward-looking statements made today, including those associated with these statements and those discussed in our earnings press release and in our most recent filings with the SEC, including our 2024 annual report on Form 10-K, which are all available on our website. Please note that on today's call, management will refer to certain non-GAAP financial measures such as EBITDA and adjusted EBITDA, among others. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for how management defines such non-GAAP measures, why management believes such non-GAAP 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, rather is a summary of the results and guidance they will discuss today. With that, I'd like to turn the call over to Billy Cyr, Chief Executive Officer.

Thank you, Rachel, and good morning, everyone. The message I would like you to take away from today's call is that against the backdrop of subdued dog food category demand, Freshpet's growth continues to significantly outperform the category, and we are driving the operational improvements and capital efficiencies necessary to deliver our long-term margin and free cash flow targets even if the current economic constraints persist. Freshpet is a growth company, and we expect to continually deliver outsized growth. We are also a very nimble company, one that has a long track record of adapting to changing environments. Looking back over the past 6-plus months, it is now apparent that the dog food category has faced a sizable headwind for the first time in years. We have seen economic uncertainty resulting in consumers hesitating to trade up their dog food, defer well visits to the vet, decline medical treatments for their pets and defer getting a new dog or replacing a recently deceased dog. Return to office mandates and the high cost of housing have not helped either. This has resulted in declining growth rates for most leading pet food brands, including the leading DTC brands. The effect has been most pronounced amongst dogs as opposed to cats as cats are typically lower maintenance and lower cost, making them a relatively attractive pet to have in times like these. The current environment has challenged our ability to grow at the same rates as the past several years. To adapt to that, we have modified our plans and put in place what we believe are the necessary drivers to reaccelerate our net sales growth, which I'll review in a few minutes, and we've seen some early encouraging signs. We're also increasing the intensity of our focus on the things that we can control so that no matter how long it takes for the economic climate to improve, we can still deliver strong financial results. We've made tremendous progress in our operations and are quite bullish about our long-term prospects for the potential margins, profits and cash generation of the business. Our focus on operating improvements has driven a healthy improvement in our adjusted gross margin. But more importantly, those efforts in combination with new technologies we have developed will enable us to significantly reduce our CapEx while still expanding our manufacturing capacity to meet our long-term demand. As a result, today, we are lowering our CapEx estimates for 2025 and 2026 by a total of at least $100 million. While the operational progress we've made has touched virtually every aspect of our operations, some of the most significant achievements are: one, Ennis has become our most profitable plant. This happened sooner than we had planned and is the result of strong leadership at that site and a testament to the vision and thoughtfulness that went into the design of that kitchen. It is evidence that we've been able to convert our operating experience into continual improvements that will ideally put us well ahead of any potential competitor in our mastery of fresh pet food manufacturing. Further, because Ennis is expected to provide more than 50% of our production volume within the next 2 years, its productivity advantages will have a greater and greater impact on the company's total profits over time. Second, development of new production technologies. We have previously indicated that we have created a new way to make our bag products and expect to start up our first new production scale line with that new technology in Q4 of this year. If it works as we expect it to, we believe it will deliver higher quality product at lower cost through increased yields and throughput. It is the potential to significantly narrow the gap between the margins we make on our rolls and on our bags, and this technology could potentially be the basis for new bag lines going forward. Additionally, we've recently developed a light version of the same technology that can deliver many, but not all of the same benefits and could be retrofitted to our existing lines at relatively low cost with minimal disruption. We plan to test the light version on one of our existing bag lines in the first half of 2026, and it could be reapplied to several of our other bag lines by the end of 2027, if successful. The pilot test runs of this technology indicate that it will work and would enable us to deliver more capacity per line from our already installed production base, and number three, ability to reduce capital spending by a combined total of at least $100 million in 2025, 2026. We've made exceptional progress at improving our throughputs, yields and operating effectiveness, and that is enabling us to get more output from the existing lines and staffing, leading to lower quality costs and improving margins. In combination with our new technologies, we now believe that we can defer at least $100 million in CapEx from 2025, 2026 and still meet the demand we expect to generate for the foreseeable future. This reduction in CapEx will have a direct impact on our cash flow and make the business much less capital intensive for the next few years. To be clear, some of this reduction is the result of slowing demand we've seen so far this year, but the remainder of the reduction is due to the improved operating efficiencies and new technologies we expect to implement over the next 2 years. We are very proud of our team for its ability to adapt to the current environment and still deliver such exceptionally strong performance, which provides the foundation for even greater financial and strategic advantages. We pioneered this category and fully intend to maintain our advantages as the category grows, matures and attracts new competition. With this strong footing, we are in a very good position to drive the growth of Freshpet. As you know, this has been a particularly challenging year on the top line, something that has typically not been an issue for us. Our media model has driven strong and predictable growth for a very long time, and the performance we saw earlier this year caused many to question it or if we had saturated our total addressable market. Our data suggests that neither is true, our media model is, in fact, still working, and we still have a large and untapped total addressable market. We are growing across all channels, income groups and generations. The sales growth