Freshpet Inc . (NASDAQ:FRPT) reported robust financial results for the second quarter of 2024, with net sales reaching $235.3 million, marking a 28% increase from the previous year. The company's adjusted gross margin outperformed expectations at 45.9%, and adjusted EBITDA saw a significant rise to $35.1 million. Freshpet attributes this performance to volume growth, higher household penetration, and effective media strategies. With these results, Freshpet is raising its full-year net sales outlook to a minimum of $965 million and anticipates a 500-basis point expansion in adjusted gross margin.
The company is also investing in expanding capacity and improving production efficiency, which includes the start-up of a new production line in Ennis (NYSE:EBF) and the introduction of new technology in Bethlehem. Freshpet is confident in its growth trajectory and expects to become free cash flow positive by 2026.
Key Takeaways
- Freshpet's net sales for Q2 2024 surged to $235.3 million, a 28% year-over-year increase.
- Adjusted gross margin exceeded the company's target at 45.9%.
- Adjusted EBITDA rose to $35.1 million, a $26 million increase from the previous year.
- The company is raising its full-year net sales guidance to at least $965 million.
- Freshpet is on track with its capacity expansion plans, including new lines in Ennis and Bethlehem.
- The company expects to be free cash flow positive by 2026.
Company Outlook
- Freshpet is confident in reaching its 2027 goals and delivering disciplined growth.
- The company plans to increase capacity through the addition of new production lines and technology.
- Freshpet is moving to a new corporate office in Bedminster, New Jersey, to attract top talent.
Bearish Highlights
- Gross margins may be impacted by expenses related to new capacity and additional shifts.
- The company acknowledges the emergence of new direct-to-consumer competitors.
Bullish Highlights
- Strong growth in sales, particularly with larger pack sizes and higher volumes.
- Expansion of Dallas distribution center to supply more states as production increases.
- Growth in second fridges and expanded distribution in stores.
- Positive performance from marketing campaigns and potential in digital and e-commerce sales.
Misses
- There were no specific misses mentioned in the summary provided.
Q&A Highlights
- The company has adequate capacity and does not anticipate the need for a new facility in the near future.
- Media spend is projected to grow in line with their top line, maintaining stable consumer acquisition costs.
- Freshpet is exploring new technologies to improve return on invested capital (ROIC).
Additional Insights
- Freshpet is focusing on operational efficiency improvements to increase profitability.
- The company is developing advanced bag technology to further expand capacity.
- Expectations of higher EBITDA in Q4 due to increased media spending.
- The pet adoption trend and post-COVID recovery in the pet category are seen as positive indicators for the company's future.
Freshpet's robust second-quarter performance and strategic investments in capacity and efficiency underscore the company's commitment to long-term growth and market leadership. With the expansion of its production facilities and a strong focus on operational excellence, Freshpet is well-positioned to meet increasing consumer demand and achieve its financial targets.
Full transcript - Freshpet Inc (FRPT) Q2 2024:
Operator: Greetings. Welcome to Freshpet’s Second 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. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Rachel Ulsh, Vice President of Investor Relations. Thank you. You may begin.
Rachel Ulsh: Thank you. Good morning and welcome to Freshpet's second 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 Chief Operating Officer will also be available for Q&A. Before we begin, please remember that during the course of this call, management will 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 Freshpet Kitchens Expansion 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 with the Securities and Exchange Commission and the company's press release issued today for detailed discussions 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-GAPP 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 financial 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 will be found on the company's investor website. Management's commentary will not specifically walk through the presentation on the call, rather it 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.
Billy Cyr: Thank you, Rachel, and good morning, everyone. The message I would like you to take away from today's call is that we are on track to deliver the disciplined growth we committed to achieve this year. As you know, we aspire to deliver category-leading growth with outsized improvement and profitability. But as we've learned over the past few years, carefully managing our growth to about 25% enables us to drive operating improvements and manage cash more effectively, making Freshpet an even more attractive business. That is our definition of disciplined growth. And if we do that well, consumers will win, customers will win, and our shareholders will win. Our second quarter results demonstrate the strong progress we are making towards delivering that disciplined growth. We delivered our 24th consecutive quarter of net sales growth over 25% and did it within our existing capacity limits so we maintained exceptional customer service and strong fill rates. That enabled us to operate very efficiently and effectively, so we expanded our adjusted gross margin and an adjusted EBITDA margin. The bulk of the operating improvements came in our key focus areas of input costs, quality, and logistics, totaling 770 basis points of improved operating improvements. Those operating results, specifically adjusted gross margin, input, quality, and logistics costs, exceed some of the key elements of our 2027 goals. As a result, we are in an even stronger position to achieve or exceed our full set of 2027 targets, as well as raise our guidance for this year. We still need to prove that we can achieve these results consistently before we adjust our long-term targets. However, another quarter of strong performance has made us even more optimistic. These results were driven by broad-based strength on the key business fundamentals. First, our growth in the second quarter was entirely driven by volume growth. There was no impact from pricing or mix this quarter. Further, we have been seeing a steady trend towards consumers buying larger pack sizes, which slightly reduces the price per pound, but improves the efficiency of our production lines and our distribution systems. This consumer behavior is a positive indication that value-seeking consumers move up to larger sizes of Freshpet rather than reducing the size or amount they buy. Second, from a household penetration perspective, our growth rate is where we need it to be to hit our 2027 target of 20 million households. We are growing households in the low to mid-20s and increasing the buying rate in the low-single-digits. That combination results in mid-20s growth rates, which is our targeted level. More encouragingly, our heaviest users are growing even faster than the total user base. Third, our media plan is also delivering the way we had hoped. It is driving strong household penetration gains in line with our long-term model and at a healthy customer acquisition cost that is comparable to the cost we had prior to the price increases we took over the past two years. Additionally, by balancing our media investment more evenly across the year, we have been able to deliver strong growth while living within our capacity limits. Fourth, consumers continue to believe that Freshpet represents a good value. The desire for value is being expressed as quality for the price, not just price. We believe consumers find value in a truly differentiated product. That is why it appears that much of the category growth is now coming from the fresh frozen segment where Freshpet is a leader. Further, our growth is fastest among our heaviest users, another strong indicator of the differentiated value that Freshpet represents, even in an environment where consumers are looking for ways to stretch their dollars. Finally, taking a step back, our growth