Freshpet Inc (FRPT) 2020 Q3 法說會逐字稿

Greetings, and welcome to Freshpet Inc.

Third Quarter 2020 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jeff Sonnek with ICR.

Thank you.

You may begin.

Thank you.

Good afternoon, and welcome to Freshpet's Third Quarter 2020 Earnings Call and Webcast.

On today's call are Billy Cyr, Chief Executive Officer; and Heather Pomerantz, Chief Financial Officer; Scott Morris, Chief Operating Officer, will be available for Q&A.

Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws.

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.

Please refer to the company's annual report on Form 10-K filed with the Securities and Exchange Commission and the company's press release issued today for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

Please note that on today's call, management will refer to certain non-GAAP financial measures, such as EBITDA and adjusted EBITDA, among others.

While the company believes these non-GAAP financial measures provide useful information for investors, 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 a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP.

Finally, the company has produced a presentation that contains many of the key metrics that will be discussed on this call.

The presentation can be found on the company's investor website.

Management's commentary will not specifically walk through the presentation on the call; rather, it's a summary of the results that they will discuss today.

Now I'd like to turn the call over to Billy Cyr, Chief Executive Officer.

Thank you, Jeff, and good afternoon, everyone.

I'm speaking with you from Bethlehem, Pennsylvania, and Scott and Heather are in our offices in Secaucus.

We will do our best to not trip over each other on the call.

And as always, please excuse any barking in the background and any other technical issues we might encounter.

Let me start by saying that it feels really good to have Kitchens 2.0 up, running and producing salable product because we need the capacity to catch up with the demand.

But it also feels good because Kitchens 2.0 is more than just incremental capacity.

It is an indication of the capability of our manufacturing and engineering team, completing such a large and complex project under some of the most difficult conditions we have experienced in a long time.

Our team managed through shelter-in-place orders that brought construction to a halt, challenges getting fully staffed construction crews during the pandemic, state mandated shutdowns at equipment suppliers across the country and the challenges of keeping workers safe from the coronavirus, in addition to the usual safety, weather and technical challenges on a construction site.

Despite all that adversity, they completed and started up our biggest capital project to date, and we now have a longer runway to support our growth.

I'm incredibly proud of what our team accomplished.

Completing this project was no small feat and a major milestone for our organization.

This capacity is critical to the future growth of Freshpet.

During the third quarter, our Nielsen Mega-Channel consumption growth, driven by continuous media since May, exceeded 40% and made it very difficult to keep up with demand, particularly on our premium Fresh From the Kitchen line.

Our manufacturing team performed very well, delivering record total output and a strong adjusted gross margin, but that was not enough to keep up with the demand.

As a result, we do -- drew down trade inventories during the quarter and had much higher out of stocks than we, our customers and our consumers would like.

With Kitchens 2.0 up and running, we are now able to start rebuilding that trade inventory and expect that we will be fully caught up within a few months.

The capacity challenges that we have faced all year and that many of you worried about are now behind us, which feels really good.

We now have the capabilities and capacity to do what we love most, convincing more pet parents to change the way they feed their pets forever.

I think it is also worth noting that we managed this complex capacity expansion while delivering highly reliable top line performance, solid and steady adjusted gross margin and an adjusted EBITDA growth rate that is well in excess of our top line growth rate, which demonstrates the operating leverage inherent in our operating model.

And we kept our team safe with no evidence that anyone contracted the coronavirus in our facilities or transmitted it to anyone there after more than 500,000 man hours of operation under the current COVID conditions.

That is probably the achievement that means the most to us.

With a notable exception of the COVID-19 issues, though, these are the challenges and the kind of results that both you and we expect from a high-growth company like Freshpet.

As impressive as it is that we have added so much capacity and delivered strong top and bottom line results, we are prepared to demonstrate this sound execution over and over again, on a larger and larger scale each time for many years to come in order to achieve our goals.

The mountain we just climbed has given us a clearer view of the next mountain ahead of us, which is taller but not necessarily imposing.

We are rapidly building the capability to scale that next mountain.

Nowhere is that clearer than in Ennis, Texas, where we have broken ground on our next Freshpet kitchen on almost 70 acres of land.

We now have 7 engineers in Ennis and a large array of construction and engineering partners, most of whom have been with us through multiple expansion projects.

That site, when fully built, will be almost double the size of our Bethlehem operations and add more than 700 million of capacity.

It will employ technologies and operating practices that represent third and fourth generation manufacturing know-how that we've developed at Freshpet.

It will also be an incredibly environmentally friendly site, employing state-of-the-art practices designed to reduce our environmental footprint.

We are very excited about what is happening in Ennis and look forward to opening that facility in mid-2022.

Now on to the results.

We feel very good about what we accomplished in the quarter.

We shipped everything we could make, delivering $84.2 million of net sales for 29% growth versus a year ago.

Recall that the year ago quarter included about 3 points of trade inventory refill.

So on an apples-to-apples basis, our growth was closer to 32%.

Further, we short-shipped customers quite a bit in this quarter and will begin to catch up on that in Q4 and Q1 of 2021.

That, and an improvement in spoils, accounts for the roughly 8-point gap between our 40% Nielsen Mega-Channel growth rate and the 32% apples-to-apples growth metric I just mentioned.

A full reconciliation is in the accompanying presentation.

This growth was a result of the post-COVID pivot we made, rescheduling our media to run continuously from May until October for the first time, taking advantage of higher viewership and lower media rates.

That plan worked even better than we had anticipated and drove Nielsen Mega-Channel consumption growth above 40% by the end of July and has stayed there until out of stocks began to impact our growth in late September.

Our growth rate is still running in the high 30s today despite those out of stocks.

The consumption growth was incredibly broad-based with grocery up 40%, mass up 46% and big box pet specialty up an impressive 32%.

In each class of trade, Freshpet's growth was at least 35 points better than the category as a whole.

Driving this growth were the strongest velocity gains, measured as dollars per million ACV we've ever experienced, up 29% versus year ago in the quarter.

It is that kind of performance that convinces our customers that Freshpet is a good investment of space and inspires them to find ways to add more and bigger fridges to more stores.

By the end of the quarter, 7 of our top 10 customers had significant tests or expansions of multi-fridge sets underway.

Household penetration gains were the major driver of our growth.

Total household penetration was up 23% versus year ago.

Core dog household penetration was up even more at 27% growth.

Over the last 12 months, we've added 725,000 incremental households.

This puts us slightly ahead of the pace we expected on our quest to add 5 million more households by 2025.

It is our expectation that we will add households faster in the early years of our 5 by 2025 program, and that the buying rate will come along faster in the later years as our installed base of users gets bigger.

We took a deeper look at who the new users were who joined the Freshpet franchise in the post-COVID period and we're encouraged to see that they were younger, skewing towards millennials and Gen Z, ethnic, unmarried and urban.

