Greetings nd welcome to Freshpet second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Jeff Sonnek at ICR. Thank you, sir. You may begin your presentation. Thank you. Good afternoon, and welcome to Freshpet's second quarter 2021 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 also be available for Q&A. Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the 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 SEC 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, whether 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, 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 supplemental presentation that contains many of the key metrics that will be discussed on this call. That presentation can be found on the company's investor website. Management's commentary will not specifically walk through the presentation on the call, rather a summary of the results and guidance 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 want to start by giving you the punchline up front. Our net sales continue to grow strongly, up 36% in the quarter, so we are raising our net sales guidance for the year. We are now projecting that we will end the year with greater than $445 million in net sales, resulting in a growth rate of 40% for the year and a second half growth rate of 44%. We are not, however, raising our adjusted EBITDA guidance for the year, as we'll use the incremental contribution produced by the higher net sales to offset some inflation and temporary operating inefficiencies we've experienced. We've announced that we will take pricing to cover those incremental costs later this year, but it won't have much impact until next year. We believe this is a balanced and reasonable approach to creating the greatest long-term value for our shareholders. We are able to raise our net sales guidance because we've been very successful at ramping up our production, producing 44% more pounds in the quarter than we did a year ago. This enabled us to generate 36% more in net sales than the year ago quarter, while also beginning to restore our in-house inventory, adding approximately $5 million of net sales value of finished product inventory to our quarter-end inventory versus where we began the quarter. In the challenging labor market in which we are operating, that is a significant achievement for our manufacturing and HR teams. As you will hear in a few minutes, we are taking an even more aggressive approach to our labor strategy with the goal of creating a strong, stable workforce with a distinctive career offering for our employees that will enable them to build more skills, add more value, and share in the benefits of that added value. Our strong production performance is enabling us to refill the trade inventory that we had drawn down during the back half of 2020 and satisfy our customers and consumers with much better in-stock conditions. We are still not done refilling the trade inventory. Frankly, the depth of the trade inventory hole we had dug during the back half of 2020 was deeper than we had expected, and our efforts were compounded by additional obstacles downstream from our manufacturing operations in the third-party warehouse and logistics network we use. We and our logistics partners have moved quickly to resolve those issues, but in today's tight labor market, the changes they are making will take a bit of time to fully resolve the issues. Despite all those challenges, most consumers can find a wide variety of Freshpet items in most stores at this point, but we still have work to do on filling out the complete assortment of SKUs. We are on our way, however, and our strong production performance is enabling us to rebuild our internal inventories so that we can better service our customers. As we look forward, we will post sizable gains in net sales each quarter for the balance of the year. We anticipate that Q3 and Q4 reported growth will be in excess of the consumption growth rate as consumers will be able to find the items they are looking for more readily than they did a year ago, and we have a much heavier marketing investment plan for the back half of this year. That will allow us to deliver net sales growth in excess of 40% during the back half of the year and also set us up for a fast start next year. Our capacity expansion plans to support that growth are on track. We are now running the bag line in Kitchens 2.0 24/7 and will take the rolls line in that facility to 24/7 in August. We'll be moving staffing from Kitchens 1.0 to Kitchens 2.0 for the ramp-up of the rolls line, as the higher throughput on the lines in Kitchens 2.0 make it a better use of our staffing than to have them work in Kitchens 1.0. In September, we'll be starting up our second line at Kitchens South with a two-shift operation. In January, we will start up a third line at Kitchens South. That line will also be our first test of a new cooking technology that, if successful, could allow us to produce twice as much product in a significantly smaller footprint. If that plays out the way we expect it to, it will form the foundation for Ennis phase II and for the second building at Kitchens South. Finally, our construction project in Ennis, Texas remains on track, and we anticipate starting up our first line there in Q2 of 2022. We hope to be under roof next month, which is an important milestone as it will substantially mitigate weather risk through the completion of the project. It has been a very rainy first half of the year in Ennis, but our team has still managed to get quite a bit done. Additionally, we have already begun hiring team members for the Ennis facility and are quite pleased with our ability to attract the talent we need. The first 10 Ennis employees arrived in Bethlehem in late June to begin training on our lines and will spend several months here getting operating experience. We have at least two more waves of employees who will arrive in Bethlehem in the coming months. By the time we start up the Ennis kitchen, we expect to have approximately 50 experienced employees to lead the start-up between those who choose to transfer from PA to Texas and those who did several months of training in PA. That will greatly reduce our start-up risk. We expect to bring on all three lines in Ennis by the end of 2022, and we'll have our first line in Kitchens South building two ready to go in Q1 of 2023. In total, we'll be starting up at least one new line per quarter until Q4 of 2023. That will be eight consecutive quarters with a new line. We'll make a decision on the construction of the second phase of Ennis sometime in the next six to nine months, but have already done some site preparation work there so that we are ready once the decision is made on when to build it and what technology we will install there. We believe there is ample demand to support this planned capacity expansion. Despite our out of stocks and delayed start to marketing this year, we still grew household penetration by 19% in the second quarter, and the buying rate grew at a very high rate of 12%. As we have said many times, there is strong underlying growth in the buying rate for Freshpet when it is not being diluted by so many new users. Because of our delayed start to the marketing this year and the out of stocks, the household penetration growth was below our long-term growth rate in the quarter. That simply exposed the underlying strength in the buying rate. We expect household penetration gains to re-accelerate in the coming months as we ramp up our marketing investment. The consumption growth was broad-based but was particularly strong in pet specialty. It was up 57%. Our e-commerce business grew strongly again this quarter of 46% versus a very strong quarter a year ago, and accounting for 5.6% of our total sales in the quarter. The launch of Chewy.com occurred in early July. That is not reflected in these numbers. It's still too early to make any meaningful comments on the impact that Chewy might have on our business. We are encouraged by the potential. Store count grew by 265 in the quarter, and we remain on track for our projected 1,000 store increase this year. We also saw