is just not as robust as we would like it to be today. We believe our growth rate versus a year ago has now stabilized, and we are encouraged by some green shoots. However, given that we have not seen a greater increase in our year-over-year net sales growth yet, we believe it's prudent to adjust our net sales guidance for the year. Our updated guidance assumes the macroeconomic environment stays relatively the same and that we execute our plans, focusing on areas that are in our control. The 3 key areas we are most concentrated on are: first, marketing. We've updated advertising on air that better explains the difference that fresh food can make and plan to launch another media campaign later this month that we believe will help drive greater household penetration. We have also shifted marketing dollars to other channels like digital, social and connected TV, where we've been underdeveloped previously, and we can be more targeted with our most valuable pet parents. Second, distribution expansion. We are working on greater visibility in value channels such as club and mass, expanding our small direct-to-consumer business called Freshpet Custom Meals as well as several other opportunities. Digital orders, which we previously referred to as e-commerce, continue to have outsized growth and were up 40% in the second quarter. Digital now accounts for 13% of our sales. Our revised top line guidance also incorporates a much greater level of certainty on our expansion within the club channel, specifically. As of last week, we've expanded our test in a leading club retailer and are now in 125 stores, and we are optimistic we will be in more stores later this year. Other customers have also committed to adding second fridges and have expressed interest in testing some of the island fridges we previously shared sometime later this year or early next year. Third, value-focused products. We are launching a new complete nutrition bag product and rolling out new multipacks and bundles of rolls and bags, both online and in-store later this year. These will be available in select retailers. Now I'd like to briefly provide some highlights from the second quarter. Second quarter net sales were $264.7 million, up 12.5% year-over-year, primarily driven by volume growth. This was slightly lower than our expectations as shipment growth lagged consumption growth due to a small shift in orders from the end of June to early July. Adjusted gross margin in the second quarter was 46.9% compared to 45.9% in the prior year period. Adjusted EBITDA in the second quarter was $44.4 million, up approximately $9 million or 26% year-over-year. From a category perspective, we continue to be the number one dog food brand in U.S. food with a 95% market share within the gently cooked fresh, frozen branded food dog segment in Nielsen brick-and-mortar customers, defined as excluding all other channels plus pet. We compete in the $54 billion U.S. pet food category per Nielsen omnichannel data for the 52 weeks ended June 28, 2025, and we have only a 3.6% market share within the $37 billion U.S. dog food and treat segment. From a retail standpoint, our products are now in 29,141 stores, 24% of which have multiple fridges in the U.S., and we expect that percentage to continue to grow as we focus on adding second and third fridges in the highest velocity stores. We ended the second quarter with 37,985 fridges or more than 2 million cubic feet of retail space with an average of 20.8 stock-keeping units in distribution. Our percent all commodities volume in grocery, where we're the dog food market leader, was 79% at quarter end and in excluding all other channels, only 68%. Discussions with retail customers continue to be very positive as they recognize the growth in the category has been and we believe will continue to be led by Freshpet food. Household penetration as of June 29 was 14.4 million households, up 11% year-over-year, and total buy rate was $110, up 6% year-over-year. Our heaviest users, what we refer to as most valuable pet parents, are growing even faster and totaled 2.2 million of those households, up 18% year-over-year. Most valuable pet parents represented 70% of our sales in the latest 12 months with an average buy rate of $501. Turning to capacity. As I mentioned earlier, we are expanding capacity to keep up with demand and are able to push out capital expenditures because of the progress we've made operationally. Our operating efficiencies, particularly in Ennis, are well ahead of our glide path, and that frees up significant capacity with no incremental capital. We currently have 15 lines across our manufacturing footprint with an additional bag line expected to commence production in the fourth quarter this year. As I said earlier, this new bag line will be the first time we are testing our new technology at scale, not just at a pilot plant level, but we are very encouraged by its potential. Now turning to our outlook. For fiscal year 2025, we now expect net sales growth of 13% to 16% year-over-year. We are reiterating our adjusted EBITDA guidance of $190 million to $210 million and now expect capital expenditures of approximately $175 million. Todd will walk through more details of our 2025 guidance in a few minutes. In regard to our long-term outlook, today, we are removing the $1.8 billion net sales target and the related 20 million household target in fiscal year 2027. The sizable reduction in the category growth rate and new pet additions have made it increasingly difficult to maintain our previously projected rate of growth, so we believe it is prudent to remove those targets. To be clear, we do expect to grow at a rate well in excess of the category, thus increasing our market share. We have a large and growing total addressable market and believe it will provide many years of sustained growth. Additionally, our strong operating performance has given us increased confidence in our ability to deliver our 48% adjusted gross margin and 22% adjusted EBITDA margin targets in 2027, even without the benefits of the added scale as long as our sales volume growth remains at least in the teens. As a reminder, the new production technology was excluded from the long-term margin targets, which allows even more upside to margins if it works. In summary, we believe we have an incredible opportunity to improve the lives of pets everywhere through the power of fresh, natural food, and we've not lost sight of that mission. We are taking actions to adapt to the current macro environment and our scale advantages make us better positioned now than ever to address those challenges. We have a healthy balance sheet, solid operating performance, ample capacity, and we are a stronger organization than we were a few years ago. We've always been resilient and nimble, and our scale today gives us the flexibility to lean into certain areas such as marketing, new technology and innovation to develop solutions to consumer uncertainty today while also expanding our competitive moat. Now let me turn it over to Todd to walk through the details of the second quarter results and our updated guidance.