This is very good for the longevity of the franchise we are building and is also indicative of the role Freshpet and pets play in our lives.

Pets are highly valued for the companionship, particularly in times of stress.

And the highest quality food becomes even more important when you spend so much time with a pet you love.

That is the perfect recipe for success at Freshpet.

Our buying rate was up 5%, which is strong growth despite the large number of new users we acquired.

As we've indicated before, when we look at an undiluted cohort of established users, we typically see 6% to 7% buying rate gains.

That includes consumers who are moving from our lower price per pound items to our higher price per pound items and increased usage on a daily basis.

Everything we are seeing in our data suggests that that is still happening, but they're being diluted by the large number of new users who are just beginning their Freshpet journey.

As expected, new store additions were modest, reflecting retailers' intense focus on keeping their stores clean and safe for employees and patrons as well as their need to manage labor amid the growth of their e-commerce options.

We added 251 net new stores in the quarter and have now added 801 net new stores so far this year.

We believe we are on track for the 1,000 net new stores we projected for the year.

More importantly, though, we upgraded 417 more stores to larger fridges and installed double fridges in 565 more stores in the quarter.

Year-to-date, we've upgraded 635 stores and have installed 1,344 second fridges, both of which are in excess of our original guidance for the year and the revised guidance we issued in May.

Those placements are clearly paying dividends as our velocity in stores with upgrades typically increases by 25% to 35% and double fridges typically grow velocity by 35% to 45%.

Further, upgrades and second fridges are increasingly becoming a significant enabler of our growth through their ability to carry a wider assortment of products appealing to incremental consumer and pet demographics and a broader range of needs.

ACV growth reflects the same trends, up 11% to 55.3%, reflecting retailers' focus on protecting shoppers and employees versus making planogram changes.

Total distribution points, TDPs, are a bit more complicated because we experienced a very significant gain behind the large number of upgrades and second fridges, but TDPs began to slip to late August when we began to short-ship customers.

That can be seen on the chart in the accompanying presentation.

As a result, TDPs peaked at plus 21% versus year ago and then dropped, still ending the quarter 12% ahead a year ago, but well below the peak, and a 17% average GDP growth in the quarter.

Once we rebuild supply, we expect to regain those TDPs.

Our e-commerce business was up 188% versus a year ago and now accounts for 5.1% of our business.

On a sequential basis, our e-commerce business realized a small increase versus Q2, when consumers were under shelter-in-place orders and online ordering became a necessity for many people.

Within the overall trends, we are seeing particularly strong performance with Instacart and the curbside programs, including those in pet specialty.

And over 85% of our e-commerce business went through our in-store fridge network.

Our manufacturing team performed very well in the quarter.

Heather will give you more detail on the adjusted gross margin performance but I want to comment on the overall level of productivity.

The Bethlehem kitchens produced almost 3% more dollar volume than they did in Q2, despite no incremental capacity or staffing coming online in the quarter.

Kitchen South produced almost 11% more in Q3 than they did in Q2, thanks to the addition of a second shift in the middle of Q2.

By the end of the quarter, Kitchen South was producing almost 25% more per month than they were in June and still accelerating, producing almost twice as many pounds in October as they did in June.

Absenteeism dropped from its peak of 15% in mid-June to a steady state of around 5% to 6% today.

It is, however, still above our long-term average of 2% and reflects continuing challenges our employees' families are facing with young kids at home, family members with underlying health conditions that make them more vulnerable to COVID-19 and the abundance of caution that we all employ in trying to keep the virus out of our facilities.

I will also add that, despite the publicly reported national employment rate of 8%, we, and most of our suppliers, are facing a very tight labor market.

The number of highly skilled workers looking for jobs is nearly as robust as that national rate would suggest.

In early August, we announced the hiring of a new Head of HR, Thembi Machaba, who is developing strategies for us to address those near-term issues but, more importantly, developing a long-term plan that will support our rapid growth, including staffing our Ennis facility, continuing to expand our technical bench strength, and rebuilding the necessary depth needed to support a larger and more complex business, while still delivering the SG&A leverage we have committed to.

Finally, adjusted EBITDA was up 42% versus year ago at $17.0 million in the quarter and is now 113% ahead of year ago for the year-to-date.

Recall, we increased our media investment in Q3, moving a portion of it out of Q2 and into Q3, resulting in the advertising investment in the quarter being up 30% versus year ago.

We had planned for it to be even higher.

When the rapid growth began to exceed our capacity in August, we pushed some of the advertising back to Q4 to better match our available capacity.

That advertising begins this week now that Kitchens 2.0 is up and running.

We've also made an incremental investment in U.K. media in Q4 to begin to recapture the growth that were obscured by the COVID crisis there.

That advertising ran in October and it produced exactly the results we'd hoped to see and positions us well for 2021.

As I look ahead to the year-end and into next year, I want to make a few points.

Number one, we are well on track to deliver the revised guidance we issued at the end of Q2.

That guidance called for greater than $320 million in net sales and greater than $46 million in adjusted EBITDA.

Both numbers are heavily dependent on our ability to produce meaningful quantities of salable product in Kitchens 2.0 in Q4, and we believe we are on track to do just that.

In fact, we had a very good start to Q4 in October, with gross sales up more than 40% versus year ago for the month, catching up on some of the trade inventory that we depleted, but there's still much more to go.

In November and December, we will be lapping last year's unusually strong performance, but with the added capacity of Kitchens 2.0 and strong demand, we believe we are well on track to deliver the revised guidance.

Two, our capacity additions are on track and will position us very well to drive growth in 2021.

Our start-up plan for Kitchens 2.0 began with staffing to run the new bag line 50% of the time while we iron out all the kinks with the new equipment.

We will take that to 100% staffing, i.e.

24/7, once we are comfortable that we are operating efficiently.

We're adding staffing for the roll line in Q4 and expect that to be producing salable product by January.

We don't need that line to run a 24/7 schedule until later in the year but may take advantage of its capacity and the greater efficiency and throughput of the new bag line to do some upgrades in our existing facility in early to mid-2021.

Further, our Ennis, Texas project is on track to come online in 2022.

If all goes as planned, we will have all the capacity we need to drive strong growth in 2021 and have the ability to sustain that growth into 2022 and beyond.

We will make a final assessment of the readiness of our incremental capacity at the end of this year and use that in determining how much we will invest in media in 2021.

That will dictate how fast we will grow.

Our marketing and sales teams are preparing a variety of scenarios, and we are quite confident that we have the necessary marketing and innovation tools to support strong growth well into the future.

As we have said many times, our goal is to fill capacity when it is available, as long as we can do it efficiently and with quality product, so our bias is to keep our foot on the gas in 2021.

We will provide more clarity on this when we issue our guidance for 2021 in late February.