meaningful increases in second fridges and upgrades despite our supply limitations, and have now exceeded our guidance for the year in both categories. Second fridges grew by 510 stores to 3,108, and we upgraded 324 more stores and have now completed 3,003 upgrades cumulatively since we started the program. We are also anticipating significant increases in stores and second fridges next year based on our increased supply and rapid growth. Our international business grew 48% in the quarter with strong growth in both the U.K. and Canada and has real momentum. Clearly, the Freshpet model is working outside the U.S. I want to briefly comment on the cost environment, and Heather will provide more color on it in her comments. Overall, we are seeing broad scale inflation that is no different than what you're hearing in reports from other CPG companies. Some of the increased costs are clearly permanent and others may be more cyclical. In either case, they will have an impact on our profitability this year, and that is why we are not raising our adjusted EBITDA in line with our net sales growth. Last week, we announced to our customers that we'd be taking price increases late this year. Those increases are designed to cover the inflation we are seeing today and that we expect to see when our fixed price contracts end later this year. It's also intended to cover the significant increase in labor costs we are seeing in the market. Our price increases will be very noticeable to consumers because we don't do any merchandising, thus we can't reduce that. We believe that downsizing our packages will be disruptive to consumers who expect a bag or roll to feed their pet for a set number of days. As such, we are being very thoughtful about the price increases we are taking, considering the strategic role of each item in our line, the underlying profitability, and the anticipated cost increases we are seeing. We have a successful track record of doing this before and are comfortable doing it again. I also want to comment on one important aspect of the inflation we are seeing, labor costs. Many of our suppliers are having to pay higher costs for their labor and are passing those costs on to us under the terms of our agreements with them. We also raised our wage rates earlier this year in line with our normal annual practice. In light of the environment we are operating in, it is clearly not enough. We will be raising wages a second time later this year. In doing that, we are mindful of the competitive market for labor and seek to be competitive with other employers. Our new wage program is driven by a different philosophy. We are driven by the idea that our dedicated team members deserve to have the opportunity to earn a wage that will enable them to support their families comfortably, while also providing them with long-term career growth opportunities. It must also deliver a good return for Freshpet. We are not seeking the minimum wage we can pay to get the job done. We want to create a win-win for our team members and our shareholders. That is why we treat our team members as owners and partners with us in the development of the Freshpet business. That is the people part of our Pets, People, Planet philosophy. The key to creating that win-win is for us to invest in the training and skill development of our team members, enabling them to add greater value to our business and thus justifying the higher wages that we pay. While many employers and much of the public communication is focused on the entry level wage, our focus is on the wage we pay to those employees who are contributing at a higher level. The heavily advertised and promoted wage rates are only what you pay to get someone into your lobby for an interview. If that is where our employees' career and wage progress ends, we will have failed, and they will leave. Our goal is to quickly advance their skills and ability to contribute so that we can provide them with a much higher wage. In fact, our typical production employee will see their hourly wage go up by about $3 per hour within the first six months as they progress through our Freshpet Academy training program, and up by another $3.50 per hour within nine months after that. At that level, the typical employee who has a working spouse and up to three kids at home will be earning a wage that comfortably supports their family and significantly more than the advertised wage rates you see from many other employers. We believe that approach delivers a significantly better return for Freshpet. A highly skilled worker is dramatically more productive than an entry level employee, justifying both the investment in their training and the wages we pay them. We also know that it is not enough to pay good wages and have good benefits. We have to treat our employees well every day. Those of you who have been to our Freshpet kitchens have seen many of the things we do to make working in a cold, wet environment more comfortable. We also grant stock to every employee each year after they've been with us for at least one year. That drives the ownership mindset we seek to create. All of this is not easy to accomplish, particularly in the current environment. Challenges with childcare, perceived health risks, government stimulus, and an overall competitive environment for entry-level talent is particularly challenging for a company that is growing as fast as we are. We constantly need to hire and train more new employees, and the kind of work we do is not for everyone. We've invested heavily in our recruiting team and in our training department over the past year and will continue to do more. We are starting early with our recruiting and training of the team who will start up our facility in Ennis. In total, we believe this is the right approach for Freshpet and will differentiate us as an employer. Finally, we will be releasing our inaugural sustainability report in about one week. We are a young company, but sustainability has been embedded in our culture since our founding. What we haven't done in the past is document our progress, nor set explicit targets for our efforts. We just did what seemed like the right thing for Pets, People, Planet. We realize that our investors are expecting more from us, and our sustainability report is designed to address that interest. Let me turn it over to Heather for a more detailed look at our results. Thank you, Billy, and good afternoon, everyone. As Billy indicated, net sales for Q2 of 2021 were $108.6 million, up 36% versus a year ago. Actual Nielsen mega channel consumption was up 37% versus the depressed year ago period, which was the post-COVID trough. The year ago period also included significant trade inventory refill behind the Q1 2020 COVID surge. The base year net sales were significantly in excess of consumption. We did the same thing this year, refilling about $8 million of trade inventory thanks to the very strong production performance. We also built our own inventory a bit during the quarter, which has helped us improve customer service on some lower volume SKUs that are produced less frequently and where our service had been particularly poor. A reconciliation of the Nielsen consumption to this quarter's net sales can be found in the accompanying presentation on our investor relations website. The growth in the quarter continued to be led by strong performance in the pet specialty channel, with Nielsen measured big box pet specialty consumption up 57% in the quarter. Our e-commerce business also performed well, growing 46% in the quarter and now accounts for 5.6% of sales. As Billy indicated, that does not include any sales through Chewy.com, as that service did not begin until July. Our international business grew 48% in the quarter, and we continue to see strong momentum in those markets behind the advertising investments we have been making. Adjusted EBITDA for Q2 was $10.9 million, down 2.9% versus the year ago. The underperformance on adjusted EBITDA traces to both inflation and some temporary inefficiencies that we have described previously, largely in freight. Freight costs were 11% of net sales for the second quarter