Conference Transcript - OFRM 2026-09-10

Speaker 1

Perfect. All righty. Good stuff. Welcome back, everybody. And excited for our next session. I'm thrilled to welcome, for the first time, actually, at our conference, Once Upon a Farm, which went public back in February of this year. With us today, our co-founder and CEO, John Foraker, and CFO, Larry Waldman. Thanks to both of you for joining us. Appreciate it. Great to be here. Yeah, maybe a good place to start. I think there's probably a bunch of folks here that aren't maybe as familiar with the Once Upon a Farm story. I think maybe it might be helpful to kick it off with just a quick intro to the company and anything else you think that's important just to highlight regarding Once Upon a Farm and sort of the company's strategy and sort of what differentiates it from a lot of the other offerings out there.

John Foraker, CEO

So Once Upon a Farm is building a modern childhood nutrition brand, baby's first foods up through about age 12. Larry and I and Jen Garner joined this company in late 2017, almost nine years ago. It was less than a million dollars in revenue at that time. It was really an idea to go disrupt fresh baby food. We got it well north of $300 million this year, so there's been a lot of growth. We think the opportunity is there for this to be a billion-dollar brand, very clearly with our strategy. What you should know about our business is we have very high standards. We're certified organic. We're a public benefit corporation. We have really important values and principles that are built into the way that we're running this business and also the kind of products that we're driving and supporting. We have a very strong process in place that we're known for, for our products, particularly our fresh pouches, which are our really first products that we did. They're made with HPP, high pressure, instead of heat. So we take these grapefruits and vegetables and other ingredients, put them into a pouch, and then processes them using pressure, and we get a shelf life that lets us go into retail commerce with them, and the product tastes like a smoothie you made in your blender 10 minutes ago, four months later. So incredible product quality, and we've now built that and are starting to take that brand from baby all the way through kids, older kids. So we have a really strong position in baby aisles. In coolers is a big part of our strategy is growing and disrupting the baby aisle with fresh coolers, and then dry baby snacking. And then we're over in Kid Dairy with our kid snacking pouches, which is our first product line that's been very successful, continues to grow. And then about every 12 to 18 months, we'll be taking the brand into another part of the store. And the whole idea is really to bring consumers into this brand, baby through kid. They trust the brand. They know the quality of the products and what the brand stands for. As a result, as their kids age, we're meeting their needs as those kids age and therefore creating a really high lifetime value of the consumer. And the other thing you should know about all this, the reason it's working so well is we're extremely incremental to every category we go into, 60%, 80% incremental, which drives a lot of growth for us and our retailers. We're the number one growth-driving brand in our categories for our retail partners, and we have a long future ahead of us that we're excited about.

Speaker 1

Thank you for that. We've now raised revenue guidance twice this year. Underlying consumption has remained in the sort of low to mid-30% range, and many of the key consumer metrics you've highlighted, including household penetration, repeat rates, buy rates, continue to move in the right direction. I guess one of the biggest debates around Once Upon a Farm today is whether the business is still in the sort of early innings of a sort of multi-year growth curve or whether some degree of normalization is inevitable as the company scales. When you think about the next several years, what are the biggest drivers that give you confidence growth can remain elevated, even as the revenue base becomes materially larger?

Larry Waldman, CFO

Yeah, so we built a long-term algorithm with a 20% annual growth rate. Early on, for the next three years, we expect to be higher than that, but long-term, we're looking at 20%. What's going to be driving that is really a few things. First, we're at a 6.2% household penetration. So a lot of the growth is going to be driven by adding households to the brand and driving household penetration. We believe that we can increase our household penetration by three times, and that's going to drive a significant amount of growth. Next is distribution. We're about at 70% ACV right now. We added almost 100,000 points of distribution in the last quarter. We're going to continue to add the distribution. We're working on a program. we will be adding doors. We will be adding different channels over the year. But one thing that we're looking to do is really add a number of assortment in each one of our areas of distribution. So we're currently at about a little under 30 SKUs per door that we're in. And we're looking at adding additional distribution in each one of those doors. We have certain doors that are up at 60, certain doors that are up about 100 points of distribution. Every time we add a cooler in, it adds around 50 SKUs into that door. So we're really looking. We are going to increase distribution, but we're really looking at increasing the assortments in our existing doors and driving distribution there. The third thing is coolers. We're currently at 4,100 coolers at the end of the last quarter. We're continuing to drive coolers, which drives the assortment into the baby aisle. We'll have approximately 5,000 coolers by the end of this year. In the S1, we looked at and we said that today we believe that 15,000 doors that we could have coolers in. We think that's the floor. We definitely think that we could be a lot higher than that. Our baby snacks are in over 20,000 doors. We believe that any door that has their baby snacks in, it could have a cooler into it. So that's a significant amount of growth. And then it's really just looking at driving the TAM through looking at adding innovation and additional categories in and really just building the breadth of the brand over the store and where we're currently in. Right.