Number three, we believe that the long-term trends that have been driving Freshpet's growth have been amplified and accelerated this year, giving us increased confidence in our long-term goals.

Despite all the economic and social uncertainty this year, ultra-premium pet foods have accelerated their growth, while the lower-priced, value-oriented brands have struggled.

That is very consistent with what happened during the Great Recession and is one of the reasons why many view the pet category as relatively recession-resistant.

There's also a lot of discussion about whether there have been increased pet adoptions that are driving the pet food category during the challenging circumstances we've experienced this year.

We believe the data on that is very murky, as we have seen evidence both supporting that notion and evidence that suggests there was only a temporary increase in pet adoptions.

In the end, we are treating any increase in adoptions as a pull forward of demand for pets and believe that it doesn't really matter for a brand as small as Freshpet whether there are 63 million households with a dog or 65 million, and we were only in 3.8 million households.

The untapped opportunity is enormous either way.

More importantly, we believe that consumers' increased awareness of the role pets play in their lives and the benefits of feeding them the best that they can provides gale force tailwinds for Freshpet.

As we said at our Investor Day, pets are replacing kids in many families.

It is now very clear that dogs are no longer just a member of the family, they have become our favorite child.

My kids have jealously pointed that out to my wife and me numerous times.

That is very good for Freshpet as we provide the quality of foods that a favorite child would merit.

Separately, I want to thank our shareholders for their support of the 5-year governance transition plan we announced in August as part of our proxy.

At our shareholder meeting in September, each of the initiatives on the proxy received overwhelming support, so we are moving into implementation on each of the steps that we committed to deliver.

Finally, before I turn it over to Heather, I want to note one other milestone that we achieved in the quarter.

We donated our 10 millionth meal to shelters and rescues.

This year alone, we have denominated 1.3 million meals, and through a variety of other efforts under our pets, people, planet mantra, we saved 450 dogs and cats, contributed 137,000 to shelters and distributed over 7,000 plus Freshpet coupons to adoption and community outreach programs.

We are proud of our team members who volunteer their time to lead these efforts and are thrilled to support them.

Now, let me turn it over to Heather, who officially became our CFO on October 1.

Thank you, Billy, and good afternoon, everyone.

It is an honor to follow Dick in this position, and I look forward to helping drive Freshpet to become a $1 billion business by 2025.

I am very appreciative of the mentoring Dick has provided me as I prepared for this role over the past 10 months, and I feel ready for the exciting challenge that lies ahead.

As Billy indicated, Q2 net sales were $84.2 million, up 29% versus the year ago period.

For the first 9 months of 2020, net sales are up 30% versus year ago.

As Billy also indicated, we short-shipped quite a bit in the quarter, so our net sales don't fully reflect the amount of demand and consumer takeaway we had in the quarter or year-to-date.

We believe that if we had the capacity to ship to consumption, our net sales growth in the quarter would have been about 900 basis points higher.

And for the year-to-date, it would have been about 300 basis points higher, which equates to about $7 million to $8 million of net sales.

We will catch up on that over the next 2 quarters.

Our net sales growth in the quarter also reflects an improvement in spoils of approximately 100 basis points versus year ago, similar to what we experienced in Q2.

We believe that this is a natural function of increased scale and higher velocity and have baked that into our projections going forward.

We see this as another example of the benefits of scale that we are acquiring, and that will be difficult for any potential new entrant to match.

We had favorable mix in the quarter due to capacity constraints on our bags, similar to what we experienced in Q1.

In fact, our rolls business grew 34%, ahead of the line average of 29%.

Our Fresh from the Kitchen product only grew 14%, due to that product having the most severe capacity constraints within our lineup.

We shipped every case we could make, but just could not make enough.

We expect that growth to reaccelerate beginning later in Q4 and really take off in Q1 as we bring on the new capacity.

The total business will begin to shift back towards bags in Q4.

Product innovation continues to contribute to our top line growth.

One notable product innovation success has been our small dog lineup.

We launched a bag version in 2018 and the roll version earlier this year.

The bag, which is in its third year, had consumption growth of 77% in Q3 versus year ago.

When you add the rolls to it, the combined small dog product consumption was up 119% versus a year ago.

While small dogs don't eat as much as larger dogs, our data shows that the small dog pet parent is much more likely to use Freshpet as a full meal replacement, and that drives strong buying rates.

In addition, almost 50% of small dog owners have 2 or more dogs.

Adjusted gross margin for the quarter was 49.3%, down slightly from last year's 49.8%, in part due to higher beef prices.

We have begun to see some softening of beef prices with improved product supply in the market, but the prices have not retreated much yet, so we expect the higher cost to persist during Q4.

However, we are optimistic that our total protein costs in 2021 will be close to what we experienced earlier this year.

But as many of you know, we price our chicken for the year, which is the largest share of our protein purchases, in December, so we won't know for sure for a few more weeks.

Adjusted gross margin was also impacted by the increased production at Kitchen South, which has a slightly lower margin than production we do in Bethlehem.

While we continue to ramp up that production, the margin-related headwinds will be partially offset by increases in production in Bethlehem, resulting in only a modest impact to our adjusted gross margin over time.

All of that has been factored into our guidance of approximately 49% adjusted gross margin for the year.

Our Q3 media spending was 30% higher than year ago, in line with net sales growth.

We had planned to have even higher media spending in the quarter due to the media deferrals we instituted following the post-COVID surge in April.

However, by late August, the growth had exceeded our expectations, bumping up against our capacity constraints.

So we deferred a portion of the media to Q4 and reallocated a portion to the U.K. in Q4.

That reduced the year-to-date media investment by about 90 basis points.

Those media investments will show up in Q4, and we believe they will position us to get 2021 off to a fast start.

Adjusted SG&A in the quarter was $24.5 million or 29.1% of net sales, an improvement of 230 basis points versus the year ago period.

And on a year-to-date basis, we improved by 590 basis points versus year ago.

When you exclude media spending, adjusted SG&A approved -- improved by 240 basis points versus year ago in Q3 and 250 basis points year-to-date, which keeps us on track to deliver our 2020 goal.

That is also consistent with our long-term Feed the Growth plan to grow into our scale and deliver SG&A efficiencies to the bottom line.

We are targeting 1,000 basis points of SG&A improvement from 2020 to 2025, and we are off to a good start.

Adjusted EBITDA in the quarter was $17 million, up 42% versus year ago.

And that resulted in a 20.2% adjusted EBITDA margin.

We remain on track to deliver our guidance for the year while simultaneously investing to get next year off to a good start.

We incurred approximately $600,000 of COVID-related costs in the quarter, such as enhanced employee compensation, increased efforts to protect them and other related costs that we are adding back.

Year-to-date, we have spent a total of $2.4 million.