versus 7.8% in the year ago. A portion of this is due to freight inflation, but a larger portion is due to the systems issue that we spoke to in the first quarter, which prevents us from being able to consolidate loads when we are shipping less than 100% of a customer's order. That issue is created by both our relatively low inventory and also by the inability of our current system to allocate inventory to shipments prior to scheduling the transportation. I have included a chart in the accompanying presentation to remind you of the impact this has on our costs. Both increasing our available inventory and implementing our new ERP system will eliminate this issue. The available inventory will gradually improve during Q3, and the new system will be implemented in Q4. The freight inflation portion will be covered via other realized efficiencies as we scale and pricing. It is also important to note that in July, we opened our new Dallas D.C. We are shipping a small quantity of product from Bethlehem to the Dallas D.C. to do the necessary testing and preparation for the opening of Ennis next year. We are only shipping to a very small number of customers in nearby markets during this test phase, but longer term, that D.C. will not only enable us to have lower freight costs in a large part of the U.S., but it will provide some insulation from the labor and weather issues we have experienced in our Pennsylvania D.C. Again, there won't be a near-term benefit from this, but I want you to appreciate our foresight to improve our logistics capabilities as we plant the seed to gain significant efficiencies going forward. The other cost issues came in cost of goods sold, where our gross margin was negatively impacted by inflation, mainly due to beef and corrugate, and some of the temporary operating inefficiencies we had as we scale up production. As we add shifts, there is a learning curve for our team that results in lower shippable production per hour of operation until we get up to speed. This includes higher labor costs and excess disposals of product. We added significant production in the quarter and are still adding production hours, so we expect a portion of this issue to continue, but it becomes a smaller portion of our total operation as we scale. Adjusted gross margin in the quarter was 46.1%, down from 49.1% in the year-ago quarter for those reasons. As we look forward, we expect to see more inflation as suppliers pass on their higher labor costs, and we increase wages again to ensure we are able to adequately staff our operations. Our announced price increase will cover those costs. However, the impact will not be felt until next year. Media investment in the quarter was slightly above our long-term rate at 12.9% of net sales, in line with a year ago. This year's media was skewed towards the back half of the quarter, so we did not get the full benefit of the investment in the quarter. Excluding the higher freight and lower media costs in the quarter, adjusted SG&A was down 200 basis points versus a year ago, giving us the confidence that our long-term roadmap towards 1,000 basis points of SG&A leverage by 2025, excluding media spend, is on track. We incurred $700,000 in COVID-related expenses in the quarter and have added those back. We expect to complete our COVID add back in Q3 as we rolled back our COVID incentives at the beginning of July and vaccines are broadly available. Our net cash from operations was $2.9 million in the year-to-date period ended Q2. Our cash from operations was impacted by accounts receivable and inventory working capital needs due to strong net sales growth and production in the last month of the quarter. Our cash on hand at the end of the quarter was $280 million. We spent $68.3 million in CapEx in the quarter. The Ennis facility is entering some of its highest investment quarters as all the site preparation is complete, foundations have been poured, and steel has been going up for four months now. You can see a picture of the current state of the Ennis construction in our supplemental presentation. The second line at Kitchens South is on track to produce product by the end of Q3, and the third line there will come online at the beginning of 2022. We are also taking advantage of the incremental capacity that is coming online to make some upgrades in our existing Kitchens 1.0 and expect to have that work completed by the end of the year. That work will improve quality and reduce some of our labor costs on one of the existing lines. To accomplish that, we have delayed our ERP implementation by one month to November 1st. This will allow us to synchronize the shutdown of the kitchen to both install new equipment and transition our systems at the same time, reducing the total downtime for our operations. Turning to our guidance for 2021, as Billy indicated, we are raising our net sales guidance by $15 million to an updated target of greater than $445 million to reflect the strong underlying trends in the business. This guidance implies that 2021 will be our strongest year of growth since we went public in 2014 and also implies that our back half growth will be in excess of 44%, setting us up with considerable momentum as we transition into 2022. The growth during the back half of this year will be in excess of the Nielsen measured consumption growth. As a year ago included a significant drawdown of trade inventory due to COVID-related production shortfalls. We do not expect to have those issues this year. The second half growth will accelerate as we move towards the end of the year, with Q4 growth and net sales greater than Q3 behind increased production capacity, strong Q4 marketing, and a soft year-ago comparison. We are not raising the adjusted EBITDA guidance due to the inflationary pressures and temporary operating inefficiencies we discussed on this call. Once we have increased pricing in place to address those issues at the end of this year, we expect to once again see the leverage we get from scale show up in accelerating adjusted EBITDA margins. In particular, as we look to the back half, please take into account the following. In Q3, we expect Nielsen mega channel consumption growth to slow until early September and then accelerate due to increased supply, driving better in-store conditions and higher media investment than in the year ago. We expect gross margin to decline versus a year ago as inflation and temporary operating inefficiencies exceed the underlying process improvements we are gaining from Kitchen 2.0 and our increased pricing will not meaningfully impact this year. We will continue to experience higher freight costs due to our depleted inventory levels for most of Q3. This will diminish our leverage gains in adjusted SG&A, excluding media this year, but we expect those increased costs to cease beginning in November. We will have a large advertising investment plan for Q3 and Q4 as a match for the increased production capacity we have created. In closing, our guidance for 2021 calls for net sales greater than $445 million, up 40% versus year-ago, an increase from our prior guidance of greater than $430 million. Adjusted EBITDA of greater than $61 million, up 30% versus year-ago, is unchanged. We believe we are well positioned to continue accelerating our growth. We now have production capacity to support approximately $600 million in run rate sales and are adding one new production line per quarter for the next eight quarters with a balance sheet to support the capacity additions. A proven business model that can drive increased household penetration and a product that drives increased buying rates. More than 25,000 Freshpet fridges across multiple classes of trade and in three countries with a reliable service network that supports them, plus a strong presence with a leading player in the pet food e-commerce space. Significant scale in the pet category and category-leading growth that encourages our customers to put more fridges in more stores and to upgrade to larger and second fridges. A deep innovation pipeline with the team and resources to further accelerate our growth. We believe that positions us to