Thank you, Billy, and good morning, everyone. The second quarter results demonstrated strong operational effectiveness and profitability improvement, but were slightly below our expectations on sales. Now I'll give you some more color on our financials and updated guidance. Second quarter net sales were $264.7 million, up 12.5% year-over-year. Volume contributed 10.8% growth, and we had positive price mix of 1.7%, primarily driven by mix. We saw broad-based consumption growth across channels. For Nielsen-measured dollars, we saw 13% growth in excluding all other channels, 13% in total U.S. Pet Retail Plus, 12% in U.S. Food and 6% growth in Pet specialty. Consumption growth in the quarter was approximately 14%. However, we saw a slight shift in timing of orders from the end of June to early July that impacted net sales growth by about 1 point. Second quarter adjusted gross margin was 46.9% compared to 45.9% in the prior year period. The 100 basis point increase was driven by lower input costs as a result of higher yields and leverage from our Ennis chicken processing facility and reduced quality costs, partially offset by reduced leverage on plant expenses. Second quarter adjusted SG&A was 30.1% of net sales compared to 31.0% in the prior year period. This decrease was primarily due to lower variable compensation accrual, partially offset by increased media as a percentage of net sales. We spent 15% of net sales on media in the quarter, up from 12.2% of net sales in the prior year period. Logistics costs were 5.7% of net sales in the quarter compared to 5.8% in the prior year period. Second quarter adjusted EBITDA was $44.4 million compared to $35.1 million in the prior year period. This improvement was primarily driven by higher gross profit, partially offset by higher adjusted SG&A expenses. Capital spending for the second quarter was $33.4 million, while operating cash flow was $33.9 million, and we had cash on hand of $243.7 million at the end of the quarter. We are confident in our ability to be free cash flow positive in 2026 and intend to utilize our balance sheet to support our growth going forward. Now turning to guidance for 2025. As Billy said earlier, we now expect net sales growth of 13% to 16% compared to our previous guidance of 15% to 18% growth year-over-year. We are assuming the macro environment and consumer uncertainty stays relatively the same and have adapted our strategy to reaccelerate growth. In terms of cadence, we expect a sequential increase in net sales per quarter. We invested more heavily in media in the second quarter to drive household penetration growth in the second half. We will be launching a new marketing campaign later this month, adding more value-oriented offerings in the fall and expect to increase distribution throughout the remainder of the year, including our expanded test in the club channel. We continue to expect adjusted EBITDA in the range of $190 million to $210 million. For cadence, we expect adjusted EBITDA to be back half weighted with sequential adjusted EBITDA dollar and margin improvement throughout the rest of the year. Media as a percent of sales is expected to be greater than 2024. However, we are monitoring the spend closely and will pull back if we are not seeing the returns. We still anticipate modest adjusted gross margin expansion year-over-year driven by operational improvements and do not anticipate any material inflation or pricing actions. In regards to tariffs, we are currently seeing a small impact on vegetables sourced from Europe and spare parts and mitigating them where we can. Capital expenditures are now projected to be approximately $175 million this year compared to our guidance last quarter of approximately $225 million and original estimate of $250 million. Some impact from tariffs, particularly on the cost of steel for new construction and new equipment is included in the updated CapEx projection. The majority of our CapEx spend is focused on the installation of new capacity to support demand in the out years, but we are seeing greater capital efficiencies that are allowing us to reduce our spend both this year and next year. We anticipate 2026 CapEx will be the same or less than what we are spending in fiscal year 2025, which gives us even more confidence in our ability to be free cash flow positive in 2026. Based on today's guidance for 2025, it is evident that our ability to hit our 2027 net sales target is unlikely, so we believe it's prudent to formally remove the $1.8 billion target. We believe we will have industry-leading growth. And if we are able to maintain net sales growth in the teens on an annualized basis, we are confident in our ability to manage costs, operate effectively, and still achieve our long-term margin targets of 48% adjusted gross margin and 22% adjusted EBITDA margin. In summary, while this year is not where we plan from a top line perspective, we are aggressively managing costs and are very pleased with our performance on the bottom line. By focusing on the areas of the business we can control, we are seeing operational efficiencies continuing to drive margin expansion and reduce capital requirements as we further build capacity. We are also further strengthening our competitive position via new, more efficient production technologies, expanded distribution and operating expertise that is delivering greater consumer experiences at lower operating costs. We are building a stronger, more profitable business and believe we have a significant runway for growth. That concludes our overview. We will now be glad to answer your questions. And as a reminder, we ask that you please focus your questions on the quarter, guidance and the company's operations.