continues to be supported by the long-term trend towards the humanization of pets. The pandemic created a pet adoption bubble, but we are now back on the same long-term pet population growth trends we have seen for more than a decade. And our volume growth comes from expanding household penetration, which is the model that has worked for us since we first launched our Feed the Growth strategy in 2017. Now I'd like to provide some highlights of the second quarter. We have strong momentum and made great progress against our long-term plan. And you can see that in our financial results. Second quarter net sales were $235.3 million, up 28% year-over-year, all of it being volume driven, as I said earlier. Second quarter adjusted gross margin was 45.9% above our long-term target for the second consecutive quarter, compared to 39.8% in the prior year period. Second quarter adjusted EBITDA was $35.1 million, an increase of approximately $26 million year-over-year. From a retail perspective, we are having a solid year of retail availability growth. Store count growth is in line with our long-term rates. More importantly, some of our larger customers are engaging with us on potential plans to add second and third fridges in high-velocity stores. That is where we expect to see the bulk of our growth. You will see that in TDP growth exceeding ACV growth as we go forward. Specifically, we placed 790 fridges in the second quarter, including new stores, upgrades, and second/slash third fridges, bringing us to a total of 35,602 fridges at retail, more than 1.8 million cubic feet of retail space. As of June 30, 2024, Freshpet could be found in 27,497 stores, 22% of which now have multiple fridges in the U.S. Fill rates continue to be strong and we're in the high-90s throughout the quarter, supporting fridge placement and store growth. Now we'll provide an update on KPIs we track for our mainstream main meal, more profitable plans, what we refer to as main and more. 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 June 29, 2024, total U.S. pet food is a $53 billion category. We only have a 3% market share within the $36 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 is now in 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. Household penetration at the end of the second quarter was 12.8 million households, up 25% year-over-year, and on track to meet our target of 20 million households by 2027. Our high profit pet owning households or HIPPOHs for short, are growing even faster, up 31% versus the prior year period. In short, the humanization of pets is a mainstream idea, and now it is our job to make fresh food the standard way to feed your pets. Turning to the main meal part of the strategy, Freshpet sales are increasingly concentrated in our heaviest users, HIPPOHs. Currently, 37% of Freshpet users are HIPPOHs, and they represented 89% of our sales in the second quarter. Even more encouraging, about 300,000 of our users or less than 3% of our total users buy more than $1,000 of Freshpet per year, and this group grew 47% over the past year. They now represent about 27% of our business. There is a significant opportunity to increase this percentage and grow our total business. The key driver to convert more consumers to use Freshpet as the main part of their pet's meal is advertising. We need to educate consumers on the benefits of fresh food for their pets. Multipacks and larger pack sizes can also help reinforce the idea that our product can be your pet's main meal and will in turn help increase buy rate, which was approximately $100 a quarter end of 3.3% versus the prior year period. Adding unique value-added SKUs helps do that. Based on total U.S. pet retail plus data from Nielsen, we currently have an average of 18.4 SKUs per point of distribution, up from 16.1 SKUs one year ago. Since we have a finite amount of space in our fridge, as we increase the number of second and third fridges, we can increase the number of SKUs, amplifying our visibility and marketing impact, widening our product assortment and broadening the appeal of our brand. 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 Q1 to 45.9% and we ended the second quarter with an adjusted EBITDA margin of 14.9%. The key items that drove this improvement were: first, quality, our team continues to execute well. We still have lots of opportunity for further improvement, but our team has been able to reduce both the number of issues we have to manage and also the size of any issues. Second, input costs and yield. We've returned to our historic level of input costs as a percent of net sales through a combination of price increases, commodity cost management, and meaningful improvements in our production yields. Further, we believe there's an opportunity to continue to improve efficiency in this area through formulation work, supplier diversification, operating improvements, and new technologies. Third, logistics, we are clearly benefiting from some macro factors on freight, including lower lane rates and fuel costs. But our 99% fill rate in the quarter, the expansion of the service area for our Dallas, DC behind increased production in NS, and new tools we've put in place to more effectively bid our lanes and improve our customer service are the primary drivers of the improved performance. Turning to an update on our capacity, we have a disciplined approach to managing capacity and continue to execute on our expansion plans, while also improving throughput and yields on existing lines. In Ennis, the fourth line is still on track to start up by the end of Q3 2024. We began commissioning the line in July and feel good about the test run so far. In Bethlehem, the team is focused on increasing capacity utilization or OEE, and our 7th line on that campus will test new technology and its expected startup in the second-half of 2025. In Kitchen South, we continue to evaluate ways to add more lines and/or shifts. We continue to evolve our capacity expansion plans to drive greater capital efficiency. As we've discussed previously, we are intensely focused on: 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. While we've come a long way since our first facility in Quakertown, PA, the manufacturing systems to make fresh pet food are still not where we'd like them to be. We've invested and will continue to invest heavily in both technology and talent to make our production more stable, reliable and efficient. We've made tremendous progress, but still believe the opportunities for improvement are sizable. In summary, I think we are making good progress at delivering the disciplined growth we promised at the beginning of this year. We are highly focused on managing the business to live within our capacity and believe this has led to the progress we've made on our profitability. We believe our model works very well at approximately 25% growth, generating the right balance of growth, capital investment, and cash generation. And we are increasingly confident that we will be free cashflow positive by 2026. I'm incredibly proud of the progress we have made and the results we have delivered, especially since NS is still subscale and we have some exciting new technologies under development that could meaningfully enhance the economics of our bags business. Now we need to continue to execute at a high level and keep raising the bar. Before I turn it over to Todd, I want to point out that the press release announcing our earnings today has a dateline of Bedminster, New Jersey instead of our previous home in Secaucus. We've outgrown our corporate offices in Secaucus and have moved into a temporary office space in Bedminster, New Jersey, while our new purpose built leased corporate office is under construction right down the road in Bedminster. We expect to move into the new office in the first-half of next year. Our new location in Bedminster will allow us to attract and retain the top marketing and finance talent we need, while making it much easier for our team members to go back and forth to our technical base in Bethlehem, Pennsylvania, enabling much closer collaboration and planning. Our new office will embody our pets, people, planet mantra, and we look forward to sharing it with you when it opens next year. Now, let me turn it over to Todd to walk through the details of the Q2 results and our updated guidance. Todd?