Speaker 1

Household penetration increased from roughly 5% to over 6% in a relatively short period of time, while repeat rates and buy rates have also continued to improve. Typically, rapid household acquisition comes with some dilution in those other metrics as less loyal users kind of enter the brand. Why do you think Once Upon a Farmer has been able to add households while simultaneously improving the engagement metrics?

John Foraker, CEO

Well, the main reason is because we have very high repeat rates. We're over 50% with households with kids, and new families are significantly higher than that, and product coming out of a cooler is even higher than that. So we know that when we build awareness for the brand, we get into the consideration set, and we get trial, we're going to get very strong repeat. That's been a big part. And then the other thing is we know that when consumers come in and buy more than one category that we're in, their basket is significantly bigger. We can see that in the retailer card data. It's one of the reasons why we think the strategy of building out in these multiple categories and then cross-pollinating the awareness with our consumers of these categories and building it out is going to drive just a much bigger outcome over time. And we think there's a significant opportunity to do that. We have, we finished, like right now we've got about 11% unaided awareness. So it's unaided awareness. That is almost double what it was a year ago. And, you know, unaided awareness and awareness in general is really like an early indicator for household penetration gains. So we feel like we're at the very beginning of continuing to drive that curve into many, many more households, and we think that there's a very good opportunity for us to hold buy rate at a minimum but hopefully grow it over time as we cross-pollinate.

Speaker 1

I think most investors have viewed the cooler opportunity primarily through the lens of cooler count, which is understandable. More recently, though, productivity appears to be emerging as an equally important part of the cooler story. As you look at it over the next several years, is the bigger opportunity ultimately adding more coolers, improving productivity within the existing installed base, or really some combination of the two?

John Foraker, CEO

It's really both, and we see significant growth opportunity for coolers just in the retailers we're engaging with, the success they're having, and it doesn't matter. there's a lot of difference in productivity, retailer to retailer across coolers. But in every one of those situations, retailers are happy with the productivity and they're seeing growing productivity over time. So there's a compounding effect. Part of it's driven by we've been really intentional over the last couple years, including over the last couple quarters, in bringing incremental innovation into the cooler that's covering off incremental need states for consumers. Like we brought meat-based products. We've, you know, legume protein-type products, belly blends, things like that. These are all adding to better and better cooler productivity. And we now have had multiple years of experience with coolers, and one thing is absolutely true. Coolers, as they age, they mature. It takes a couple quarters for them to come up to a base kind of productivity level, but they continue to grow. And as coolers become more concentrated in a market, consumer awareness increases, the coolers become more productive. So we see significant growth opportunity in both places, and we see a significant growth opportunity out there in coolers right now. If you think about we know what the fresh baby business is because we know what SKUs were most, 99% of it, and we know where most of it is in coolers, and it's about a $50-plus million kind of retail business out there today. If you think of 20,000, you know, let's say 15,000 coolers and average productivity of 20,000 out there, that's a $300 million market opportunity, and we think both those numbers are low. So the potential is really high, and so that's the growth curve we see for coolers. And we just need to stay focused on delivering against that kind of performance.

Speaker 1

And as you've spoken about, cooler productivity, right, improves as placements mature. Consumer awareness builds, innovation broads the assortment. And for investors trying to understand sort of the long-term economics of the program, I guess what separates a highly productive cooler from an average one, and how much opportunity remains simply from better execution within the current sort of fleet?