Our first question comes from Peter Benedict with Baird.

I am curious about the path to 22% in 2027. From a top line perspective, it seems like you've addressed the question regarding the 13% to 16% top line growth expected this year. If you achieve that, it should support reaching 22%. Can you provide insights on the SG&A components that contribute to that 22% within your operating expenses? Additionally, is there any anticipated timing shift related to the new technologies that might impact your growth path in 2027 compared to 2026? I'm looking for a conceptual understanding, not specific guidance.

Sure. As we've mentioned, as long as we achieve mid-teens growth over the next couple of years, we feel confident about reaching 48% and 22%. For the 48%, we expect to be close to 47% this year, and as these technologies begin to perform as anticipated in the next two years, there may be some additional potential beyond that 48% figure. Additionally, sales growth in the teens will provide us with significant leverage in general and administrative expenses, which is very encouraging. We believe there is still more to achieve in logistics, while media sales are likely to align closely with overall sales growth in the coming years. There might be a slight increase in media margins, but it’s expected to grow in line with sales. Overall, we are optimistic about leveraging both gross margins and G&A to confidently reach 22%.

Peter, I just want to amplify two points in there. One is the operating performance we're having is so strong, it's what is driving that confidence in the 48%. The second piece is, as we said in the prepared remarks, the benefits from the new production technology are not factored into that target, and that's the basis for Todd's confidence in our ability to exceed the 48% if those technologies work out.

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

So maybe just a clarifying point here. Is the expectation that you removed the net sales target, but you're sticking with the gross margin and EBITDA margin targets is predicated on, it sounds like, I guess, low to mid-teen growth. So is that generally where you're directionally guiding the market towards or how you expect to be judged through this cycle through '27?

Yes. I mean, not specifically. What we're saying is to hit the 22% EBITDA margin probably requires us to be in that range that you just described. If we would slow down to 10% or lower, getting that 22% would be very challenging just because of the lack of G&A leverage. So look, are we confident that we can be in that kind of range over the next few years? Look, we think we can be in double-digit growth. The question is, just with the uncertainty right now, are we going to be closer to 10%? Are we going to be closer to 20%. So we're not giving specific guidance over the next few years. We'll probably come back at some point in time and do that, but the assumption is if we can hit that low to mid-teens number, the 22% is very achievable.

Okay. And then maybe just kind of asking about the dynamics between household penetration and buy rate. I think the implied media per household looks not quite as bad as feared, but the buy rate did slow a bit, so it seems like you are acknowledging some pressures with trying to attract new households and that seems to be weighing on the trend in household penetration. But on buy rate, I guess I would have assumed that the buy rate would be better if the household penetration was slowing at the rate. So maybe just comment on what exactly you're seeing there? I mean, is this a byproduct of the more vulnerable consumer within your household penetration that may be switching with elevated promotion in the category. What are you seeing that's weighing on the buy rate right now?

The buy rate is currently running above the growth rate, which is slightly higher than our long-term sustainable growth rate due to the decline in household penetration compared to previous levels. This situation is affected by consumers being less willing to upgrade their purchases than they have been in the past. This includes not only moving from dry dog food to a brand like Freshpet but also shifting from lower-cost items to more expensive ones within our product range. It's important to note that there is a diverse range of consumer behaviors. For instance, one of the fastest-growing segments of our products right now is our home style creations, which are our highest-priced offerings, indicating some positive trends among consumers who are ready to change or upgrade their product choices. The question remains, however, regarding how many such consumers are out there.

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

I have a question regarding the current household penetration rate, which is at 11%. Given the current market environment, does this affect your outlook on how many consumers will continue to purchase high-end or super-premium dog food? I'm curious to understand if we might be nearing a limit on this segment. Also, does the market slowdown influence your perspective on this? Household penetration appears to be a key metric, and I wonder if it has altered your long-term forecasts.