Todd Cunfer: Thank you, Billy, and good morning, everyone. As Billy mentioned, we are very pleased with the second quarter results, particularly our ability to deliver on-profit improvement. Now I'll give you some color on our financials and updated guidance for the year. Second quarter net sales were $235.3 million, or 28% year-over-year. Nielsen measured dollar growth was 24% versus prior year period, with broad-based consumption growth across channels. We saw 26% growth in XAOC, 24% in U.S. food, 9% growth in pet specialty, and over 100% growth in the unmeasured channel. It is important to note that Nielsen IQ has expanded their coverage beyond what we previously called the Nielsen mega channel to a new U.S. pet retail plus channel that adds online sales via Amazon (NASDAQ:AMZN) Chewy (NYSE:CHWY), neighborhood pet retailers, and farm and feed stores. Wherever possible, we will use the expanded definition to provide the most comprehensive view of our business in the category. We estimate that this new channel covers more than 85% of our U.S. business today. Second quarter adjusted gross margin was 45.9%, up 610 basis points year-over-year. This was driven by improvement in input cost, yield, throughput, and quality cost. Specifically, input cost as a percent of net sales improved 460 basis points with better yields, throughput, and lower commodity costs, while quality cost improved by 90 basis points. Second quarter adjusted SG&A was 31% of net sales, compared to 34.9% in the prior year period. We spent 12.2% of net sales on media in the quarter, down from 14.8% of net sales in the prior year period. Total media investment was up 6% year-over-year. Recall our media plan is less front-loaded this year than in years past, so that we can manage our growth to live within our capacity limits. Logistics costs continue to improve and were 5.8% of net sales in the second quarter, a decrease of 220 basis points, compared to the prior year period. Like Billy stated, the majority of the improvement was due to strategic actions we have taken to increase bill rates, reduce miles driven by increasing the number of states served by our second distribution center, and negotiate with vendors, with the remainder being macro driven with more favorable lane rates. Other SG&A, which was 13% of net sales, increased 90 basis points driven by higher incentive compensation. Please note that our GAPP P&L includes an $11.1 million true up of non-cash share-based compensation based on multi-year share-based awards granted in fiscal year 2020. This year's unexpectedly strong profit performance has increased the likelihood of greater vesting on those awards. Excluding this charge, we would have generated $9.4 million of net income. Second quarter adjusted EBITDA was $35.1 million, or 14.9% of net sales, compared to $9 million, or 4.9% of net sales in the prior year period. This improvement was primarily driven by higher gross margin, as well as improved logistics costs. Capital spending in the second quarter was $48.3 million. Operating cash flow in the second quarter was $42.4 million, and we have cash on hand of $251.7 million at the end of the quarter. We continue to believe that we have adequate cash to fully fund our growth through 2025 and will be free cash flow positive in 2026. Our strong improvement in adjusted EBITDA this year also makes it unlikely we will need additional capital. Now turning to guidance for 2024. We are updating our outlook to reflect our outperformance in the second quarter, as well as our conviction and our ability to execute in the second-half. We are raising our net sales guidance from at least $950 million to at least $965 million or growth of at least 26%. We are able to do this because of the strong improvements in our operating efficiency, particularly in Bethlehem and Kitchen South, that will allow us to sell a bit more this year and still maintain strong customer service. However, we still need the new roll line in Ennis to start up by the end of September and ramp up production in order to have the supply we need to meet demand. 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 throughout the remainder of the year as we intentionally manage our growth rate while expanding capacity. Our more balanced first-half, second-half media investment this year has been critical to delivering the growth we have experienced, while also living within our capacity constraints. As the first-half media really dictates the demand we have in the second-half of this 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. For adjusted EBITDA, we are raising guidance from at least $120 million to at least $140 million to reflect the over delivery in Q2. We now expect adjusted gross margin to expand by approximately 500 basis points for the full-year, compared to 300 basis points previously. Capital expenditures are now projected to be approximately $200 million, compared to approximately $210 million to support the installation of capacity to meet demand in 2025. The modest reduction is due to the timing of certain expansion projects. In summary, the second quarter results demonstrated disciplined growth and our ability to execute the strategy we laid out. We are very pleased to see our investments in capacity and organizational capabilities are paying off and we are gaining significant scale advantages. That concludes our overview, we will now be glad to answer your questions. As a reminder, we ask that you please focus your questions on the quarter, guidance, and the company's operations. Operator?
Operator: Thank you. [Operator Instructions] Our first question is from Ken Goldman with JP Morgan (NYSE:JPM). Please proceed.
Ken Goldman: Good morning. Thank you.
Billy Cyr: Good morning.
Ken Goldman: When it comes to the outlook for ‘27, I think you're skating about as close as possible to raising it without officially doing so, if that's fair? Can you just please remind us on or update us rather on the guideposts you're looking for that will allow you to, I guess, proverbially pull the trigger. I guess I'm also asking what gives you pause today that makes you maybe think you can't necessarily deliver some of these results consistently. I think some people are hoping that within the next couple of quarters, you'll raise that outlook is what I'm getting at?
Billy Cyr: Yes, Ken, thanks. The way we're looking at it is we feel really good about the progress that we've made, particularly on the operation side. And at the same time, we're very mindful that we operate in a fairly volatile environment. So we'd like to see is we'd like to see us deliver the full-year at the rates that would be embedded in our 2027 targets. And when we get to that point, we'll take a look at it and say what makes sense going forward. But we'd like to see the, you know, see us deliver the full-year in a consistent way and ways that could support those 2027 targets. And that particularly is on the operations side. On the net sales side, we feel really good about where we are. We're -- as we said in the comments, we're trying to drive our growth to live within the capacity limits and plan capacity. You know, we plan capacity out 18 to 24 months. So you should expect us to be very, very close to the guideposts as we go from here through 2027 and expect that on a long-term basis that it's going to -- our growth rate is going to be driven by our ability to add capacity and the rate at which we want to add capacity.