John Foraker, CEO

What separates the best-performing coolers are coolers where we've got the right assortment, we've got the exact right assortment, where the retailer's execution into the store, from the backroom into the store and keeping the cooler productive and in stock is really being managed well. And we've had a lot of experience over time. Every retailer is different, and there's a learning curve that they have to go through when they start putting coolers in because it's typically an aisle where there's no refrigerated products. The products are having to come either out of the dairy backroom or the produce backroom, depending on the retailer. And so once that executional stuff is really locked, and we support that as we need to with third-party merchandising or whatever just to make sure we're excellent. That's what drives really strong performance. And then it's just awareness that builds over time.

Speaker 1

Historically, once upon a farm is largely a refrigerated pouch company. Today, innovation is certainly playing a much larger role in driving distribution gains and household acquisition. How do you think about balancing innovation within existing categories versus entering the entirely new ones? And how do you ensure that the brand has sort of broad enough shoulders to reach into other categories without diluting the brand equity?

John Foraker, CEO

Yeah, it's a great question. And Larry and I both learned a lot about this. Like, we were at Annie's for a very long time, and we did a lot of category expansion at Annie's, and some of that turned out to be very successful, but a lot of it didn't. A lot of it didn't work. It was too small, or it became geometrically complex in the supply chain. So when we came over here, once we figured out what our core was, which was these core pouches, we really stayed focused on that for seven years. We built that business to well over 100 before we considered anything expanding outside. So that's the biggest principle is really build the brand and build depth in our supply chain and capabilities and just own that in terms of the brand's perception in the mind of a consumer, and then methodically build out through other categories. So we've been doing that since 24 very successfully. We will, every 12 to 18 months, we'll go into a new category, which should by definition be almost either 100% incremental or virtually 100% incremental in building the brand out with the, back to the earlier comments I made about extending the lifetime with that consumer from baby's first foods up through about age 12. And so we have a new category we'll be entering in 2017, I'm sorry, 2027. We're not announcing that category today, but we are very firm on what that is and the timing of it, and we'll be bringing that, and we'll just be very methodical about it. But back to the first part of that question, it is the most important thing we do is continue to innovate in the categories we're already in. Like, the biggest mistake we could make would be to get focused on the flashy new thing and not continue to just drive our current categories. And so you see a lot of innovation last year in our existing categories. There's more innovation coming this year in our existing categories, including Kid Pouch. There's packaging improvements that we're bringing through Kid Pouch. There's packaging improvements coming in Kid Pouch. Those are really focused on just driving continued performance of that business and staying ahead of competition is really important to us.

Speaker 1

What characteristics need to be present maybe before a category becomes attractive enough for Once Upon a Farm to enter?

John Foraker, CEO

It needs to be a category that appeals to the generally same household population that we're in. We like to look at categories that are big, sometimes slow-growing, sometimes even negative growing, because the modern consumer's needs are not being met. There hasn't been a lot of great innovation in the category, sometimes for 15 years. And so we're looking at opportunities to come into those categories, bring something new and fresh, excite consumers, bring a lot of new consumers incrementally into the category, like I mentioned earlier, and then turn it into a growth-driving category again, or at least significantly increase the growth rate that's there. And also, we need to make sure that we're confident that we can build a supply chain and a margin structure in that business over time that can really build out our total business.

Speaker 1

One of the more interesting aspects of the story is the ability to, as you said, retain consumers of the age from baby into kid. I guess, how much progress have you made in creating a true sort of lifetime value model where a consumer effectively grows with the brand over time?

John Foraker, CEO

Yeah, it's a work-in process. Obviously, we're doing a lot of research and have done a lot of research over time. So I wouldn't say that there's like a mathematical algorithm that's perfect on that because our business is retail, but we do a lot of consumer research. We've done ANU studies. We have comparative ANU studies from a couple years ago to now, and we know we can very much see the shoulders of the brand widening in terms of age, and also we can see the participation in the brand increasing very dramatically in the early stages, baby's first foods, because of what we've been able to do in coolers and fresh baby and also what we've been able to do with our dry baby snacking business. So we're continuing to evolve those metrics in ways that we can talk to retailers about and get them excited about our brand and expanding into other categories.