At this point, barring a significant increase in COVID cases or supply interruptions, it appears that -- likely that we will spend a little less than the $4 million we originally estimated.

Given the success we experienced in meeting our objectives so far this year, we believe this was a very good investment.

As we look towards next year, it is hard to tell how long we'll be operating under the COVID-related conditions.

Our biggest COVID-related costs are supplemental pay we make to hourly team members in a variety of circumstances and weekly deep cleaning of our office space.

The supplemental compensation has ticked up this fall as we have entered the second wave, but it is still manageable.

Further, as Billy indicated, we are operating in a very tight labor market, so the supplemental pay has been essential to keep employees showing up for work when they perceive a threat from the virus or when unemployment compensation behaves as a deterrent.

The deep cleaning and increased pay will no longer be necessary once a reasonable percentage of the workforce is vaccinated.

All the other costs we are incurring can be absorbed in our ordinary operating expenses going forward.

Our guidance is unchanged, calling for net sales greater than $320 million and adjusted EBITDA greater than $46 million.

Our guidance continues to assume that the external environment progresses as it has for the last few months and that there are no additional or significant disruption to the supply chain, our customers or our consumers, including any issues from an adverse macroeconomic environment and increased social unrest.

Given that it is already November, the risk on each of those is now much smaller, but this has been a crazy year, so one never knows what the last 2 months have in store for us.

Our liquidity remains very strong.

At quarter end, we had $94 million in cash, cash equivalents or short-term investments, and we have not drawn on our $165 million senior secured line of credit.

So far this year, we have invested $77 million of capital against the Kitchens 2.0 project and other projects designed to increase our capacity, and our total spending on those projects to date is $124 million.

We also made a $26.6 million investment for a minority position in a related business that is designed to enable and further accelerate our long-term growth plan and is very consistent with our strategy.

For a variety of reasons, including competitive and confidentiality issues, we are not able to disclose the specifics of that investment at this time.

It will flow into our P&L as other income or loss using equity accounting.

Our net cash from operations was $13.2 million in the quarter, and we continue to expect positive cash flows from operations for the year.

In closing, we are well positioned to finish this year strongly and come out of the gate quickly next year.

We are thriving in the midst of an incredibly chaotic year and have successfully added capacity that will enable us to unleash our marketing and innovation expertise next year and have built significant organizational capability to help us achieve our long-term goals.

We have a winning brand with a strong product and exceptional idea behind it, growing consumer interest in less processed, more natural foods and in treating our pets well, a highly capable organization that has proven to be up to the challenge in front of us and a strong balance sheet.

I feel incredibly lucky to be part of the team that is changing the way people feed their pets.

I am passionate about our mission and proud of the way we approach it.

I am honored to work alongside my teammates, from the highly entrepreneurial founders to leaders with the skills to rapidly scale the business, and all of them as committed to what we do as I am.

That concludes our overview.

We will now be glad to take your questions.

Operator?

(Operator Instructions) Our first question comes from the line of Peter Benedict with Robert W. Baird.

A couple of questions.

So I guess right out of gate, I guess just on that $27 million equity investment, doesn't sound like you're going to give much color on that.

Just maybe -- I mean, you guys are spending a lot of money on the capacity, a lot of moving parts in the business right now.

I mean should we expect any others like this?

Is this kind of a onetime type situation?

Maybe just trying to think about it from that standpoint.

Can you expand on that all?

Yes.

Peter, let me give you some thoughts and Heather might add into that a little bit.

But obviously, we made a decision to do something that we do that's very, very strategic.

It fits in very consistent with our plan.

Our priority remains capacity additions, and we will continue to invest and focus our energy on that.

If there were anything that were to follow on behind, obviously, we would share that.

But at this time, I wouldn't envision anything in the near term.

Heather, I don't know if you have any commentary on how that impacts our cash management.

No, I don't have much to add.

I mean I think the only thing I would say is that we're looking at this investment just like we look at all the other investments and ensuring that it has a very strong ROI.

So it's in line -- as you said, Billy, it's in line with our growth strategy and a key enabler of that, and we feel confident in the decision that it's a key enabler of our long-term growth, so.

Okay.

That's fair.

I guess the big box pet growth has really picked up in 3Q.

Just curious what maybe you attribute that to?

Is that just COVID dynamics?

Or do you think there's anything going on in terms of customers maybe migrating to that channel at the expense of some others here?

Or I mean, obviously, every channel was strong, so just curious what you're seeing at big box pet.

Scott, do you want to take that?

Sure.

Peter, so yes, a couple of dynamics going on.

I think to start off, if you had told me in the beginning of the year that we are going to be seeing mid-30s pet superstore growth, I don't know if I would have predicted that one.

But it's been terrific to kind of see that develop for us.

The big -- there's a couple of dynamics.

First of all, it looks like in the more recent period, there has been a little bit of a swing-back where a couple of those guys, the Petco, PetSmart and even Pet Supplies Plus and a lot of other of our partners have started to do well, just at a category level, we've seen.

Now in addition, we were really fortunate this year to be able to put some double fridges in, a pretty good number of double fridges into PetSmart and Petco.

You see that in the script and in the numbers that we added over 1,000 double fridges.

So that's tremendous.

A good chunk of those were in PetSmart and Petco.

And obviously, that's facilitating it.

Now, the double fridges are great.

What they really enable is our -- us to be able to put more innovation out there.

And for us to have product to have -- the product supply piece there is a little bit more challenging because of the way we get product to market.

So that's enabled us to have better in-stocks, a little bit wider assortment of existing products and even some new innovation, and all of them seem to be performing quite well.

But overall, just a really terrific response in -- with our pet specialty partners.

Okay.

And then my last question, and then I'll pass it on.

Just with respect to the revenue growth, I mean you mentioned 40% in October.

You're doing some catch-up here.

And November and December have tougher comparisons, I acknowledge this is 2020, and you never know.

But just curious in terms of anything operationally, in terms of how you're ramping up the facility, the Kitchen 2.0, that would prevent you from continuing at that pace if the demand were there.

That's kind of my question -- over the balance of this year; we'll leave 2021 to a later date.

Yes.

Let me just frame it.

First of all, you have to remember that as we head into the remaining 2 months of the year, there are more holidays, so you lose a little bit of production.

So where we had strong production in Q3, you start with a little bit less available days to produce in Q4 than the -- or especially in November, December.

The second part of that is that we are, as I said on the call on -- in the prepared remarks, we are starting with one shift on the line while we iron the kinks out.

And in fact, we start with -- literally on the first day, we started with 1 batch or 2 batches and you move up from there and you keep increasing the production, leaving yourself ample time to keep learning, fine-tuning the equipment.

And so it is a ramp.

It is literally a ramp, and then we also have to ramp in the training of the people.

So we're very bullish about the capacity that we've added.