Ken Goldman: Thank you and then a follow-up Billy, you know, you haven't really talked I think in specifics about where your capacity will be next year in a little while and where you expect sales to exactly be, although I think people still expect kind of a 25% increase there? Can you just give us a little bit of an update perhaps on the path ahead for the next year or two as you see it in terms of capacity versus sales? Is there a rough utilization rate we should think about? I think one thing that kind of confuses investors a little bit, and there's not much confusing about the story right now, given how well everything's going, is just try to kind of think about those paths ahead in terms of capacity versus expected sales and how they may track each other in general?
Billy Cyr: Yes, historically we've talked about it in the context of total capacity, but we're at the point now where it really is driven by capacity for bags versus capacity for roles. So for example, this year the capacity limitation that we've had to work with has been on our roles lines. And as we're starting up another roles line in Ennis in this quarter, we've had to keep our total business or total net sales underneath the limit that, that roles capacity implied. As soon as that line is up and running, we flip it over and then the next capacity limit that we'll run into probably in the first-half of next year is bags. And so we have new bags lines coming on in the first quarter of next year. And so I don't think of it in terms of total capacity. I tend to think of it in terms of the limitations that we have on bags or rolls and we kind of flip-flop back and forth between the two, but in a very steady cadence. And if we keep adding capacity at the steady rate that we plan. We keep improving capacity utilization on the existing line and operate really well. We feel very comfortable about our ability to deliver the net sales growth that's embedded. I think people who look for us to go way above that are missing the fact that we're trying to stay very disciplined and very close to the guideposts that our capacity provide. That's really where we're focused.
Todd Cunfer: But Ken, just to be clear, we have next month, and you know, the new line coming up in Ennis, we have a line, a bag line coming up at our Kitchen South facility in Q1. We're also going to add some shifts to some existing lines in Kitchen South, and then we're anticipating better performance and a ramp up in NS across the entire facility. So we feel very good about the amount of capacity we will have for next year, but as Billy pointed out, we're not going to get too far ahead of our ski. We're trying to manage cash flow, capacity, earnings top line altogether. And that's the trick. But we literally review this every month, and we have a clear strategy and path to get to our $1.8 billion in '27.
Ken Goldman: Thank you very much.
Operator: Our next question is from Bill Chappell with Truist Securities. Please proceed.
Bill Chappell: Thanks. Good morning.
Billy Cyr: Good morning.
Bill Chappell: Just want to follow-up on your kind of comment about the consumer buying more bulk or larger sizes and trying to understand, we hear so many mix signals over the past three, four months of what the consumer is doing, right? Are you seeing a real change? Or is that more reflective of just your recent expansion in the club channel, which naturally they're buying much bigger bold?
Billy Cyr: Clearly, there's some piece of that in it, but we do see it across the board that there is a migration towards the slight migration towards the larger sizes. The way I think about it, if you're taking a step back on the macro market, if you have consumers who are value seeking, and you are in the staples business, meaning consumers want to buy your product and every day, they need to keep it in their pantry or an inventory, you should expect to see them migrate to larger sizes because that's the way they exercise value seeking behavior. If on the other hand, you're in the impulse purchase business, you should expect to see consumers moving to smaller sizes as a driver. But in our business, we view ourselves as a staple. We're part of the everyday diet to the dog. And so we see consumers moving up into larger sizes. It's not a huge shift, but it is enough of a shift that is noticeable.
Bill Chappell: Got it. And then bigger picture, because we hear a lot of noise from the direct-to-consumer new players in the market, mainly it's frozen, direct-to-consumer. And frozen has been fairly stagnant category since even before you started to exist. And so I'm just trying to understand, are you seeing anything new? Is it a threat? Is it an opportunity? Just as you look at the other players that are certainly making more noise from the advertising front. I'm not sure if on the sales front, if they're having much impact.
Todd Cunfer: Hey Bill, so look, we're always keeping a really close eye on everything that's going on in the market and kind of where the new entrants are coming in, how it's playing. We're testing basically different types of direct-to-consumer in three and four different ways. We think it's really interesting. We love our model. And long-term, we really feel positive about the way our model is developing and progressing.
Bill Chappell: Okay. Thanks so much.
Billy Cyr: Thanks.
Operator: Our next question is from Robert Moskow with TD (TSX:TD) Cowen. Please proceed.
Robert Moskow: Hi, thank you. Bill, you might have kind of answered this question already. But I wanted to fast forward beyond 2027, I mean if your growth rates continue at a rapid pace, what's the implication for capital deployment and therefore, cash flow, could you foresee like having to take a step backward on your cash flow momentum in order to fund another tranche of significant growth? What's the appetite for that? And then secondly, I had a question about the buying rate in the numerator data. It looks like last year got restated. It's not by a lot, but compared to first quarter, it's down a little. And then your buy rate growth this year is 3%. I think last quarter, it was 5%. So it's small numbers, but I want to know if you're watching that and if you have any reason for those changes?
Billy Cyr: Yes, Rob, we do -- on the first question, we do look at the capacity planning out through. In fact, we go out to 2030 and beyond, and we pay very close attention to it. We have construction and line installation projects going on right now on all three of the campuses that we operate and we're very comfortable that we have adequate capacity to meet the demand that we can reasonably project through 2027 and beyond on those sites. The thing that we've been spending a lot of time trying to figure out is, at what point does our existing footprint require us to go and add a new site which would be a fairly sizable capital expense. And at this point, we don't see that happening inside of the 2027 window and probably out to the 2030 window, where we would not require it because we can get enough capacity through technology improvement and adding lines to the existing sites. So we feel very good about it. And as a result, and I can comment on the cash flow that comes from that. But we feel pretty good about the cash generation capability of the business and more than able to meet the needs of the capacity planning expansion we have. Let me just jump to the numerator piece for a second. On the numerator piece, numerator restates the data literally every month. And so they readjust their panel. So you should always expect the numbers to move a little bit. And that's why the previous periods will change. What you can also expect is that a year ago, we had some pricing that was in the 52-week numbers. This year, there's no pricing in the 52-week numbers because we've lacked all that pricing. So you should expect that the buy rate is not benefiting from anything other than consumers migrating to higher-value products. Your -- or their increased purchases of the products, it is not benefiting from pricing. We feel really about the combination of household penetration growth and our buy rate. I mean, in fact, it's running slightly hot right now versus where we would have expected to be. We feel very, very good about it. You should expect that we will always run in the, call it, low-20s on penetration and low single digits on buy rate, and that will get us to our total growth rate. I don't know if Todd wanted to give you any more commentary on the cash flow?