win as the fresh pet food segment becomes a sizable portion of the growing pet food category. That will also enable us to accelerate our growth towards our 2025 goals of 11 million households, $1.25 billion in net sales, and a 25% adjusted EBITDA margin. That concludes our overview. We will now be glad to take your questions. Operator? At this time, we'll be conducting a question- and- answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star key. One moment while we poll for questions. Our first question comes to the line of Rupesh Parikh with Oppenheimer. You may proceed with your question. Good afternoon. Thanks for taking my question. I guess, Billy, Heather, just starting out on the pricing front. At this point, any sense of whether there's any retail resistance to the price increases you guys anticipate taking? And then secondly, how do you think your projected price increases compare to maybe some of the other pet food out there? We'll let Scott take that one. Hey, Rupesh. We sent out a letter at the end of last week. We carefully went over this with our sales team. We had some conversations with a handful of customers, even right as we were developing the price increase. We also looked around what we're seeing in the market. We have not heard resistance. From our understanding, a lot of people are taking pricing at this point. I think it's something that a lot of people anticipated and expected. The thing I want to say about the way we did it is we pushed it off as far as we possibly could. We want to take a consumer-centric approach like we do to every single thing we do. We want to make sure that everyone wins in every single thing we do, too. We want to really avoid any pricing impact until our availability and our inventory issues were a little bit more muted and not as visible to consumers. We really pushed it off as far as we possibly could. Again, we wanted to think about what is the best way to do this for the consumer, for our customers, and then also Freshpet. It's a pretty wide array on the pricing, meaning there are some items that will move maybe not at all, and there are some items that will move significantly. We've done this several times before, and I think at this point, we really understand the best practice on how to do this, how to minimize the impact, and how to implement it where we'll realize the greatest benefit and as limited impact as possible. Okay, great. Maybe just one follow-up question just on out of stocks or retail, just curious the latest thinking in terms of when you guys think the out of stocks will be at levels that you guys are happy with? Rupesh, you'll see in the deck that we published, shows the TDPs, which is, while it's not the best measure of in stocks, it's a reasonable measure. The TDP data that's in there shows that the last measure was at like 7.78. If you take our ACV that we have today and you multiply it by the average number of SKUs we had in distribution at our peak last summer, we'd have to be at like 8.00, 8.50 to be at the same place. You can see the line, the slope of the line is moving up at a fairly consistent rate. I'd expect you to take a look at that and you could make your own projection. The thing that's tough is the tail end is always the hardest part to get. When you're getting into smaller SKUs that are only in specific channels, those are always going to be the toughest parts of it, but it'll happen sometime in this quarter. Great. Thank you. I'll pass it along. Thanks, Rupesh. Our next question comes to the line of Bill Chappell with Truist Securities. You may proceed with your question. Thanks. Good afternoon. Hello there, Bill. Hey, Billy, Scott. Just kind of following up on Rupesh's question. I don't fully understand, why not be more aggressive with pricing? All your competitors are stepping up pricing. Every CPG company is passing off pricing. You have a potential where the price gaps go away with you and some of the premium, I guess, dry dog food players. There certainly hasn't been any real elasticity. I understand protecting the consumer and you're good to the consumer and all that, but, this is a window that's open. Why not be more aggressive right now? Bill, as you know, we have very, very aggressive penetration growth goals. That is really fundamental to us achieving our objectives in the next several years. The single best thing that you can make sure you're doing, and again, I'm looking across the portfolio. There are items, again, we will not touch a couple of items because they're the most price sensitive. There are some items that we have some opportunity, we have the opportunity to take some significant room there. We will be aggressive on those items. Over time, what we want to do is we want to build a really, really strong consumer franchise with many, many consumers coming into our brand, into our portfolio. We want to make sure that there are items where there are features and benefits that people are comfortable and willing to pay for. We want to go over time from a business of knowhow and a business of capital investments early on to a business of scale and a really large consumer portfolio. We feel that we put out a letter. It's going to be the most aggressive price increase we've taken in potentially ever across the entire line, but our goal is not to try and get every single thing we could get. Our goal is to make sure we get what we need and to make sure that we're keeping us as available as possible for as many consumers as possible. Yeah, let me just add to that I don't think we've disclosed yet what the magnitude of the price increase is. In terms of your question about are we being aggressive enough, there's two sides. There's one is the size of it, and the second is the timing. On the size part, we haven't disclosed that. It's out with our customers. The second part of that, on the timing, many of our customers require a 90-day advance notice on a price increase. Practically speaking, you won't see it until 90 days down the road. We also disclosed that we're doing an ERP conversion on November first, which everybody always talks about those potentially creating some disruptions in the business. We wanted to get that behind us before we got in a position we were doing the pricing. The reality is the price increases, we'll get the full benefit of the price increases in next year. Just to be clear, you don't see nearing a price ceiling at this point? No. No, not at all. Just one other question there, Heather, that helped. Has there been a meaningful change in terms of the Ennis or even Kitchens South kind of costs to completion or labor or potential that can add, certainly construction costs have skyrocketed over the past few months, but also with labor and just trying to find labor, have your calculations changed meaningfully over the past since you've really talked about a few months ago? Yeah, no change, Bill, to our plans. The team was very proactive in terms of being able to secure materials ahead, had good foresight there. No risk in terms of Ennis phase I timeline at all with respect to materials or construction. In terms of labor, same thing. Actually, the market there is a little bit better than the labor market in Ennis, a little bit better than what we see in Pennsylvania. As they start thinking ahead about having the right labor in place for the commissioning, as you heard Billy Cyr talk about in our comments, we're well ahead already hiring staff to start training. In good shape there as well. Yeah. Bill, the biggest piece on labor change is the second wage increase that we're taking in our facilities here in Bethlehem, which will be effective on September 1, 2021. We did one in May. We're doing a second one here. That's the big cost increase that we're seeing. Got it. Thanks for the color. Thank you. Our next question comes from the line of Mark Astrachan with Stifel. You may proceed with your question. Thanks. Afternoon, everyone. I guess a couple questions for you. One, just more point of clarification. Anything in the guidance in the $445 million that is related to inventory fills that would've been different than what you were