Well, this is Nicki. Our household penetration, we've done a lot of work recently on what we believe our total addressable market can be for the future, and within that, we've also looked at where our brand positioning is and how strong we believe our proposition is to grow into that total addressable market. So when we take a step back and look at it, we've got around 14 million, 14.5 million households at the moment. We still believe we've got tremendous runway to around the mid-30s total addressable market goal, and then within that, we've done a lot of work on these most valuable pet parents that we're really going after, and we're still very nascent, I would say, in our journey to grabbing those consumers that are very interested in our brand. So we've got some goals out there whereby we believe over time, we can go from just over 2 million most valuable pet parents to around 7 million most valuable pet parents that have a very high level of interest in a fresh, less processed healthy, strong premium brand proposition. I think the other point maybe to build on is our most valuable pet parents are actually already in the category. So the other piece of work we've also looked at is within those most valuable pet parents, we've actually got 90% that are already in the category today. So by going after more most valuable pet parents, we become a little bit less dependent on that category growth rate for the future.

I appreciate the color, and then, Todd, one question on the variable comp commentary, was it just a lower accrual this quarter and I'm assuming for the remainder of the year? Or was there a reversal? Just trying to understand, did that have where things came versus kind of your internal expectations?

Yes, there is no reversal. We had an extremely strong year last year, which resulted in a very high incentive compensation payout. This year, we are trending lower, so it's simply a year-over-year difference without any reversal.

Our next question comes from the line of Steve Powers with Deutsche Bank. Todd, one question on the variable comp commentary, was it just a lower accrual this quarter and I'm assuming for the remainder of the year? Or was there a reversal? Just trying to understand, did that have where things came versus kind of your internal expectations? Yes. No reversal. We had a super strong year last year and obviously had a very high incentive comp payout. We are trending lower this year. So it's just a year-over-year delta, no reversal.

I was hoping you could just go maybe a little bit deeper on back half plans to drive demand and what will be different from what we've seen year-to-date. I guess within that, maybe drill a little bit into how big a role the push on value will play? And then also any thoughts around competition, both indirect and direct. I think Blue Buffalo's upcoming launch is top of mind for many investors. So to the extent that, that's impacted your plans, that would be helpful to understand as well.

Yes. Thanks, Steve. I'll start and then Nicki will fill in some more thoughts. But first of all, as we think about the back half, the big drivers are going to be the drivers that we've historically leaned on pretty heavily, which is advertising, but with a different message. We actually have a different message on air today, and we have a new campaign coming, and Nicki can give you a little bit more color on what that's all about. The second is expanded distribution. You heard in the prepared remarks, we've expanded significantly the club store test that we've been describing in the past. We're now in 125 of those stores, and we feel good about what's coming behind that. So that's factored into our expectations for the balance of the year. The third part is the product innovation that we described last quarter. The complete nutrition product that is a bag version of the roll we launched a year ago. That is not yet in any of our numbers. It's going to show up in roughly September, October. So it's not going to have a big impact this year, and we don't expect to have a big impact overall. It's really a driver of household penetration. It's an easier way to enter the franchise, and that's scheduled to roll out in September, October, but it's not a big contributor to the actual net sales this year. The bigger pieces will be the advertising and the retail availability expansions. I don't know, Nicki, do you want to add to that?

Great. Steve, the bit of color I would bring is that we've just got testing results back for the new creative campaign, and we feel really good about where that's coming in at the moment. You will see us start to tell the next layer of the Freshpet story, much more going after our health credentials, and we think we're right on trend at the moment. It's definitely with less processed food being a key focus for humans, and we feel that this is really a rich space for us, especially in kind of more of a clean label environment, too. So I think you'll see that coming through the back end of the year. The other part I would say on retail capability is retail engagement is extremely strong. We're already ahead of our targets, in terms of both new store, new fridges and also multiples when we look at this stage in the year with commitments that are strong for the back end of the year, and then in terms of that product innovation, Billy obviously mentioned the new value entry-level bag, but we also will push heavier into multipack and also what we call virtual bundles, which will offer that a little bit of a discount and a saving, especially for those heavier consumers.

Our next question comes from the line of Robert Moskow with TD Cowen.

I was wondering if you could talk a little more about the nature of the new advertising. I thought I saw some things online already from Freshpet that seem to draw a big distinction between fresh dog food and kibble and saying that kibble is overly processed and fresh is therefore better. To what extent is that part of the messaging? And then like do you foresee any confusion with consumers? Because I think your competitor will be actively marketing fresh in conjunction with kibble, and I think a lot of your consumers already use it in conjunction with kibble. So maybe I'm in too much in the weeds, but how are you thinking about that balance?