Speaker 1

A recurring theme right across your discussions with retailers is the degree of incrementality that you bring to both categories and baskets. How did those conversations evolve as you moved from being sort of a new brand, seeking shelf space, to becoming more of a strategic growth partner for retailers?

John Foraker, CEO

Yeah, it's interesting. Again, like going back to Annie's days and comparing what it was like, we were a very strong emerging brand back then. There were a lot of disadvantages we had back then in terms of access to data, even access to retailer, you know, senior-level retailer meetings, relationships, and opportunities. But that world has changed so much in retail now. Emerging brands are growing share and performing well in virtually every category of U.S. food, and retailers know that that's the future consumer that they need to appeal to, so they're providing access in ways that we never would have dreamed of having at Annie's. So we have very senior relationships at all of the top retailers that we're in. We're doing joint business planning with some of them in our categories. we're talking two and three years out about what we want to do together to drive growth in the category and we're applying all of the vast amounts of data that we now have access to in terms of consumer insights and consumption data and basket size metrics and all that stuff to make a really clear case that we need to do more together and they see that and we see that so we've got a great roadmap as a result of all that I just said we have a lot better forward visibility on the growth in this business than I ever had at Annie's because we know what we're working with with consumers, with retailers. We know what their distribution strategies are, what ours are, and we're lining those things up further in the future, which gives us a lot more confidence in our ability to call our forward growth.

Speaker 1

You've added a significant amount of distribution across both baby and kid during the first As you look out over the next couple of years, is the bigger opportunity, is it adding new doors, expanding doors, or driving better velocities?

John Foraker, CEO

It's really all those things. Larry alluded to earlier, we have about, we're in about, our core set of doors right now is right around 25,000 U.S. retail doors with a little under a 30 average item count. And he talked about, you know, more developed retailers, 60 to 80, best developed retailers over 100. There's really two elements of this. One is there's going to be significant TDP growth in that set of stores. These are customers that we're already doing incredibly well with. We have a lot of opportunity to build out distribution in the categories we're already in today, plus the new innovation that's coming. Coolers will be a big part of that because, as Larry mentioned, every cooler is around 50 SKUs. But we're also very focused on continuing to drive, you know, upper third-level velocity kind of performance in the categories we're in. We know that that's the single most important metric in addition to incrementality for the retailer for our ability to, you know, justify the expansion in space, and we think we're really well positioned to do that.

Speaker 1

Club has clearly become an important awareness vehicle for the brand. How do you balance the near-term margin tradeoff associated with large club programs against the longer-term household acquisition benefits that those events typically generate?

Larry Waldman, CFO

Oh, thank you. No, it does generate a significant amount of trial. It does generate not only in the club, but also drives people into the retail stores to be able to try a product. And it actually, even though we're not seeing an impact even while we're running promotions at club where people are trading off and going to club, what we're building is new customers or customers that are light users and they're becoming more medium or stronger users. The impact to club, it does have impact on margins. As you saw in Q2, we ran an NBM, and it did have about a 500 basis point impact on our margin during the quarter. We look at that as an investment to be able to drive households. We look at it as an investment to drive retail growth and velocities. And we're not looking to, Although club will always be a large part of our business, we're not looking to get into the point where we're just overrunning club. We want to make sure that there's a purpose behind running club promotions and it's there to drive trial, drive households, and drive our retail business in those categories. So we've made a decision as a management team that will accept short-term impacts on margins because of the investment and the impact it has on the total company.

Speaker 1

You've spoken about implementing targeted pricing later this year and have consistently described the brand as relatively inelastic. What have you learned from prior pricing actions that gives you the confidence consumers will continue to respond favorably?