expecting on the last quarter? Meaning that we're trying to figure out how to think about kind of the apples-to-apples sales growth. Any change there in terms of what's embedded? Second question is maybe a broader question, but you've had some time to reflect on out of stocks at this point. Obviously still not completely resolved, but more than it's been. Any impact on the business as best you can tell, any impact from a retailer perspective, from a consumer perspective? One of the things that I've been hit on more than a few times by, I call it concerned folks, I guess, is, "Hey, are we seeing any impact on demand here because scanner data is slowing?" Obviously the comparisons are what they are. Anything you can do to discuss that, I think would be helpful. Yeah. Let me take the first part of that, and I'll ask Scott to talk about the impact this has had on anything related to our customers. As I said in the scripted comments at the beginning, the size of the trade inventory hole has turned out to be larger than what we thought. While we don't have a precise number that we are putting in there versus what we've been saying before, I would suspect that the number that you're seeing is probably at least five million bigger than what we had previously outlined. When we gave our guidance at greater than $445, we did reflect on that. The reality is that the slope of the line that we're seeing on our consumption in the Nielsen data we're seeing is pretty much right on where we thought it would be. In fact, we have a chart in the deck that kind of shows you where that's falling at this point. People who have been talking about slowing growth, I remind them that I've been telling them that this was what it was going to look like for quite some time, just because of what happened in the year ago and the odd dynamics of the year ago. The line is falling exactly where we thought it would be, and that's why we feel very comfortable taking the guidance up. The trade inventory hole is a little bit larger. From a consumer perspective, you'll also see that the household penetration gain slowed in the quarter versus what our long-term run rate is. We do think that out of stocks played a significant role in that. In that, we're now about a year of consumers struggling to find the item they wanted. Clearly we're not getting the conversion from the advertising to the household penetration because of it. It also exposed or revealed again, that when you aren't diluting your household penetration gains with significant numbers of new users, that the buying rate goes through the roof. We had the strongest buying rate growth we've had in as long as I've been here. I think at the end of the day, we have seen this before, that when you do have shortages like this, the penetration gains bounce back. We're not concerned by it. The mix of buying rate and penetration will probably swing back to penetration, beginning in the fourth quarter of this year and continuing throughout next year. I know, Scott, how do you want to talk about the customer impact of the out of stocks? Scott? Scott there? I guess not. Scott must have dropped. Anyway, I guess I would say that the customer feedback that we're getting is obviously they're as frustrated as we are by the shortages. At this point, we've communicated very aggressively with them what our plans are. We expect that they are all waiting to see improvements in our inventory position before we start putting in more fridges. They know this is the segment to be in. They know this is where the category is going. Great. Thank you. Our next question comes from the line of Ken Goldman with JP Morgan. Oh, hi. Thank you. Two from me. Heather, did you mention, and perhaps I missed it, how much trade inventory you're modeling in the back half of the year and what the timing of that might be between the two quarters? No. In terms of the refill. We touched on the Q2 refill, being $8 million. We didn't touch on because we don't know the full magnitude of the number, Ken, we didn't touch on a specific number for the back half, with respect to that. We do anticipate some continued trade refill in the back half. Okay. With a follow-up to that, I guess, what are you modeling in? Are you modeling in a number that you think is beatable there or is conservative? I'm just trying to get a sense because you did raise your guidance, how much of that guidance raise was because of an expectation for increased, I guess, pipeline fill, for lack of a better phrase? I guess let me take that, Ken. First of all, I think it'll be skewed more to Q3 than it is to Q4, because we're still refilling it as we speak. We expect it to be done by the end of Q3. At the same time, we also said in the comments that Q4 would be bigger than Q3. If you recall, last year Q4 and Q3 were about the same size. We think Q4 will be bigger because of the heavier marketing investment that we have this year. We also have the available supply this year in Q4 because we're bringing on that second line at Kitchens South. That comes on in September, in addition to the capacity that we already have online. When we gave the guidance at $445, we had a pretty good handle on where the consumption line was headed, and we also had a sense for how much of trade inventory refill was happening in Q2, what we think will happen in Q3, and we're quite comfortable with the guide we gave being the sum of those two, and we'll be in excess of $445. Okay. Thank you. Quickly, you've raised your outlook for sales, obviously. You've also raised your outlook for capacity in the back half of the year. Is it fair to say that these factors are unrelated? I would assume so, because your second half shipments will still be well above your theoretical capacity. I just wanted to make sure that it's more demand and pull driven and not push. Yeah. Without a doubt. There's nothing that's changed about the way we generate demand. Frankly, what we're updating is what we actually think those pieces of equipment can get and what our staffing will get. As you heard, it's a rather dynamic staffing environment for us, and we've been finding ways to move our staffing around and also attract staffing that gives us a higher degree of confidence in our ability to produce the revenues that we included in the chart that you're referring to in the deck. It is not at all driven by a push. It's all being driven by our efforts to secure the maximum supply. Frankly, we've been so frustrated, Ken, by our ability to get caught up, and frankly, our customers have every reason to be frustrated as well. This is us looking for every way in which we can get more productivity out, and we think we've found some pretty good ways. We said before, too, that Kitchens 2 is turning out to be more productive than we had expected. The capacity on that operation is remarkably good. To actually extend that a tiny bit further, and sorry I dropped off a moment ago, folks, but capacity has been and will be probably the single biggest limiter that we have for a very long period of time. Understood. Thank you. Our next question comes from the line of Peter Benedict with Baird. Hi, guys. Thanks. First, just on the increase in the revenue plan for this year, just curious if the addition of Chewy played a role there, or if you guys had always kind of had something in there for Chewy on the initial guidance. That's my first question? We always had it in there. Okay. Thank you. Yeah. Then I guess on the-- I know you're not going to frame now the magnitude of the price increase. How about just on the wages, if you think about the two that you all have taken, can you give us a sense for how much wages maybe have gone up? Yeah versus 2020 to 2020 level, I guess, as we look for all of this year? Thanks. I just talk about it in terms of what the hourly wage has done. I don't want to go into the specifics of the total at this point. We might find another way to have a conversation about that. Our regular wage increase, after we did some normal sensing back in May, was a 3% increase, and we realized that that was not going to get us where we wanted to get to. The increase that we're