We feel very good about it.

When you watch these lines run, it's really -- it's very impressive what has been accomplished.

But we also are being very measured about the pace at which we bring it on.

And the rolls line has not started up yet.

As I said in the call, the rolls line will start up in December, with production coming off of it probably in the beginning or sometime mid part of January.

So there is a ramp.

There's definitely a ramp that goes on here.

Our next question comes from the line of Ken Goldman with JPMorgan.

I do appreciate what you were saying about the data on adoptions being murky right now, and you're sort of seeing evidence for a couple of different potential directions.

I was a little surprised though that, maybe at least in my interpretation, you kind of played down whether that matters a lot, right?

You were sort of talking about the ultimate goal and how few pets you still have as a percentage of the total.

Doesn't it matter a lot whether there are more adoptions?

In my view, you really want to capture these dogs that are -- people that are, I guess, no pun intended, early adopters here.

And you want to sort of change -- I would, my marketing strategy a little bit, if there's suddenly tens of thousands, 100,000, however many dogs that are coming into the market rather than potentially lose these customers over time.

So I would think -- I guess I was a little just surprised by the -- not a lack of urgency, but the sort of casual answer that you had to that.

So I just kind of -- I'm not being critical.

It's probably coming out more critical than I meant.

I'm just curious what your thoughts are on that.

Let me frame the math on it, and Scott can kind of take you through the strategy behind it.

But as we said, we're in 3.8 million households.

We were very successful since the beginning of COVID at adding younger households, which are likely the households that are doing that -- doing the adopting there.

And so if there was that increase in adoption, Ken, I think that we're probably capturing it using the activities we had.

What I was mostly focused on was how big is the size of the prize, or what is the rate at which we acquire the new pet households.

The reality is with our advertising spending, advertising investment, we're acquiring them at a very, very rapid rate.

And if there are another 2 million or 3 million more dogs in the market, that might make it a little bit easier, but we're going after them all anyway.

So I don't want to think it's not like we're not being aggressive about it and that we're not benefiting in some way from the younger skew of that audience.

It's just not clear to me that we would do anything materially different.

And Scott, I don't know if you would add any comments on that.

Yes.

Sure.

I'll share a couple of thoughts.

So first of all, look, puppy and dog adoption, especially when they're younger, it really becomes part of your adult penetration strategy.

And what I mean by that is that you can -- just exactly what you're saying.

If you can catch them when they're younger, you establish a behavior pattern and then they do become an important part of your franchise.

So what we know and what Billy was talking about is he's touching on a couple of data points where we know we're getting younger consumers, and we have a younger dog mix of our overall portfolio.

The average age of the dogs in our total portfolio is 4 years old, which means they kind of skew younger.

The average age of a dog is going to be over 5 years old, right?

So we know this skews young already.

So that being said, I think the way we've been thinking about it is we've got to keep on doing what we're doing.

What we're doing really works and to pivot and try and grab like a brief moment in time and grab a bunch of -- a whole bunch of people may not be quite right for us.

Because what we're doing seems to work, and we know that we're getting great penetration growth in what we've been doing in our marketing efforts, et cetera.

In total, I think what we're trying to express is in our total growth and our total opportunity, this is important, but probably not the primary driver.

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

Just -- first question, just kind of a clarification on the quarter and the outperformance on EBITDA.

So is that -- what you're saying is the majority of that is kind of the cutback or the postponement of advertising and then also kind of the mix, I guess, because you were more out of stock of bags that are lower margin than rolls.

Is that the best way?

Or was there some outperformance that's kind of sustainable on the margin improvement?

So if you think about it, we spent 30% more in advertising in Q3 than we did in the same quarter a year ago.

We just didn't spend as much as we had intended to spend because of the capacity limits.

Remember, we had moved media out of Q2 into Q3, we're now sliding some of that back into Q4 because of the capacity limits we had in Q3.

But the media spending was up 30% year-on-year in the quarter.

And yes, there was a little bit of a mix help there, but if you think about it as -- if we had shipped everything that we had demand for and we had spent every penny that we would have spent, our margin would have been -- our EBITDA margin would have been stronger and our EBITDA performance would have been stronger.

So on a sort of all in, all the cards on the table, we would have had an even stronger performance.

Okay.

Well, this leads to kind of my next question, which I've asked several times over the years.

Like, is this the right ad budget or trend line?

I mean you get more and more acceleration even when ads turned off, or for this instance, when you didn't -- couldn't support the shipments.

Do you still need to spend as much in 2021 or 2022?

And I know you have a lot there, but are you starting to see diminishing returns for that ad dollars that could be used elsewhere?

So I don't think we're seeing diminishing returns.

In fact, we're seeing improving returns.

The cost to acquire a consumer is improving.

And then on top of that, as we view this, as we said over and over again, that this is a land grab.

We think the market is moving towards fresh pet food.

And we want to be in as many households and be the preferred brand before anybody else decides to enter this space at some point, which that will, at some point, happen.

And so we are very much focused on trying to acquire those households.

So as long as we have the available capacity, we want to lean into acquiring those households using the media.

We don't want to get ourselves like we did this year, well, because of the erratic market caused by COVID, where we had bumped up into capacity limits twice.

We think we're going to get ahead of the capacity thing in 2021, with the addition of Kitchens 2.0, with the facility in Ennis coming online and the other projects that we talked about.

So we don't think we're going to be bumping into capacity again.

We think this is the opportunity for us to put our foot in the gas and just keep filling the capacity as fast as we can and getting the returns that we're getting for the investments we're making.

So Bill, let me add on that just for one sec.

So I think it's a really -- it's a very fair question.

It's an important question.

And I think it's a choice, right?

It really is -- it's a choice on how much do you spend and when do you spend it?

And to Billy's -- to a lot of the things that Billy was talking about, he's basically laying out, like we want to make sure that we're maximizing the potential of the organization.

We're growing as fast as we can when we have the capacity.

And look, if we're -- I mean we -- the wind is filling our sails this year.

There's a lot of kind of really kind of macro trends that are being supportive of what we're doing.

And if we don't need to spend as much next year, we'll kind of back off if we can kind of make the growth in the numbers that we anticipate.

We have -- we don't just want to spend to spend, obviously.

So it's really becomes the choice, and it becomes how we want to think about it strategically.

But it's something we are constantly -- we have a conversation pretty much every quarter about how we want to invest.

One last question.

I mean that's phenomenal that you said 7 out of your 10 largest retailers are testing multi-fridge concepts.

I guess the question would be when do you think you will have some idea of when those might pass the test and go national?

And would you have enough capacity if all 7 of them decided to go multi-fridge?

Yes.

So -- yes.

So most have kind of already done some initial testing and are kind of starting to lean towards a little bit of expansion.

But Bill, it is fascinating.

We worked together on and off for years, you've seen it.