Larry Waldman, CFO

So we've taken pricing in the past, and we've monitored the impact of pricing. One thing that we do is we look at pricing as a way of covering our costs. There's a lot of companies that look at pricing as a way to drive EBITDA and drive profitability. We're just looking to offset any costs or inflation and to be able to stay even as a business. We're trying to make sure that as we drive pricing, it doesn't drive our SRPs and AUPs. And so we're just trying to make sure that we're covering our costs and we're covering inflation. And therefore, because we're doing minimal increases in our pricing, as when we do drive pricing, we've shown that it's very inelastic. It doesn't have an impact on our margins. There is some tradeoff at some points. But what we're also doing is we're driving AUPs through price-backed architecture. So even though we may be increasing the price, we're still giving consumers ability to buy in based on price-backed architecture to be able to bring in and lower the price that they're paying for. We did a price increase on our stack business that we announced in the Q2 earnings call. in the business it was there to cover costs we did not do any pricing since we came into the market in 24 it was a mid single digit and for total company it was going to be low single digit impact we did a lot of consumer work we did a lot of evaluation on that and we don't feel like it's going to have an impact on velocities or on the consumer and the growth of the business.

Speaker 1

The refrigerated pouch category has attracted more attention recently, as one would expect, given the growth. We'd expect success tends to invite competition. How do you think about protecting your competitive advantage as additional brands look to participate in the space? And I know you've got some early reads on how some competitive entries have fared versus the velocities that you're putting up.

John Foraker, CEO

Yeah, our products have very high velocities in the cooler relative to the stuff in the ambient shelf around it and relative to everything else that's tried to go into the coolers next to us. We have some competition that has come into some of our produce assortments and other places, and on the most comparable items, we've got about double the dollar sales per point, you know, even after almost a year of trying. So we know that we're really well positioned to compete, and it shouldn't be surprising. We have almost a 10-year head start building this brand, and the brand is in a very strong price-value relationship with consumers where they see it as being slightly premium to the category, but they see a lot of value in that because of all the benefits that we're bringing. And so Larry and I were at Annie's, and we took head-on shots from Kraft twice. We took a full-body shot from Horizon Organic, who basically duped the entire Annie's brand, if any of you in the room remember that. And we ended up winning all of those competitive battles because for a few reasons. One, we have a very strong brand. We invest in our brand. We never were complacent. I mentioned earlier that, like, continuing to invest in innovation in your core categories and just staying fast and ahead is super important. And we've just got a very competitive culture. And so I think we're well-positioned for competition. I fully expect that we'll have competition in our categories if the categories grow the way we've talked about. And that's not necessarily a bad thing for the category as long as the competitor is coming in or, you know, broadening their awareness of the category and the like. But we think we're well-positioned, and particularly in coolers where we're putting, in some retailers, we're putting capital out to facilitate the expansion of coolers and whatever. We're obviously got some exclusivity in some periods of time where we have certain exclusivity on shelf space in that, which gives us the opportunity not only to just continue that advantage to continue to build the brand, but also to ensure we get a good return on the capital. But that's it. Game on. It's a competitive space, but we think we're well-positioned to compete.

Speaker 1

At the time of the IPO, one key investor concern was, you know, whether the category would become meaningfully more promotional as new entrants arrived. Several quarters later, what's actually happened versus what maybe investors feared might happen?

John Foraker, CEO

There's been almost none of that. Like, there's really, the category has about the same level of promotional intensity that it had a year ago and that it had two years ago. So there's been no significant change. I don't really expect much of a change there. So, you know, if a competitor comes into a specific retailer, they might be more aggressive in the first 60, 90 days, like just trying to get launched. You're always going to have that impact. But, you know, over time, you know, these are fresh products like the ones we're making at Fresh Baby and that anyone else would try to make are expensive to make. They're complicated. You need to have a margin structure that works and refrigerated. So it's unlikely that somebody would come in there and blow up the economics of the category just because there's no returns for them doing that.

Speaker 1

One of the central debates around the stock is whether Once Upon a Farm should prioritize growth or profitability over the next several years. You've consistently chosen to reinvest upside back into the business. What gives you the confidence that this still remains the highest return use of capital today?