taking in September is much more sizable than that. It varies by level in the organization, but the headline number would be a 20% increase. Peter, I think the other way to think about that is we are trying to kind of go back to principles on how we operate and think about the business. We believe this is a real significant investment in our company. Because we want the best quality, we want the most efficiency, we want the most effective lines possible, and quite honestly, just growth requires us to get more out of our lines, but also there are more people. Could you imagine if you were adding to your team and someone came in and they were there for a week, a month, three months, six months, and then they left and you had to start over again and again? It puts strain on the rest of the team. We're trying to really create a completely different approach to this and really invest in kind of the vision of where we're going. Yep. No, it makes sense, Scott. Smart move, and it makes a lot of sense. I feel you said dynamic staffing environment. Dynamic is an understatement. My last question is just about with the households that are being added, the millennial and the Gen Z households. Just curious, remind us kind of what products maybe they're gravitating to any differently than maybe your legacy customers and how that maybe influences your innovation plans for the next few years. Just curious how that's trending. Yeah, actually, that's an important question. There's some interesting data that's actually out there at this point. It looks like more pets were added last year than any year that we've been able to kind of track back and look at. It was about a 5% increase. There's usually, like, a 2% increase in pets. There was, like, about a 5% increase. The number that's been thrown around, seven million more cats and dogs, right, that are kind of now with consumers versus in shelters or whatever. Of those, the biggest group that acquired pets, which logically, right, it was millennial and Gen Z. That group is willing to spend more on pet products, and they're also more thoughtful about the products that they want. This is kind of exactly what you're talking about. When we look across our portfolio and we think about how we're doing, first of all, we well over index with millennial and Gen Z. We really think we're a key piece of how pet food should shape into the future. In addition to that, we're taking one of our brands, it's called Nature's Fresh. It's been in the natural channel. We are taking that brand, and we are doing every single thing we can to position that very specifically to win against millennial and Gen Z. It's always been GAP-rated meats. I don't want to get into too long an answer. We talk more about it at the sustainability summit. It's GAP-rated meats. It's actually carbon neutral now. It's one of the first carbon neutral pet brands out there and the largest as far as we can tell. We've really taken a different approach. You'll see a lot of work we're doing on overall, the brand, how we're talking about it, communicating it, packaging, formulation, et cetera. Finally, one of the things that we're doing where we think there's tremendous opportunity over time, we've mentioned it in the past, but we're launching this product called Spring & Sprout. It should start shipping right in the next couple of weeks. I haven't seen it on shelves yet anywhere. We've announced this in the past. It is a plant-based meat product. It's a terrific product. We're really excited about it, and it really addresses both ethics in meat, but also environmental concerns around proteins. We think that's going to be an important product, an important addition to the portfolio that we're building out over time that's focused on the kind of younger consumers. Okay, great. Thanks so much for that. Our next question comes from the line of Steph Wissink with Jefferies. You may proceed with your question. Thank you. Good afternoon, everyone. We have two questions, if we could. Heather, I think this one's maybe best suited for you, but it's related to the one line per quarter addition and capacity. If you could just help us think through the stair step of how much revenue value each line could add as we think about the next six to eight quarters or so. Sure. Yeah, actually, in the accompanying presentation, there's a chart that shows that continued ramp up. When you think about where we are headed versus the end of this year, we're adding the one additional line in Kitchen South, which brings the installed revenue capacity by the end of this year to $760 million. That's sort of the first phase of the project. As we enter next year, we have an additional line at Kitchen South that will come on actually in the beginning of Q1. That line will have revenue capacity of about $50 million. Ennis starts to ramp up, starting in beginning of Q2, and then each Q3 and Q4 will have each of the Ennis lines coming on, Ennis phase I lines coming on board, with a total of $400 million by the end of 2022 in Ennis. At the same time, we'll be working on our Kitchen South building two project. The plan on that project is to install three lines over the course of 2023 with revenue worth about $300 million. There's some variables to those numbers. The key is that we have new technology that we're testing. Depending on that new technology, Kitchen South building 2, as well as the second phase of Ennis could be impacted with incremental revenue potential depending on the actual outcome of the new technology. Okay, that's very helpful. I just want to follow up on pricing. I just wanted to decompartmentalize the two drivers. Labor inflation being one reason to take price. The other you mentioned was shipping inefficiencies. Heather, maybe just to talk a little bit more about the temporary nature of that. I think you mentioned as the back half progresses and as you gain efficiency, the inefficiency burden on gross margin would start to mitigate. Just wanting to understand a little bit about are you taking price to cover both and then once those inefficiencies roll off, you'll see a little bit of margin benefit? Do you expect this to just cover the ongoing shipping inefficiencies you anticipate in the business? I will just describe first the inefficiencies. There are two elements of inefficiencies, one that impacts gross margin, the other that impacts SG&A, where the logistics costs are in our P&L. What emerged in Q2 that we described is some temporary processing inefficiencies or temporary operating inefficiencies as we have been ramping up the new lines in plant 2, as you would expect with new staff. Some of those sort of getting the kinks out as you are ramping up sort of exceeded expectations. We do have many new folks that are coming into that facility, there is a lot of training and learning curve that have to happen there. Those inefficiencies we expect actually by the end of this year to be self-resolved in plant 2. The other inefficiency is in freight that we've been talking about since the beginning of the year, where our systems don't allow us to allocate inventory to orders and transportation is planned because our fill rates are so low with a much larger expectation than is actually shipped. That inefficiency also, two things will happen. One, as we improve our inventory position and have improved fill rates, that will self-resolve. We also are building the capability to allocate inventory into our new ERP. By November, that particular issue will be resolved. Our pricing plans looking ahead are focused on where we expect inflation to be headed into next year. Obviously there's a few variables to that. At this point, it's really to offset the anticipated inflation, as Scott mentioned earlier. We'll see where that lands up. The big variable, of course, for us will be chicken and where we lock that pricing at the end of this year. Steph, I'd add to that we think that some of our cost increases are, as Heather described them, some of our temporary inefficiencies, and we're not pricing for those because we think those are going to go away. What we're pricing for is the inflation that we think is