Todd Cunfer: Yes. I mean, look, it's a really valid question, Rob. Look, we're very bullish on this business growing nicely over the next several years. Do I think we're going to grow a 25% clip in 2035? Probably not. It's possible. But even under that scenario, we will be generating enormous amounts of EBITDA that will come into fruition and plenty of operating cash flow to cover what could be a lot of CapEx based on those kind of growth in dollars year-over-year, which is, I think, we are getting at. But it also goes to we're spending so much time. We know we have to get better on operating efficiencies at our plants. That's why we spent so much time looking at new technologies to make the ROIC on new capacity, better and better as we go in the future. And look, we will need a new facility at some point in time. We are not adverse -- we're looking at every possible scenario, whether it's another greenfield like Ennis. We're very comfortable with working with partners that can minimize the amount of capital out there. But we will manage that cash flow impact very, very closely.
Robert Moskow: Thank you.
Operator: Our next question is from Brian Holland with D.A. Davidson. Please proceed.
Brian Holland: Yes, thanks. Good morning. I guess just to start with media spend, which looks like still projecting to grow in line with the top line. I know year-on-year higher in the second-half than it was prior year. Trying to square that with the consumer acquisition costs, which once again down sequentially this quarter, continued progress there back to pre-price increase levels. I guess maybe there was a part of me that was anticipating sort of a lower revision of media and if that's out there, and I missed it, forgive me. But just help me think about the cadence for media as we start to think about 2025 and how quickly we can kind of come in line that seems to be the one metric that we're still a bit off from what your 2027 target is?
Scott Morris: Brian, so the thing that's I think really exciting about this is -- the way we look to think about it, the growth model is really, really well intact. I know you've watched it for many, many years. We focus on it like the number of consumers that are coming in, what's costing to get those consumers. It is definitely right within band of exactly what it was this year, a year ago, three years ago, five years ago and even longer than that. So I think one of the things that's really important to communicate is -- it demonstrates the potential of this idea. It demonstrates the potential of the change that we're making in the category. And the deeper we're getting like further and further we're getting into our TAM, we're not seeing increased costs on our CAC. I mean -- and that's extraordinary. And I think that's incredibly unique from what else we're hearing from other people trying to come in to kind of fresh and frozen. So I think that we feel really terrific about that. If you look at our media spend this year, it was literally constructed to make sure that we stay within bounds for the growth that we wanted for the year. It is lower -- and if you look at the overall year, it will be a fairly significant increase in overall media spend, but the front half will be a much lower increase versus a year ago. It was about a 16% increase for a year ago. In the back, you're going to see a significant increase. But the back half media is all about making sure that we're in a great spot and setting ourselves up for another terrific year in 2025. And if you ask -- if you think about -- talk to people in the company and the work that we're doing now, it's all about what do we need to do over the next six months to put ourselves in a terrific position for '25. And I think we're incredibly fortunate that we have the ability to plan in that way, think that way and kind of put our resources against that.
Brian Holland: Appreciate the color, Scott. And then maybe, Todd, just thinking about what's implied in the guidance over the second-half of the year, if we set aside the top line, the biggest driver of upside was obviously the gross margin over delivery in the first-half. Anything to be mindful of in the second-half that would compress the kinds of gross margins we've seen in the first-half? Is there any reason they couldn't be mid-40% or better mindful that we've had six consecutive quarters of sequential gross margin improvement?
Todd Cunfer: Yes. I mean, look, there's a couple of headwinds. We're feeling great about the start of the year. Obviously, we'd like to replicate the gross margin that we had in the first-half and the second-half, but we're going to do our best to hit those marks. But there are -- I mean, there are some -- a couple of expenses that will hit, that are legitimate, here in the second-half. Obviously, the start-up of the fourth line antennas that will add costs on very low volume coming out of that new line. We are adding some additional shifts at Kitchen South to prep us up for next year's growth and reliance on bad capacity. That will add some costs there as well. We did not deload any of our inventory. Obviously, that was a big Q1 benefit of about 100 basis points, no impact in Q2. We could see that happen still in the second half of the year. That's still a watch out. But look, we're going to -- we're absolutely feeling great about the start. We are about 90% covered on commodities. We don't see much happening there at this point. But it is the new capacity coming online in the second half, it will be a slight headwind.
Brian Holland: Appreciate it, thank you.
Operator: Our next question is from Mark Astrachan with Stifel. Please proceed.
Mark Astrachan: Yes, thanks and good morning everybody. I wanted to go back to this larger pack size comment and then try to understand it a little bit better. So price/mix was flat, but you're selling larger packs in Costco (NASDAQ:COST) at a higher price point. So how does that factor? And I guess that what you're selling has a lower average price per unit, but I suppose what the consumers buying would just be bigger dollar amounts and bigger volumes. And obviously, you have more sales in Costco today than you did 12 months ago. So would that be mix accretive in terms of contribution to the top line? That's the first question.
Scott Morris: Mark, so I think the way to think about this is if you look across our portfolio, we are definitely developing and pushing larger pack sizes as Freshpet becomes more of a main meal lead. The other thing we did, you may remember a year or so ago, we bought a product called Complete Nutrition in a 1.5 pound size. And we also got really sharp -- before the value was as much of a discussion, we got really sharp on our 1 pricing, like we actually tightened it up just a little bit. And we did that intentionally because we started hearing a little bit of storm clouds where people were concerned about value. So you have people coming in on one side and buying some of the smaller size items and the Complete Nutrition, which is a good opening price point, but very solid margins. And you have the other side where we have these larger packs at some of the -- not only in mass, but also in the clubs, et cetera. The things that -- it's interesting that we're seeing the largest growth in -- if you look across our developed items, the things that are growing the fastest are our large bags, which are the most expensive items we have. So there's a lot going on. There are a lot of pieces to it. And when we set the strategy forward going into the market, we intentionally want to make sure we covered basically products for as many different people on how they want to use it and how they think about our brands and our products. So there are sizes. There's price points that go from low to high, as you know. And I think what we've done is, we've done a nice job developing a really good portfolio and consumers appreciate it. And there is a lot of action. There's a lot of movement all through that. Some of this is on sizes and some of it's on trade up to the larger sizes, but some of it's a lot of new people are coming in on this 1, 1.5 pound sizes. We see that that's the single fastest area where people are coming into the business.