It's a fair question. We have many valuable pet parents who are definitely interested in mixing as a key behavior, whether that's combining kibble with fresh food or wet food. Mixing is a significant part of their feeding habits. We want to ensure that pet owners understand the health benefits of feeding fresh food, whether they use it as a mixer or a main meal. We believe there is substantial opportunity for growth in both mixing and main meal behaviors, which will also help increase buy rates and new household penetration. You'll notice some new creative marketing aimed at different segments of valuable pet parents as we move through the latter half of the year.

Our next question comes from the line of Michael Lavery with Piper Sandler.

I just wanted to come back to the competitive dynamics and maybe just understand how you think about the impact of something like Blue Buffalo's push. They've been clear they plan to do a good bit of spending themselves. Is it your expectation that, that can drive faster category growth that it would sort of leave you unchanged? Could it drive even better momentum for you? Do you think more competition splits the same pie as more conservative? Just how do you think about what that impact on your outlook is and how investors should be thinking about it?

Yes, Michael. We believe this is clear evidence that we are in a very attractive, high-growth category with long-term potential. We are drawing in many customers, not just because of the Blue Buffalo entry, but also because others are entering the market in various ways, demonstrating that this is the future of pet food. History shows that category creators like us, when they execute well, typically capture the majority of the market they have developed. When established competitors decide to invest in this segment, it tends to expand the entire category, benefiting everyone involved. As we've mentioned before regarding the Farmer's Dog, their advertising helps us by reinforcing the idea that there are better ways to feed pets than just using kibble and canned food. If General Mills invests in promoting better pet feeding options, it is beneficial for the entire category, even if they focus on it as a supplementary message. Ultimately, the fresh segment we are in will grow larger, and we are confident about our competitive position. We have considerable scale in both retail and operations, a wide range of products, and a loyal customer base. Therefore, we are optimistic about our position and are looking forward to the increased category awareness.

That's really helpful, and we've touched on the advertising a decent amount already, but one more follow-up on that is, can you just maybe give a sense of what insight drove the change? Or what was the starting point of looking for an evolution in the message? Or how did you decide to make a bit of a pivot there?

Yes, I'll take this one, Billy. So in terms of what we've learned really about the brand is we've done a terrific job with Freshpet in really establishing in our advertising, and I'm sure many of you have seen it for the last couple of years, that very strong bond that you have between yourself and your dog, and that comes through very powerfully. You are going to make no compromises in your life. You're going to take your dog on holiday with you. You're going to do everything and your dog is going to be the primary member of your household, but when we really take a little bit of a step back, we felt that we're now ready to tell that next stage in our Freshpet story, and there was a big opportunity from certainly a number of our most valuable pet parents asking questions around, hey, you are really healthy. The ingredients that you're using are absolutely fresh. They have some really strong health benefits, why are you not talking more really about these areas. So for us, it's not an either/or. It really is sort of continuing, if you prioritize your dog as a favored member of your family, it's building out from that message and it's layering in those new health credentials, and this is why we feel good really about that new advertising direction. It will still have that Freshpet tone, that Freshpet humor that many have come to love and expect from us, but it's really going to start to bring in why we think we're special, why we think we're unique and why we think we are the best way to feed your dog.

Our next question comes from the line of Kaumil Gajrawala with Jefferies.

I guess a couple of questions on retail. First is last quarter, there was some issues with the distributor getting into pet specialty. Just curious where you are with that process, is it sort of all resolved now? And then on the expansion into club, I guess you went from test to 125 is incorporated in your guidance to go from 125 to full national? Or is it the sort of thing that it sort of keeps building from here and more of it happens in '26?

The issues with the pet specialty distributor have been resolved. Although there was significant disruption in the first quarter, we managed to clear up most of the problems by the end of that period. There are still some areas where effectiveness hasn't fully returned to previous levels, but there are also strong performances in other regions. Overall, we are optimistic about our standing in the pet specialty distribution channel, and it did not materially affect the quarter. Regarding the club expansion, we are quite pleased with the progress made and the growth to 125 stores. Our guidance for the remainder of the year reflects our expectations based on the current plan, which we cannot disclose in detail. However, the results from the stores we've opened so far are promising. We’ve only been active in the first store since April, and the other locations have only recently come online in the last couple of weeks. This limits our ability to gather long-term data, but the performance of the first store has been impressive, and we feel confident, as does our customer, which is considered in the guidance we've shared.

Got it. I guess that's why the guidance also indicates sequential improvement. On EBITDA, I see you've lowered your top line a few times over the year, but EBITDA has remained consistent. Was it always the plan to achieve this level of efficiency, and were you uncertain about how it would materialize or at what rate, considering that if sales were higher, there would be more leverage? Or was there an additional effort? Did you discover something new that helped sustain that EBITDA level even with a slightly lower sales figure?