not going to go away, which is basically the inflation that's due to labor, both our own internal labor as well as the labor at some of our suppliers, and they're going to start passing that labor cost on to us, and we're already seeing it this year. Anything that has a labor component that's driving inflation, we have to price to cover that. If it's our own temporary inefficiencies, we're not pricing for that. We're going to get the efficiency gains from our operation as we've described it in the past, both from scale as well as from moving to the more efficient lines that we've got. Also diversifying our shipping to a second shipping point. Those kinds of things are going to get us the efficiencies that we need to drive the margin. That's very helpful. Thank you. Thanks. Our next question comes to the line of Jon Andersen with William Blair. You may proceed with your question. Excuse me. Good afternoon, everybody. Hello there. My first question is on Chewy and I guess multifaceted. I'm curious how you think the addition of Chewy will help, to what extent will accelerate your e-commerce business and where you think e-commerce goes as a percentage of sales over the next couple of years. Where do you think the biggest benefit will be derived? Is this a household acquisition tool? Is it a buy rate enhancer or some combination of both? Hey, Jon. It's Scott. We touched a little bit on this. We had a couple of discussions where we touched a tiny bit on this. Look, we think that if you broadly look at where we are today, we recognize there are definitely a group of consumers that want to be able to get products delivered to their homes in some way. Right now, we have a handful of ways that you can do it. You can do the click and pick, the buy online, pick up in store. There are a handful of services. We think that the partnership with Chewy makes a lot of sense for both companies. We're really excited about it. I believe, personally, that over time what will happen is that as consumers get into a regular cadence, I think that it will not only provide an opportunity for consumers that want convenience, but also consumers that want a consistent cadence. I think it will give us a great opportunity to extend buy rate over time. With respect to the specifics around that, we don't know. We're two weeks, three weeks into launch. It's super early. They're great partners. It seems like it's going to be a great partnership and relationship over time. I don't know how it shapes, the research we have done demonstrates that it will both open up penetration and buy rate over time. I think there is a ton of potential there. Have you structured your product offering and your pricing in a way that makes you channel agnostic across the portfolio at this point? Yes. We have, one of the things, and I know everyone's thinking Scott's mentioned principles and values multiple times here, but one of the things we have down, and I'm serious about every time I do everything, anything we do, I literally look at it and go, "How does everyone win from this activity?" How does the consumer win? How do our partners win? All of our partners win. How does Freshpet win? If we can't construct a way that everyone wins, we just won't do it. We're super fortunate. We have more potential. We have tons and tons of potential, and we have so much opportunity for growth that we want to be really thoughtful in the way we're constructing our business, our portfolio, who are the partners that we're working with, et cetera. Yes, we are agnostic, if you want to talk about it that way. Every different customer, every different channel brings different benefits. They have different types of consumers, and we're making sure that we're developing a portfolio that best meets what that consumer and what that customer is looking for. Okay. That's helpful. One quick follow-up. In the prepared comments, someone, I think maybe Billy mentioned expecting more stores and second fridges next year with supply conditions better, in-store merchandising conditions improved. Could you add a little bit more color to that? Maybe it's too early to think that way, but you're up low to mid single digits in store count in the first half of this year. Do we see acceleration off of that in 2022 given the commentary? Thanks. Yeah, it's an important question. Keep in mind that the vast majority of our growth comes from penetration, which is behind our marketing advertising. That drives 80%+ of the growth for the business. Back to the store piece, it is obviously really important. The thing that makes our marketing more effective is the widening availability. It makes it more accessible, more convenient in more stores. Even the second coolers. The productivity of the second coolers has been extraordinary. The problem is we've got to keep them full. That's been our biggest trick. Adding second coolers into productive stores is really powerful. The way I look at this is, rightfully so, the conversations we're having with our partners are very centered around, "Hey, we don't have enough product." There has been some hesitancy to add lots of coolers. Look, we're having a great year. We're progressing nicely. There's a lot of second coolers that have been added. It's page 26 in the PowerPoint. We're making really nice progress. There are some people that are kind of slow walking, and as we have more product next year, we think everybody's figured this out in the last 18 months, 24 months. Look at the size of Freshpet. Look at the consistent year-on-year growth of Freshpet. Look at the same store sales growth of Freshpet. Look at the stickiness of the consumers that it brings in. I think people that haven't been awakened to the potential of what Freshpet can do for the category, I think are really there, and I think it's going to create a tremendous opportunity for us. We're definitely not ready. We got to finish this year. We're definitely not ready to give numbers, but I think it's been really encouraging. Don't know what the numbers will look like next year, but it's been encouraging and we should see, I would say, a good year around that. Going back to the first point, the vast majority of it is penetration and advertising based. We should be spending more dollars than ever next year in advertising, and that should drive penetration, velocity, and overall revenue growth. Thanks so much. Our next question comes from the line of Robert Moskow with Credit Suisse. You may proceed with your question. Scott, I'm glad that you devised a win-win-win-win system for your customers and everyone. I wish you worked in the auto industry. It might help out my family quite a bit. Right now it seems we're going to lose. My next project, Rob. Yeah. We need to get you where you can help us out more. I had a question on slide 17, actually. You provide your fill rates going back, I guess this is several quarters, and I guess what's noticeable to me is it looks like it doesn't get much past 65%, and you have a trend line moving up and to the right. A couple of questions. Are these yellow dots, is the most recent one the one on the farthest to the right or is it somewhere else? Where was your fill rate in the quarter? If your fill rates are kind of in this 40%-65% range for what looks like a pretty long period, is it possible that this might be part of the nature of the business? That there might be something intrinsically difficult about keeping these Freshpet fridges full given the multiple steps to get product into them? Just a question. Rob, I think you're referring to the slide that says, "As we rebuild inventory, fill rates go up." Is that the one you're referring to? Yes. Yeah, that's the one. That is data that's the slide we used last quarter. It's not the most recent data. We're using it to demonstrate the point. The reality is we've operated at fill rates that were in the 90%+ for quite a long time. Okay until we got into COVID. There's nothing about this business model that keeps you from getting to full trucks. In fact, with the new ERP system, we'll be able to allocate the inventory to the orders and we'll be able to get to full trucks. The other