Mark Astrachan: Got it. So it's just a lot of moving parts, I guess, beyond kind of what sort of -- sort of related to that -- because I had another question, but just as a follow-up to that. So is Costco still an incremental consumer? I mean, is the larger pack size, more people just consuming more of the product? Is that the right way to think about this?
Scott Morris: Yes. So we are -- the interesting thing is we are seeing a lot of new consumers come in through not only club, but also even our larger sizes in all retail. I mean, it is interesting. We do see some people go for it and actually, you'll start up with a six-pound roll. So we definitely see that dynamic going on. And then what we started to put out these multipacks, not only in club, but we're also starting to see these multi packs that are starting to go into regular retail, and they're starting to get a little bit of early traction. We knew it was going to be slower, but it's part of a long-term plan to make sure people are using us as a main meal product.
Billy Cyr: Hey Mark, one other thing, as we said in the comments, that if you think about where our fastest growth has been its amongst the HIPPOs, so the heavier users and then we also mentioned the ultra-users, so people buying over $1,000 a year. They're growing at an even faster rate. So we are seeing an increasing number of consumers who are moving up into that higher purchase amounts and oftentimes, it comes with buying larger pack sizes.
Mark Astrachan: Got it. Okay, that's super helpful. I'll leave it there. Thank you.
Scott Morris: Thank, Mark.
Operator: Our next question is from Peter Benedict with Baird. Please proceed.
Peter Benedict: Good morning, guys. Thanks for taking the questions. First one is just around -- I mean a lot of talk about capacity, what might be needed going forward. You did mention the new production technologies seem to be proving out here. I think you said second half of '25 where you like to have that fully up and running. Can you kind of remind us what's going on there? And kind of what the plan would be to, I guess, retrofit your existing lines with those technologies? Just thinking of ways to improve or continue to improve your output without a new facility, that type of thing. That's my first question.
Scott Morris: Hey Peter, I think the way to think about this is there's three major pieces to us improving the capacity on our lines. The first one is basically just like OE improvement, and we have a long way to go and a lot of opportunity, and the team is doing an extraordinary job there. I mean like hats off to the guys and the work that they've done. And they're significant that -- that will be significant, and that will change the cadence that we need to open new lines, and it will improve profitability from the existing network, okay? That's the first one. The second one is, I'll call it, kind of updating and like minor modifications to the existing lines with some new technology and new equipment. We've been able to start proving that out, and we're seeing pretty significant -- we're not going to share anything at this point, but we're seeing significant progress in that area. We're really -- we're excited and enthusiastic about potential that just by making some small improvements and some investments in the lines that the amount of upside there is. And the third one is basically, I would call it almost -- it's not an evolution. I would say it's somewhat of a revolution of our bag technology. And it is a kind of more developed future state of where we believe the bag production will be. Now we'll start to see that next year, but it will be very small. And the intent is that, that will take -- as we prove that technology out, it will start taking the place as we expand our lines in the future. But at this point, that's really far out. And that's not something that like we can get too far into. It's just like we can't predict exactly the future. I will say we are confident that, that technology will work. The question is exactly when and then the exact impact on kind of our expansion in our capacity across our network.
Peter Benedict: Well, fair enough, Scott. That's a good perspective. And then my follow-up question, look, you guys have made enhancements to the management team over the last couple of years. You're obviously executing very well. Billy, you talked about the new corporate headquarters in Bedminster, New Jersey, I think you mentioned marketing and finance as maybe some areas where you'd be looking to attract additional talent. Just wondering if you could expand on that, your thoughts around the organization, who you might -- or what areas you would be focused on, maybe continuing to build as you support the growth in the business? Thank you.
Billy Cyr: Yes. Peter, as we're growing, obviously, we have growth opportunities and needs in virtually every area in the company. That's what happens when you're growing at the rate that we're growing. And the most important lesson we've learned in the last couple of years is you can't get behind on adding talent. So you can see us leaning into acquiring the necessary talent in the places that will make the biggest difference. And you'll see it in a wide range of areas. And as you've seen in the last 18 months, the amount of talent that we've hired has been fairly significant. I don't want to get into any specific areas other than to just say that you should think about as we add scale to the company, it gives us opportunities to add capability in areas where we may have been a generalist before, and we can become a specialist, where we can get high level capabilities in an area where we've previously been operating, but probably haven't had the sophistication and capability that's needed for a business that's $1 billion or $2 billion or $3 billion in sales. So you're going to see us continue to add people to add bench strength to help us grow the company and it's just going to be an ongoing part of our process.
Peter Benedict: All right, good to hear. Good luck, guys. Thank you.
Operator: Our next question is from Rupesh Parikh with Oppenheimer. Please proceed.
Rupesh Parikh: Good morning, and thanks for taking my question. So maybe just start out with the EBITDA cadence, just any more color on how you guys think about Q3 versus Q4? And then I have one follow-up.
Todd Cunfer: Yes. Obviously, don't give specific guidance, but just big picture. We'll have more EBITDA in Q4 than Q3 just because of the amount of media spending. We'll see a similar -- as we pushed media from the first-half to the second-half this year. You'll see a similar amount of media spend in Q3 as you did in Q2, that's unusual for us. But then there will be a drop-off in Q4, still a very sizable increase versus prior year, but there'll be a drop off, and that will allow additional EBITDA in Q4.
Rupesh Parikh: Great. And then one follow-up question just on the category. So one of your retail customers highlighted they're seeing green shoots in the pet category on the pet adoption side. Just curious what you guys are seeing right now from a pet adoption perspective?