It's almost never that anyone waves a wand and does like everything on a -- like a really, really broad basis.

It's typically kind of -- it's slow, it's methodical, it's as they're doing store remodels, it's typically tied in with other initiatives.

So there's -- more and more of them will continue to expand, but it will be in 100s and 200s and 500s, which is terrific, and it's awesome.

And it really does give us a great platform to continue to expand.

And the good news is the majority of our growth comes from the investment in the media spending.

So we can kind of pull -- if we get a ton of fridges, we can actually pull the media back, which would really deliver very different metrics.

And that would help maybe facilitate more of the growth.

The vast majority, about 70% of our growth, comes from velocity improvements, which is really driven by the media.

So we use that as kind of a lever back and forth in order to kind of manage the growth rates.

Now that all being said, the way we look at it next year is we're probably going to have a good year in fridges, but we're not going to have a great year in fridges.

There's a lot of retailers that are looking at the tea leaves and thinking, you know what?

COVID is still going to be going on.

The beginning of the year is going to be really kind of an interesting kind of period.

Let's get out of it.

Let's get into spring.

I think we're going to lose some of the massive fridge push early in the year.

But I think coming into the end of the year and into '22, I think we're going to have really big numbers from a fridge expansion standpoint.

And again, I'm trying to read a crystal ball, but that's the way we see it playing out.

I would just add one -- but Bill -- just to add on that is of the places where we've seen double fridges, for the most part, we're seeing very positive results.

They obviously vary one place to another, but I don't think we've seen a place where people are putting a second fridge and it hasn't delivered a positive outcome.

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

So I wanted to ask the last question maybe in a bit of a different way.

So I guess maybe the question would be how do you think about your relative position, dynamics relative to other fresh pet providers?

And it seems like some of these other companies are doing quite well and you're doing quite well.

And so it seems like this whole category is doing quite well, perhaps even sourcing share from kind of elsewhere.

How do you think about the calculus as you kind of go into next year in terms of budget capacity?

With a view on how do you retain your share against those that you're competing with, but also more broadly against the whole pet food category?

Kind of what are the puts and takes in your mind as you head into next year beyond, of course, the obvious of supply and demand?

But I mean, there seems to be a lot of demand.

There seems to be increasing supply.

So how do you weigh all of that?

Scott, do you want to take a shot at that?

Yes, sure.

So yes, Mark, we really -- we -- the famous quote we use, we've used it before, probably, but you kind of don't want to be where the puck is, you want to be where the puck is going.

We feel like we're kind of now where the puck is going, and we continue to pull out even further with some of the innovation, the different things we're doing to create additional longer-term opportunity.

We really feel like -- in many ways, like we've refined this model.

We've worked hard.

We've built this company into a position where we can take advantage of so much of the opportunity in front of us.

And like, look, Kitchens 2.0 is a monumental step forward for us not only in capacity but in capability and safety and all the aspects that are important to our organization.

So we think that that's putting us in a great position, along with a really tightly refined business model, et cetera.

From a -- it is interesting; there are some folks, mostly in the direct-to-consumer space, that are tinkering around with some fresh frozen foods.

We think they're doing good work.

We have not seen anything that's leading us to believe that we're losing consumers in that direction.

In fact, everything's showing us that we're picking up consumers.

So I feel like there's an opportunity and a trend to kind of -- we're the leader and continue to kind of take that real significant leadership position.

I actually believe that some of the work that they're doing -- you see some advertising from a few of them on TV -- I actually think that's been helping us, because I think with a lot of them, what you're going to see is there's a really strong proposition there.

I think there's a lot of consumers that like it.

When people do experience that food at home, I think eventually, they look at it in a store and go, oh, I can actually get it in the store.

I can get it delivered another way.

And there's a whole bunch of different options here that may be more appealing to them, lots of different products.

And I think that creates opportunity for us.

So as the market grows, I do think all boats will rise, and I think our boat is the biggest and ahead of the market.

And we haven't seen any indication whatsoever that that work is picking up consumers from Freshpet.

That's helpful.

And just one quick follow-up.

So you had alluded to increasing efficiencies on Kitchens 1.0.

Can you maybe quantify what that means and how quickly you can get there?

Scott, I'm sorry, say that again?

Yes.

I was saying that you alluded to effectively seeing increased efficiency in Kitchens 1.0, kind of playing with Kitchens 2.0 production schedule.

And so what does that mean, and how quickly can you improve on whatever the manufacturing capacity is?

Yes.

So basically, what we're saying is there's a few things where we can take the line down in Kitchens 1.0 because we have enough capacity in 2.0 that we can give ourselves a little breathing room.

There's a little bit of automation that we think we can do back in Kitchens 1.0.

Our engineering team has been doing some work on some things we can do.

It's not rocket science, but it's stuff that they've done some pretty darn good work on and allowed us to identify some efficiencies that we can get.

They won't have any impact in -- certainly not in the first half of next year because the work would be done sort of more like midyear, but it will probably have an impact as we went into 2022.

Okay.

And can you quantify what the impact would be relative to current capacity in the facility?

It's not really -- it's not a -- it's not an increase in throughput.

What it is, is it's a lower cost to produce, meaning you need less labor per pound is what we're shooting for.

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

Yes.

I think last quarter, you quantified revenue capacity as being about $87.5 million.

Can you give us a sense what that figure looks like in Q4 and maybe going out to 1Q '21?

So Brian, we don't have a precise number because we're in that ramp up on Kitchens 2.0.

And so it depends on the pace with which we are able to increase the throughput or the productivity of that operation.

It's certainly more than what we had in Q3.

But remember, as I said earlier in the call, there are some extra -- there's some holidays that we're coming up against, which are -- we lose days of production.

And so you're starting at less than you had in Q3, and then you add Kitchens 2.0 on top of that.

I would say, though, that we left our guidance where we did because we wanted to be cautious about the rate of throughput improvements that we are expecting.

And we're also very clear that we think it will take into Q1 to refill the trade inventory pipeline.

So I think from those pieces, you can get a little bit of a clearer idea of what we think the ramp-up pace looks like, but we don't have a specific number until we literally see how the ramp-up goes.

That's very helpful.

And then on gross margin, I think if I'm looking at the deck here, it suggests that gross margin would be slightly below -- or adjusted gross margin slightly below 49% in Q4.

I thought Heather said something about that being in the context of a full year.

So I just want to clarify, is it Q4 or full year that would be slightly below 49%?

I don't think both is possible.

Brian, that's the full year, too.

So the expectation is that the full year ends up just around that 49% mark or slightly under.

Our next question comes from the line of Ashley Helgans from Jefferies.

Most of my questions have been answered, but just one on e-comm.

You guys had nice growth in the quarter.

Can you update us on your various e-comm initiatives?

And then any update on your DTC you've been testing?