part of it is getting the fridges full. What we're finding is, and it's not surprising, is that the higher the velocity of the business, the better the fridge conditions are because the stores then have more reason, more incentive, more reminder to keep filling the fridges. Some of our best filled fridges are in the highest velocity stores. It's a learning curve when you're low volume and low velocity to get fridges full. As you get to be a more important part of the store's volume and a more important habit, the fridges look better. Okay. What do those dots represent then, Billy? Are those quarterly results or monthly results or what are they? It's just observations. Yeah. Yeah. It's showing the correlation. The one on the left is the correlation of the fill rate with inventory levels. So you see as inventory levels are improving, the fill rate improves. Then on the right, the chart there is showing the direct correlation that we have where the cost per pound goes down as the fill rate improves. So it's not a period of time, it's more the link of those two factors with the fill rate. Each data point is an instance. Yes a day or a week. Okay. Right. Yeah. Okay. They're very short time frame. Okay, now I know. Basically, the fuller the truck, the more cost effective it is. I got you now. Okay. A follow-up then. You talked about the ERP transition in November. It seems like a lot is happening all at once. How much inventory do you need to build up to give you cushion during that transition? Because it seems like inventory is still not where you want it to be. Yeah. The thing of it is when we do the conversion, we'll have to shut down the operation for a couple of days to implement the system, do the testing, the training, and whatnot. We're taking advantage of that downtime to actually upgrade some equipment on one of our lines. How much inventory do you have to build? Ideally, you would be in a position where you could continue to ship your orders during that time period with a high fill rate. We think that full inventory on our business is somewhere between four and five weeks of inventory. That sounds like a lot for a fresh products business. You have the range of brands and SKUs that we have across the portfolio, you need to have about four to five weeks of inventory. Today, depends on what day you're looking at, we probably have about two to two and a half weeks of inventory. We're producing, as you saw on the other charts, we're producing well in excess of demand every week, well in excess of consumption every week. We're building both our inventory and the trade inventory as this goes. We should be good. Hey, Rob. Yeah. The other thing to think about is, I'm not minimizing it because they're big things. There is a lot going on, but there's a group of 40 people here that literally started the company, right? We all started together pretty much in the very beginning. Every three years or less, we double the size of the company since 2006. Now the numbers are getting bigger but we brought in smarter people, right? Billy Cyr and Heather Pomerantz are on the phone. I'm just focusing on the win. In all seriousness, there's always been a lot going on, and by no means were we perfect, but we've been able to manage a lot of it really well. Okay. All right. Thank you. Thanks. Our final question comes from the line of Ryan Bell with Consumer Edge Research. You may proceed with your question. Hi, everyone. Regarding the household dynamics, you said you were seeing a slowing in household penetration sort of relative to the expectation and the higher buy rate. Is the primary driver of that the increased buy rate is coming from just having more long-term users and fewer new buyers coming in that would dilute the buy rate? Is there something else maybe where some of the new users that are staying are also buying at higher rates? You saw in the data we published earlier this year, the first part is yes. When you aren't diluting the existing buyers as much, the buying rate goes up. There's no doubt about that. If next year with the Scott enormous marketing budget, if we start posting 30%+ increases in penetration, you should expect the buying rate to go down, not go up. It's just the way the math could end up working. There is a longer-term phenomenon that's going on, which is that we've seen each cohort that entered the franchise over the last five years started at a higher level of purchasing than the cohort that came in the year before them. They are coming in, they're buying higher value items or higher price per pound items. They're buying more of them. They're using the product more frequently or more regularly. We're seeing that phenomenon. There's also the likelihood there's some amount of consumer hoarding that's going on as consumers found there was a scarcity of the Freshpet product they wanted, so they went in the store, they bought it. What that does is it gives the buying rate for some lucky user who found it goes up, and the penetration for the other guy goes down because they couldn't find anything. I think that's small, but it is real. Got it. That's helpful. About the specialty channels, do you think that that's going to continue to deliver outsized growth? Regarding the Chewy relationship, I know it's been early, but have you found anything in terms of how that's impacted your existing e-commerce user base? [Morris], you want to take those two? On the pet specialty piece, I don't know if you caught it earlier, but one of the things that we're definitely seeing is a lot of new consumers, very heavy millennial, Gen Z. They think about shopping differently and where they're shopping, how they're shopping, the types of food that they want to buy. We think that this is a trend that's driving pet specialty in general. If you look at their numbers overall across the board in food, they're up, they're doing nicely. If you look at our numbers, they're nothing short of extraordinary. We think that there's a pretty long road in front of this. In addition to that kind of that secular trend, we've also added a lot of second coolers in many of these stores, which allows for a broader product portfolio, and hopefully, in many cases, a little bit more product, which makes it more available. We expect to continue to see really strong growth rates in pet for a pretty long period of time. Don't know how long, but I think it will be for quite a while. Again, we're very excited about the Chewy partnership, the relationship. We think there's a lot of potential there. It's super early and we won't get into the specifics of dynamics between customers, et cetera. We just don't get into that level of data. Even if we were going to do that, it's way early. Thanks. The last one from me. In terms of the freight cost impact that's being driven by some of the issues with existing ERP systems, is there a way to give the magnitude of that actual impact that we would expect to be going away? Yeah. As you heard me talk about the freight as a percent of net sales at 11% for the quarter versus 7.8% last year. We do have freight inflation in the first half of about 10%. The way that it splits out in terms of the inflation versus the fill rate inefficiency, about 100 basis points comes from the inflation in the 1st half, and the balance of it is coming from the fill rate issue. Depending on the quarter, it's somewhere between 150-200 basis points of an impact. Thanks. That's very helpful. That was it for me. Thank you so much. Thanks, Ryan. Ladies and gentlemen, we have reached the end of today's question- and- answer session. I would like to turn this call back over to Mr. Billy Cyr for closing remarks. Thank you. I'm going to close with a quote from Anne Tyler, the author of "The Accidental Tourist." "Ever consider what our dogs must think of us? I mean, here we come back from the grocery store with the most amazing haul. Chicken, pork, half a cow. They must think we're the greatest hunters on Earth." I would add to that, include Freshpet, and they'll think you are a god. Thanks, everybody, for your interest and your attention. Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time.