Scott Morris: Rupesh, I think the way to think about this is, I mean, the category always goes through ebbs and flows. And there is definitely a little bit of a post-COVID trough, we think it's going to come back to a much more normalized rate. But I think that there's -- look, if you look at the category, there are tons of headwinds going on. And I think when you're kind of dealing in single -- like light single digits, you're going to kind of really focus on some of those either headwinds or tailwinds. We've been very fortunate that we haven't had to really focus on those trends and that we're winning within. If you're, I'd say, almost any retailer, you're kind of looking across the category and you're looking across segments and then you're kind of looking across brands. And we have really been like the absolute clear winner and it creates even more opportunity for us into the future to work with them and develop the business. So -- I know your question was specific around adoption rates. I would say, look, when we're looking at this stuff on a quarterly and six months basis and things are ebbing and flowing, yes, it's off a little bit. I mean, look, this has been a significant trend, a large societal trend where people are treating pets more like people and people are having less kids and more pets. And they've become an important part of our lives, and we think that that's going to continue over the long-term.
Rupesh Parikh: Great, thank you for the color.
Operator: Our next question is from Bryan Spillane with Bank of America (NYSE:BAC). Please proceed.
Bryan Spillane: Thanks, operator. Good morning, guys. Just one question for me. I think you started this year or went into this year with a plan to be more measured, I guess, right, in terms of growth and not wanting to overheat your manufacturing network. And so I guess just curious, this year, right, given how good the demand has been, if you had -- if capacity was not a question, right, if you could make as much as you could, would your sales have been higher, I guess, is there more interest from retailers and consumers than maybe what we're seeing in the results?
Billy Cyr: I would say if we would spend at the sort of comparable growth rate on media to what we had last year, in other words, grow media in the first-half at the same rate of sales growth, you would have seen more demand, but we knew we couldn't supply that. And for us, it's really, really important to keep the growth within the capacity limit and also to execute our capacity expansion plan in a very measured and orderly fashion. And we feel good about it. Our team has gotten really good at designing, constructing and starting up lines. We want to do that reliably. We want to provide very high level of customer service, because we know we provide high level of customer service. Our costs are lower. Our fridges are full. The sales are better. Customers are happy, consumers are happy. So I think for us, it's really important that we measure or manage the growth to live within the capacity. We add the capacity at a very disciplined rate. And if that all works together, we think everybody wins. And you should expect to see that from us going forward.
Bryan Spillane: Okay, thank you.
Billy Cyr: Thanks.
Operator: Our next question is from Michael Lavery with Piper Sandler. Please proceed.
Michael Lavery: Thank you. Good morning.
Billy Cyr: Good morning.
Michael Lavery: You talked about adding shifts at Kitchen South, I guess, maybe two-part question. How is the relationship with the Kitchen South, like if there's better overhead absorption or efficiencies from that or kind of at least in an operating leverage way? Do you benefit from that on the cost? And then I guess the other part of it is, do you have opportunities on any of your own lines to ad shifts as well or at least reduce changeovers and maybe do extended runs. How should we think about that as part of an opportunity for you?
Billy Cyr: Sure. The Kitchen South relationship is terrific. They're performing exceptionally well. We could not be more pleased with the performance coming out of that operation. They've been terrific this year. There is a little bit of leverage as we add some shifts there. It's not dramatic. Just the way the arrangement is set up, we do get a little bit of leverage. So we'll continue to lean in there just not on shifts. But as I mentioned earlier, we have another line coming in, in Q1, and then we have room for a few more lines if we -- if both partners choose to go that route in that facility as well. So we look forward to many more years of great performance and additional capacity coming out of that facility.
Michael Lavery: And is there room to add extend runs or add shifts on any lines at Ennis or Bethlehem?
Scott Morris: Bethlehem is pretty tight at this point. Ennis, yes, there is room, and we will not -- we'll add more shifts. We'll get the efficiencies in the facility ramped up over the next year or 2. So there is some capacity there.
Billy Cyr: Michael, think about it as our operating model is that when we install a line, we ramp it up by putting on one shift or, in essence, half capacity utilization for a period of time. And then as the demand grows and the production efficiency on the line grows, we ultimately take it to a 24/7 operation. And that happens typically before you bring on the next line. So at the same time we're doing all that, we are working as we increase the number of lines in our system to make some of those lines more specific or specialized, and it reduces the number of changeovers that we have to do and allows us to deliver higher throughput or higher output per hour of operation. And also extend some of our runs depending on what some of the products are and where they're being produced. So there are significant benefits that we gain in each of our operations as we gain scale.
Michael Lavery: Okay. That's helpful. And just a follow-up. You mentioned in the prepared remarks the Dallas D.C. I think the way you phrased it was, it expanded its coverage area. I guess I hadn't realized that maybe wasn't expiring all of what it could or was meant to. Is that now optimized? Or is there room for even more -- could it expand further to get to a more optimal service area?
Billy Cyr: Right now, the Dallas DC exists to take the product that's produced in Ennis and ship it to the state that it can serve. So as we add production in Ennis, the Dallas DC is able to supply more states. So for example, we're right now in the process of converting the states of like Utah and Colorado over to being shipped out of the Dallas DC. Ultimately, when Ennis is up and running to its full 10 lines of production, the Ennis or the Dallas DC should be supplying more than half of the United States. Think of it as everything west of the Mississippi and probably parts of the Southeast. So we will continue to get freight efficiencies from the Dallas DC, but they're 100% connected or linked to increasing the amount of output from the Ennis facility.
Michael Lavery: Okay. That's helpful. Thank you.
Billy Cyr: Thanks.
Operator: Our next question is from Jon Anderson with William Blair. Please proceed.
Jon Anderson: Good morning, everybody. Thanks for the question. I just have one. I wanted to come back to an earlier comment on distribution. I think, Bill, you mentioned that we should expect to see PDP growth exceeding ACV growth moving forward. I guess my question is, are you now seeing that your -- the brand is represented in the stores that you need to be in from a coverage perspective? And at the same time, are you seeing more of your large accounts, particularly in FBM, proactively moving to add second and third fridges. I'm just trying to understand the kind of -- a little bit more context around that comment?