Larry Waldman, CFO

Mainly because of what the targets that we've set for the return on investment. So when we do, and so we look at investment in multiple ways. One is being able to drive the top line. So we made a decision to invest more in marketing and really is to drive the growth of the company and drive the top line of the business. We're making decisions to invest in our supply chain and invest in our, you know, really to drive cost out, drive margin in the business. On those items, we're looking at annual growth rates of targets of 18% to 20% return on investment and no more than a two-year payback on any investment that we're doing. So we're trying to be not only to be able to invest in a way that provides good returns to the company but also is thinking about the company on a long-term basis, driving margins, driving top line. And, you know, we go through a lot of research and a lot of discussions before we're willing to make those commitments and make those investments to make sure they're right for the company.

John Foraker, CEO

I think it's important to recognize, like, kind of where we are relative to the evolution of this category and what we're trying to do. We see lots of great opportunities to invest. We're going to take the best of those opportunities. We'll prioritize them to allow us to continue to leverage our first mover advantage, build this category, and really accelerate it. However, we've also committed to a path of adjusted EBITDA, a progression in this business that we feel very confident in. And so we're not going to come off of that, but incrementally when we see opportunities and we can continue to deliver on that, You should expect that we'll invest in those places to drive continued long-term growth, but also mainly to drive the scale in the business that will drive that earnings algorithm.

Speaker 1

You recently noted that expected profitability improvement in 2027 does not depend on receiving the full benefit of the productivity projects that you noted before. I guess, what are the biggest drivers of confidence behind the earnings inflection you see over the next several years?

Larry Waldman, CFO

Well, I mean, the biggest thing that's going to be affecting the company is really just to scale the business. So as the company in the top line grows, we will be carrying more and more of that down to the bottom line and to adjusted EBITDA. And so what we've looked at is that we'll be carrying down, on scale alone, it's going to be equal to somewhere around 2% increase in adjusted EBITDA on an annual basis. We've made a lot of investments to become a public company. Those investments are both in people and systems and infrastructure. Those investments have been made. We're not planning on duplicating those investments. So right now what we're seeing is that those investments, and we're going to continue to invest in people, we're going to continue to invest in systems, but we're going to invest at a rate that allows us to be able to scale and drive profitability of the business. We're also looking at, we've built a lot, and you've seen a lot of growth in innovation over the last couple of years, especially in the snack business. When we go out on innovation, we have very good margins on anything that we go into innovation, but a lot of times that innovation is dilutive to margins on a short-term basis. One of the things that we do as part of our innovation plan as we drive a three- to five-year plan to drive margins on any new category or new innovation to be able to make that product at par, if not accretive to the entire company's margin over that five-year period. Part of the work that we're doing in the productivity projects are driving those margins and to be able to get to that point. But what we looked at is we have a good path through scale. we have a good path through increasing margins on the existing business, new innovation, new categories that we're getting into, a little bit of pricing that we're going to be taking to offset inflation, and that we can derive the 45% long-term gross margin and the mid to upper teens EBITDA margins even without the productivity projects being built into the model. But what the productivity projects do, It gives us assurance and confidence that no matter what, we will be able to achieve, if not to be able to overdrive the numbers that we've built into our algorithm.

Speaker 1

At the IPO, John, you described a vision of building the leading modern childhood nutrition platform. If we're sitting here sort of three years from now and looking back at what had gone right, what would need to have happened for Once Upon a Farm to have sort of fully earned that description?

John Foraker, CEO

Yeah, I think we'll have continued, we'll have successfully built out the brand across multiple categories that are incremental to the business and really important to the families as the kids are aging. We'll have, you know, many, many, many more coolers. I mean, I think the future is that there should be a fresh baby food cooler in almost every baby aisle. So that'll be a significant part of it. and we'll just continue building the brand. We'll have made the brand ubiquitous amongst parents that are having a child and are thinking about First Foods. We'll be high in the consideration set for those brands. We'll be a number one brand at our retailers in those categories that we compete in, and we'll continue to drive growth with them as a growth partner. I think all of those things are within our reach in what we've been doing and what we'll just be continuing to do.

Speaker 1

Okay. So I think that's a really good place to cut it off here and take it to the breakout. Please join me in thanking John and Larry for being here. Thanks, everyone. Appreciate it.