Sure.

Yes.

So as we've kind of called out briefly, our e-comm -- what we consider e-comm, which is any way you can kind of sit down at a computer and order our product.

And then some ways it's delivered, some ways it's literally like picked up.

You would drive to store and pick it up from click and collect.

It's risen to about 5% of our sales.

It's done very, very well.

It was doing very well pre-COVID.

And as you know, it's accelerated even faster in COVID.

And from what we're seeing, it looks to be very, very kind of sticky and in place, which is encouraging.

The other thing that's kind of really important there, and I think that that's been encouraging to us is we have invested some small dollars testing around it.

And we're getting incredibly good productivity out of the dollars that we're investing on e-commerce.

So we're making investments, driving consumers to certain locations, and we're getting great return on that, which is terrific.

Our DTC test has been -- it was something that we really put in place almost to answer like an immediate need from a lot of our consumers.

They were literally calling us up and we had some very high emotion consumers that were calling us up and saying, "I really can't get your food.

I'm afraid to go out, et cetera." And we didn't know -- there weren't certain ways that we could get them the food.

We put that in place.

We thought it was a great opportunity for us to do a test and kind of just see how it worked, see how it worked for our organization.

I think the team did a terrific job building it out.

I think they did a great job testing it, evaluating it.

It's still very, very small.

It's something we're continuing to tinker with and watch and look at.

And we know that there's a real strong appetite for consumers to have products really delivered to their home.

It's not for everyone, but there's a really strong appetite for a big group of consumers to do that.

Recognizing that and now having capacity, we think into next year, there'll be a few different things that we can continue to press out and expand upon that will really kind of satisfy another group of consumers' interest in convenience and having delivery of fresh pet food.

So is that helpful?

Yes.

That was great.

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

So ACV is at 55% or just north now.

My question is kind of on -- as you look forward and anticipate growing ACV or distribution, if you talk a little bit about where the white space is, the biggest white space, is it within specific channels?

I'm also curious if you could comment on kind of store demographics, if you're seeing retailers willing to place fridges in, I don't know, Tier B or Tier C locations, but they maybe were a little more reticent to do in the past, given the strong performance of the brand.

Jon, let me make a comment and then Scott can give you some more color on it.

But I would say, first of all, I think that over time, where you're going to start seeing a shift towards more of the focus from retailers and from us is going to be on upgraded fridges and the second fridges than necessarily the pace at which we are adding new stores.

Because that's where we really get the full value of the innovation that we do, the marketing, the breadth of our rates, the breadth of products that we can offer.

But within the first stores, the stores that we're not in yet, if you just think about a couple of the key customers where we have incomplete distribution -- so we're only in a little over 3,000 Walmarts, we're in about -- we're in a little more than half of the Krogers.

And you start looking at those and say, "Boy, if you just fill those out, what would be the opportunity?" We're in 57 Costcos at this point.

We'd love to fill in many more Costcos.

You fill in those voids, and that gets you a long way on any ACV metric, and that's probably going to be very sufficient to drive and deliver our growth plans.

And we want to see a lot more second fridges come behind that.

It doesn't mean we wouldn't go after more stores.

What it tells you is that that would get you really good, really broad availability.

But Scott can give you some more color on that.

Yes.

So I -- we looked at this a lot.

We've spent a lot of time kind of evaluating like where we can get to over time.

So I'm going to touch on a bunch of stuff.

I'll go fairly quickly.

So stop me or yell at me afterwards on -- if you want more detail.

So if you think about this, so we believe that there's no reason why we can't be in 85-plus percent of stores out there with the right-sized fridge.

So there's still a lot of room to continue to grow ACV.

That being said, like -- and Billy was touching on this, but being in the right location in the stores, we know is kind of a multiplier for us.

So there are some places where we literally moved location, and we're seeing 20% and 40% increases in velocity out of a fridge.

We also know that if we go from a small fridge to a large fridge, there's opportunity, and Billy touched on this.

We know if we go from 1 fridge to 2 fridges, there seems to be an increase in velocity.

And there's now places where we're even going to a third fridge.

In addition to all of that, there's now broader availability today from e-comm and even more e-comm coming in the future.

And I think it will change the dynamics around like what we have going on from an availability standpoint.

In addition to all of that, this is really important and critical because it gives us our platform.

It gives our visibility at retail, places where people can buy our products, also where we can put innovation.

But the other key thing is that the vast majority of our growth comes from our advertising investment.

And I think I mentioned earlier, it's about 70% of our total growth.

So this is an important platform and we have tons of opportunity and ways to improve the entire fleet and the network that's out there.

But e-comm is becoming critically important, and then also the vast majority of the growth comes from more velocity in same stores.

That's super helpful.

Just a couple of cleanup questions.

For the full year 2020, can you remind us what you expect the media rate to be on a full year basis?

What percent of net sales we'll have in media?

Yes.

Yes.

I don't know if, Heather, we put that out?

Yes, it's about 10%.

Okay.

And I just want to make sure I understand the commentary around cost and pricing for 2021.

And you talked about beef costs being up, but you do price chicken late in the year.

So is the working assumption right now that you expect to be able to offset any dollar cost increases with pricing such that are kind of net neutral?

I could take that one.

So the first piece is that for 2021, we actually expect these to soften.

So when we look at '21 against '20, we expect these to be more in line with the beginning of this year.

So we're looking at it as more of a back half spike due to COVID, which we don't expect to continue, and we're already seeing that start to soften.

Similarly with chicken, which, as you know, we price in December, but the signs that we have right now for chicken is that it should be largely flat to 2020.

So from a commodity perspective, there's really not a reason for pricing.

And there's a few other puts and takes in gross margin for next year, which you could see as headwinds, continued capacity ramp up, we continue to utilize itself, which has a margin headwind as we look into H1.

And you also will have a mix headwind, but those wouldn't be things that we would price for, and we'll just look to offset that in other ways.

Congrats on getting 2.0 up and running.

It's been a busy year.

Congratulations.

Yes.

The team did a great job.

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

So my first question was just on the second fridges.

When you add that second or third fridge, where is that space typically coming from?

Are you guys displacing other top new brands?

Or is it coming from other parts of the retail store?

Yes.

The vast majority are really coming from -- there's a couple of different scenarios.

Sometimes it's just a tightening up of space of extra facings on some products.

Sometimes it is a handful of products being discontinued to make space.

But those are the majority.

I think the minority is the case where pets getting a lot of extra space.

There are some scenarios where we end up picking up an end cap, which has been used periodically for maybe promotional purposes that we pick up.

And that kind of falls outside of those other scenarios that were just playing out.

Okay.

Great.

And then my second question, just on international.

So you provided some commentary in the U.K. just curious overall what you're seeing in Canada and the U.K. And then just how you're prioritizing international going forward just given some of the COVID challenges in the U.K. and other markets.