We are optimistic about our margins this year, and the plants are exceeding even our best expectations. As we noted during the call, Ennis has transformed from our least profitable facility to our most profitable facility in the first half, which we never anticipated would happen so quickly. We're really pleased with the progress. The quality costs in the quarter are significantly lower than our most optimistic projections. Overall, we are operating extremely well. It's unfortunate that we don't have more volume going through the plants at this time, as that would enable us to deliver an even stronger gross margin and EBITDA. However, our operational performance is the standout aspect of our story this year, and as we start to generate more top-line growth, you can expect to see greater profits.

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

I guess just going back to the consumer, just curious what you're seeing within different income brackets, and as you look at your portfolio, are you seeing any shifts within your portfolio?

In terms of what we're seeing really across income groups, I think as Billy sort of highlighted first half, we're still growing across all income groups, and we're also growing across all demographics as well and all channels within that. So I think we're feeling good overall that the Freshpet proposition is working for all. In terms of where we are seeing higher returns, certainly within most valuable pet parents, it's really coming through that higher income bracket. So we are a little bit disproportionate with most valuable pet parents into higher income overall, which is, again, probably what you would expect to see in the current consumer environment, too, and then when we sort of take a little bit of a step back and we think about where things are going a bit more in the future, I think as we start to increase the growth rate of most valuable pet parents coming through, I do think that we will start to see a little bit more of a trend into higher income, and I think that we will see an expansion in particular within millennials and Gen X, which is already where we are strong. And then within the portfolio, as Billy mentioned, Homestyle Creations is performing extraordinarily well at the moment. We've also launched new innovation earlier this year in the Homestyle Creations Chicken Bites, which has far exceeded our expectations. So we see this part of the portfolio being a big opportunity for future innovation over the coming years as well.

Our next question comes from the line of Peter Galbo with Bank of America.

Todd, maybe just two kind of cleanups. One, I think you said it was about 1 point of shipments that shifted from Q2 to Q3. So we should see that point obviously come back or outpace scanner, I guess, in the upcoming quarter? And then the second one, just to clarify, the CapEx, the $100 million that's kind of lower over the next couple of years, I know you said a part of it was lower demand versus the efficiency, but maybe you could just split out kind of how much of it is the demand needs versus what you've actually done better.

Yes. To address your first question, total consumption, both measured and unmeasured, was approximately 14% for the quarter. With a 12.5% net sales growth, we did see a shift in consumption, with around $3 million to $4 million moving from June to July, resulting in strong performance in July. This gives us confidence that the shift happened as expected, and we saw the effects in the July results. It's a positive sign. While the point of sale trends are stable, we are somewhat disappointed that they aren't increasing more quickly. We anticipate net sales growth to remain similar to or slightly exceed what we achieved in Q2. Regarding your CapEx inquiry, pinpointing the exact division of the $100 million into growth versus efficiency is challenging. A significant portion of the savings over the next few years stems from the postponement of Phase 3 at Ennis, which is a substantial investment. Some of this is due to a slowdown in growth, but we have made considerable progress in operational efficiency over the past year. With the new technology and the upcoming line we’re implementing in Bethlehem, which we believe will enhance our capacity, along with other initiatives within our operations designed to increase capacity with minimal capital outlay, we are optimistic. Currently, we have $1.5 billion of installed capacity, which strengthens our confidence in reducing CapEx expenditures in the coming years. The main focus remains on delaying capital for Phase 3 at Ennis, which is influenced by the business slowdown, but we wouldn't be able to defer these capital expenditures without our current efficiency gains. The turnaround at Ennis has been remarkable, with improvements in yields and overall equipment effectiveness, and the team has been working exceptionally well together, which reinforces our decision to push capital out. That’s the main factor driving this.

Yes, Peter, I want to emphasize that while it may seem a bit complicated, we are strongly focused on improving yields and throughputs in our manufacturing processes. Both the new technologies we are developing and our current efforts to enhance overall equipment effectiveness are aimed at achieving these goals, and the results have been truly exceptional. We are about a year ahead of our initial expectations regarding overall equipment effectiveness, and the advancements in technology only enhance our performance further. This translates to increased production per hour of labor and greater output for every dollar spent on ingredients, resulting in impressive returns for us. Therefore, we will continue investing in these initiatives, which ultimately helps reduce capital expenditures, marking a significant advantage for the company.

Our next question comes from the line of Jim Salera with Stephens Inc.

Bill, I wanted to explore something you mentioned at the start of your prepared remarks. In addition to the overall economic fluctuations, you're noticing some challenges related to the return to office and rising housing costs, which appear to be more persistent trends. Could you share your thoughts on whether we might observe a peak number of dogs per household in the post-COVID environment? Do you have any insights on how that might evolve in the future? Also, do you think the overall number of dogs per household is on a slower growth path, and how do you see that potentially posing ongoing challenges?