Scott Morris: Hey Jon, so I made a brief mention of it before, but I think as retailers are looking and they're starting to think about like their growth in the category, not only this year, but next year, I think they are clearly recognizing that Freshpet is delivering on not only our growth, but now we actually have nice scale behind it. I mean if you look at the last 26 weeks and measure it, we've added $100 million in growth to the category, which is by far the leader of any of the -- I think any brand by far, which is really exciting. So now they start looking forward and just going about next year, what do you do? We know we need to tighten the mix of the products that we have in existing fridges, but we're also having, I would say, really productive conversations about second fridges and expanding distribution not -- only in stores we're not in, but also in second fridges and even some cases where it's third bridges. So I think that's what we'll see going forward. There's also a couple -- very few scenarios where there are some retailer or so that has bought some of their own fridges, and we may be going into some of that space over time, too.
Jon Andersen: Okay. If I could squeeze one more in. On the media front, can you talk a little bit about how -- not the level of spend, but maybe how you're changing or evolving the type of media that you're buying and using and the messaging? And is it working? Because I think you've taken some different approaches over the past 12 months or 18 months, maybe than you have in the past, but an update on that would be helpful. Thank you.
Scott Morris: Yes. So I think the -- let me start with great work by the marketing team and overall across the entire marketing team. And the work has been done, not only on creative, but also packaging. It's not dog food, it's been a tremendous campaign for us. It's producing incredibly well. We're seeing great performance from the creative. We're seeing also a great performance from the buying and how we're planning our media, and we continue to expand opportunities to place it in different spots that are like actually, on the face, more expensive, but the productivity has been so strong. That's what we can deliver on that really consistent CAC range that we're talking about earlier. So we're seeing visits to the site up. We're seeing conversions up every metric that we track is performing really, really well. And it really goes back to the work that the things done across both the creative and also the media buying. So yes, we continue to kind of expand out different targets. We've also recognized that we've pushed into sports. You're seeing us kind of pushing the sports a little bit more. Every one of those has worked really well. And we typically think about it is we want to test now and then we really want to see the productivity of that and then we want to buy that in the future. So the next quarter or next year is when we're getting into a bigger buy on that. So we're constantly in that mode.
Jon Andersen: Thank you.
Operator: Our next question is from Tom Palmer with Citi. Please proceed.
Tom Palmer: Good morning and thanks for the question. I wanted to first just follow-up on the fridge count discussion. As we look at the next couple of years, it sounds like you have kind of some visibility both for maybe new stores and adding the second units, which one becomes the bigger driver here over the next couple of years?
Scott Morris: The clear driver longer term is going to be second fridges. If you -- it's actually an interesting point. But if you look at the productivity that we get out of the first four feet now, we are one of the most productive four feet in the pet aisle. And when you can demonstrate that and have category-leading margins, that's really great cocktail for expansion into a second fridge. And we get in the second fridge, the number we typically quote is within six months. It's running about 60% of the first fridge. It's really productive for us. The capital investment is great. The sales is great. And then once that levels off, now you have an ongoing annuity that typically will increase on a double-digit sales growth into the next year and years going forward. So the retailers that moved with us earlier are seeing a compounding effect on the growth -- the growth that they're seeing on Freshpet.
Tom Palmer: Okay, thank for that. And then on this year's sales guidance, you did note the new line in Ennis this quarter but also -- or opening this quarter, but then also the continued ramp of prior lines and the added shifts. I guess just thinking about this year's growth, how reliant, if at all, is that new Ennis line to hitting your guidance of the -- that was just updated it?
Billy Cyr: I mean, we've -- in order to continue to support the growth that we already have, we need that rolls line in Ennis to come online. We're very confident that it's going to come online. The qualification is going very, very well. But if for some reason that, that didn't happen, we would be very short on rolls for the balance of the year. We're very comfortable with our bags production capacity right now and our ability to meet the bag demand for the balance of the year. Bags becomes an issue at our current rate of growth as we head into the first quarter next year, which is why we're bringing on new shifts and new lines at Kitchen South later this year and then the new line actually starts up in the first quarter of next year. So we are constantly in a position where we're growing into the existing capacity. We need to bring on the line in a reliable fashion on time. When we do that, we can support the high fill rates that we've had with our customers and the business keeps growing very, very nicely. So it's a really nice cadence that we're developing, but we've got to execute well.
Tom Palmer: Okay, thank you.
Operator: Our next question is from Marc Torrente with Wells Fargo (NYSE:WFC). Please proceed.
Marc Torrente: Good morning. Thank you for the questions. Just one for me. Non-tracked channels continue to grow over 100%. How much of total does this represent now? What areas here most incremental? And any other new distribution white space starting to gain traction for you guys?
Scott Morris: So yes, we are seeing really nice growth in some of the untracked channels. And it's -- a lot of it is work that's been going on for multiple years that's now coming to fruition. You're going to see longer term continued growth there, and we're hoping to see like really great performance from both Canada and the U.K. next year, albeit small. We think there are tremendous opportunities to continue to expand there also. And then -- the other thing that we have a tremendous opportunity in, we are -- and you may have heard us talk about this in the past. But from a kind of a digital standpoint, where someone could sit down to the computer and buy us, we are very, very underdeveloped. Approximately 8, 9% of our sales are through some type of digital and that includes click and pick, et cetera. We think that the opportunity there is tremendous, and we would like to see really leading growth in that area over the next kind of 12 to 18 months. There's -- a lot of our focus is there. We're just not as developed as many brands in digital or in e-commerce in any way.
Todd Cunfer: And Marc, just one call out. Obviously, that non-measured growth has been tremendous in the first half of the year at about 5 points in Q1, 4 points in Q2. As we start to lap some of the store growth that we got last year in the second half, we anticipate that growth will probably only at about 2 points in the second half of the year, still tremendous growth. And as Scott pointed out, we're seeing some really nice gains here in the e-com world, which we think is going to really flow into '25 as well. But that growth in the non-measured is still be really, really strong, that will get me wrong, but it will slow in the second-half.
Marc Torrente: Okay. Thanks for the color.
Operator: We have reached the end of our question-and-answer session. I would like to turn the call back over to management for closing remarks.
Billy Cyr: Thank you. Thanks, everyone, for your interest. I'll leave you with one thought. Dogs teach us a very important lesson in life, the mailman is not to be trusted. That's from Sean Ford (NYSE:F), to which I would add, but if the mailman carries fresh fat turkey bacon treats, he will be most loved and anticipated visitor you could have. Thank you very much for your interest.
Operator: This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.
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