Yes.

We're very encouraged by what we're seeing.

As I mentioned in the prepared comments, we did put advertising back on air in October in the U.K., and it performed exactly as expected.

The line went straight back up.

You could see that the -- there's the engagement that we'd expect in building the franchise.

And our business in Canada this year has done very, very nicely with the media investments we made earlier in the year.

Obviously, there was an interruption that we had with COVID.

And so it kind of stalled a lot of things, both from a retailer's perspective as well as decisions to expand distribution.

But we feel from that -- we feel that the model has been validated that every element, the products are right, the packaging is right, the pricing is right, the distribution is right, the fridges work, all that in the advertising work.

So now it's really a matter of continuing to execute against that game plan.

Against the question about where it fits in our priorities, clearly, our #1 priority is to develop the U.S. dog food business and build that at scale.

But we have -- with the capacity we have online in 2021 and the resources that we have available to us, with a strong balance sheet and the income statement is getting stronger, we can certainly support continuing the next step in each of those markets, and continuing to develop those markets at the rate that we've been talking about for quite some time.

We're doing it methodically.

We're not going to jump in and dump money in the market.

We're going to do it very methodically, but we're going to continue to the next step on the journey in each of those countries.

Our next question comes from the line of Rob Moskow with Crédit Suisse.

This is Ari on for Rob.

I just have a quick one on the media spending.

So after having run continuous media during the quarter, can you talk about what's driving the strong ROIs that you mentioned?

And maybe touch on some of the things you may be doing that's led to the acceleration in consumption growth.

And then touching on Ken's question before, have you revised your messaging in any way to specifically target some of those new dog owners to get them into the Freshpet brand?

Or are you more focused on just staying the course at this time?

Yes.

So I'll take a swing at this and see -- hopefully, I'll touch on the things that you're asking about.

So from an ROI perspective, we typically, we -- every single year, we look at kind of what our investment is in not only how many consumers but also what the increase in revenue is driven by the media investment.

And what we've been able to see this year is we've budgeted at a certain level.

And because of viewership being a little bit higher and some advertising being slightly more cost-effective in addition to consumers being a little bit more receptive to the message, we've actually gotten better returns on our media spend than we have seen, honestly, in several years.

So it is the first year -- it's a year where we had spent more than ever.

There's some interesting dynamics within the year.

But what we have seen over the past several years, not just this one, is we have actually seen improved ROIs on our media spend, which is not like conventional wisdom.

Conventional wisdom will be, at some point, you're going to see diminishing returns.

And that's honestly the way we typically budget it.

And we're seeing kind of improved returns.

So that's terrific.

And kind of hats off to the marketing team, the media planning and also the advertising agency that helps craft the message.

So we did do some message that was really customized.

We were really one of the first ones out.

Like, superfast as a box, had a great add on.

We might have touched on it in the prior quarter.

But right when COVID hit and we started seeing everything going on, the agency moved really quick, got a great message out there.

And honestly, we were really on the front of it.

Like we were kind of leading -- industry-leading, even packaged goods industry-leading, kind of getting something out there that I think was super relevant to consumers.

And we got good response from it, really, really good response from it.

So that was terrific.

To specifically modify the message to a younger pet owner, you can do that, and that's more about placement than it is about your overall message.

A lot of times with message, you want to stay with the message that's consistent, that works that ask consumers to reassess what the right food might be for their pet and stick with that and maybe you'd modify your placement of it.

You maybe hit a little bit more in e-commerce.

So did we do some things?

Yes.

The majority of what we did was really kind of focused on staying the course because it has been so successful and productive for us.

Our next question comes from the line of Ryan Bell with Consumer Edge Research.

I'll try to be quick.

Can you talk about what you've heard with respect to any changes in demand for pet food in general with increased work from home?

And do you have any way to measure what the difference in pet ownership is among consumers with more flexible work arrangements?

I mean I guess just said in other way, given this -- to determine some of the potential impacts from any incremental increases in long-term work from home days.

It's funny, Ryan.

We had a conversation about this earlier today, and Scott might have some commentary.

I don't think we have a whole lot of data on it, but so many people are talking about the food at -- food at home as the big driver.

And you're hitting on what I think is another really big driver, is the work from home.

And we are talking about how that makes people appreciate their pets quite a bit more.

And it's certainly going to drive, we think, some increased consumption of the more premium pet foods.

And we have a chart in the deck that shows how the demand for the most premium pet foods has gone up, while the value-oriented brands have gone down during this period.

But in the specifics of the demographics of people working at home versus people who are not, I don't know, Scott, do you see anything in the data?

Is there any way you could parse that out?

Yes.

So a couple of things.

If you look at the -- like we are a server of a very wide swath of consumers.

The majority of our consumers are going to be a little bit above average, right?

So they're not going to be the people that may be most impacted by some -- like some hourly jobs.

So that's kind of one.

The other thing that's popping, as Billy was mentioning, it's actually paid 16 in the deck.

The piece of overall pet food industry that's really popped up really significantly is the ultra premium.

It's kind of what they consider -- it's just grouped mostly by price in this situation, not by positioning as much.

But that's the piece that's been popping back and is actually ahead of pre-COVID, and this is in brick-and-mortar, which is pretty fascinating.

I'm not talking about us, I'm talking about the whole grouping.

It's a pretty sizable group of brands.

It's the Blue Buffalos and the Purina One, et cetera, of the world.

We're in that group.

They've all popped back really nicely, and they're looking like they're growing well.

We believe that the idea of work from home and like, I think, the demonstration of what happened during COVID had changed the dynamics of the marketplace in many, many ways.

One of them is that I think many, many employers have realized that people can be productive working from home, not everybody, but the majority of people can be productive.

We think it's going to be best-in-class from an employment standpoint to have additional flexibility.

This is going to change people's work habits, their commuting, et cetera.

And then eventually, what Billy was talking about were they're going to be spending more time with their pets at home.

And as that relationship is -- continues to broaden and they're spending time, they're becoming more food aware of what they're feeding their pets.

And we think, again, that becomes a great opportunity for us and many others that are kind of in this range of products.

So that's kind of how we're seeing it.

And there is some data that's supporting it.

And some of it is kind of -- just kind of watching what's going on and being kind of a student of consumer behavior.

There are no further questions in the queue.

I'd like to hand the call back to Mr. Cyr for closing remarks.

Thank you, everyone, for your interest and your attention.

I want to leave you this part of thought Nobel Prize winning author Orhan Pamuk said, "Dogs do speak, but only to those who know how to listen." To which I would add, I'm pretty sure my dog only ever says, "I want more Freshpet." Thank you very much.

Have a good evening, and stay safe.

Ladies and gentlemen, this does conclude today's teleconference.

Thank you for your participation.

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