We have spent a significant amount of time examining this situation. There is a theory that the pandemic led to a surge in dog adoptions, and we are currently adjusting back from that surge, which has some validity. However, I believe we are now five years into that period, and we are approaching the end of that trend. Additionally, you mentioned the impact of housing and the return to office work, which also has a generational aspect. The data suggests that many high-income baby boomers, who are advancing in age, may have dogs that are passing away, and they are less inclined to adopt a new pet in order to enjoy time with their grandchildren or travel. This trend has been common in the past; however, younger generations that typically adopt pets are not currently entering the household formation stage as they should. Concerns about leaving a dog alone at home, restrictive landlord policies, and the inability to afford housing are affecting their decisions. While this factor is not a major part of our volume changes, it does contribute to the larger picture. Certainly, these markets are cyclical, and we can expect a return to more normalized growth rates over time, as the desire to own a dog remains unchanged. People still want pets, and they will adopt them eventually, even if not this year or next. Our emphasis is on things within our control, such as providing a compelling advertising message, focusing on fresh benefits, ensuring product availability and assortment, innovating, and delivering products at competitive prices. As long as we maintain this focus, we are confident, as Todd mentioned, that we will outperform the category significantly. This market segment will grow substantially. However, we cannot alter the housing market or workplace policies; those will take time to stabilize. When normalization occurs, we will be positioned to succeed.

Great, and then maybe just pulling on that thread a little bit more. You also mentioned some of those dynamics maybe favor cat ownership versus dog ownership in some scenarios. I know cat food is a much smaller piece of your business. Is there any potential we could see on the innovation side, maybe some more pivot towards expanding the cat offering? And if you can just offer any thoughts, I don't know if that would require any substantial change to equipment or how you run the lines or anything? Just some thoughts there would be helpful.

Yes. I mean, Jim, we obviously are very interested in the cat food market because as you point out, it is growing. It's right now, while the dog food market is down in the, call it, low single digits, the cat food market is up in mid-single digits, and it's for the reasons that we cited and you reiterated in your comment. We do have a small cat food business. We'd like to have a bigger cat food business. It's going to take some time, cats have a very different way of eating than dogs. Dogs have big jaws, they like to chew. Cats tend to eat with their tongue; they lap food, and so it has very different requirements. There are very different requirements for the product on cat food, and you also have to have fridges in the right places, and you have the right messaging. We're working on it. We have an interest in that area, but it's not something that's going to happen this year.

Our next question comes from the line of Marc Torrente with Wells Fargo.

I guess just building on the last reply, maybe more philosophically, how are you prioritizing top line growth at this point? Are current trends leading you to accelerate other potential opportunities that have been discussed in the past such as new channels, international or adjacent categories? Or are you comfortable letting the business grow at current rates and continuing to pace or scale up?

Yes. We are clearly focused on our U.S.-based dog food business as our top priority. This is because we have the greatest strength in this area and believe there is still a significant opportunity. We currently hold a very small share of a large market. However, we are also continuing to explore development opportunities in cat food, as previously mentioned. Our Canadian and U.K. businesses are under evaluation to determine the right level of investment for each, but our primary focus will remain on the U.S. dog food market, where we anticipate directing most of our investments moving forward. Regarding revenue management, we will invest when we see favorable returns and refrain from investment when returns are not strong. We are in a strong position regarding margins, cash generation, capacity, and organizational capability, giving us more options than in previous years. It is important to be strategic; we do not want to pursue growth regardless of the costs. While we are a growth-oriented company and need to generate growth, we will approach this carefully.

I would say the opportunity in the digital world is enormous. We're growing very nicely around 40%. It's only about 13% of our net sales today for the category, it's probably around the mid-30s. I'll let Nicki talk about some of the things we're doing and the team that she is building, but there's an enormous opportunity on the digital side.

Thank you, Scott. If I had to highlight three key focus areas for our growth opportunities, e-commerce is definitely one of them. Building our digital marketing strategy is crucial, especially since 35% of the pet category sales occur online, where we currently hold a very low market share. We're analyzing our partnerships and considering how we can leverage our network of 28,000 micro fulfillment centers across the U.S. We're seeing positive results with last-mile delivery partners like Instacart, and our Click and Collect business is also experiencing strong growth. Expect to see more developments in this area as we move into next year.

Ladies and gentlemen, that concludes our time for questions. I'll turn the floor back to Mr. Cyr for any final comments.

Great. Thank you, everyone, and thank you for your interest. I want to end with a thought for you. This is a quote from an unknown source: "If your dog is fat, you're not getting enough exercise," to which I would add, a Freshpet meal will get any dog off the couch and give them the energy to help you work off unwanted pounds. Thank you very much for your interest.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.