Freshpet, Inc. (FRPT) Earnings Call Transcript & Summary

I think we're live. Thank you, everyone, for joining us today. Up next, we have another P&G alumni. Instead of talking European frozen foods or men's grooming, this time, we're going to talk pet food. So joining me on this virtual stage, we've got Billy Cyr, the CEO of Freshpet; and Heather Pomerantz, the company's recently joined CFO, at least more recently. Billy joined the company a number of years ago, back in 2016. And for those of you who may be new to the story or just don't recall, this was right after the company had become distracted with efforts to expand into dry dog food. They had taken the eye off the ball and growth had slowed. But under Billy's leadership, the company refocused and growth was reaccelerating in less than a year. And it's accelerated every year since despite the larger sales base and increasingly difficult comps. So please welcome Mr. Cyr and Ms. Pomerantz to the virtual stage to tell us the secrets of Freshpet's success and where the company is going next. Billy, Heather, thank you. Welcome.

Thank you, Jason.

Thanks, Jason.

Billy, I hope my intro did you justice. But I'd like to start with a little bit more context. What have the secrets to your success been since you joined? What's put the business on this trajectory?

First of all, I think it's important to know that when I joined Freshpet, I joined a business that I think had the very best business model that I've seen in my 35 years in the CPG space. We have preferred products, proven advertising, highly proprietary distribution system with the fridges yet that are also branded. So this is a business model that was set up for success. There's no doubt about it. And the founders of this company, 2 of whom still work for us, really labored for a decade to create a business that I think was well set up for success. The most important thing that we did at the beginning of 2017 was we took control of our own destiny by shifting from a model that was based on store count growth as the primary driver of the top line and instead focused on building the consumer franchise. And that meant we went from investing 6% of sales and advertising to investing over 2 years up to 12% in sales and advertising. And what that did is it gave us the opportunity to control the rate of growth that we had rather than waiting for the retailers to decide to put us in more stores. And as you do that, you can also control the pace with which you add capacity to meet that demand. And that change, that transformation gave us, I think -- for the investors, it gave us a lot more predictability and reliability. But I think it also showcased for people that our growth is not set or limited by the number of doors we can get in, the number of stores we can get in. It's limited only by the number of consumers out there who have a pet in their household. So we went from having a universe that might have been 30,000 or 35,000 stores and having been at the time in, call it, 17,000 or 18,000 stores to now we were at that point in, call it, 2.5 million households in a market that had, at that time, 62 million or 63 million household opportunity. We're now up to 4 million households out of 65 million, but I think people can see that the upside is significantly bigger, and we are in control of our destiny. And I think that that's helped us deliver reliable and predictable top line growth.

I want to come back to some of the levers you said you could control, including capacity, which has been a sticking point for the business. But I want to pause there and return to it in a few minutes. Let's first stay on the revenue and trying to control the demand and drive the demand. You've got some pretty ambitious -- well, I consider them ambitious goals for 2025. You may consider them conservative. I don't know. But remind us, for the audience here, what are your goals? What are your objectives, your targets for the next 4 years now? Now it's 4, it was 5.

Yes. So our goals are set in the context of the 2025 fiscal year. And as I said, we started thinking about this business in the context of the size of the consumer franchise. And then obviously, that's measured in households. We can measure it in penetration. It also has a component of the buying rate that dictates how much they buy each year. And so the goal that we set is to be in 11 million households in 2025 with a buying rate that would be increasing at about 7% a year between now and then and to get us up to a little over $160 a year per household. That would net a business that would be about $1.25 billion in net sales in 2025. And in terms of just sort of the reliability and predictability of the business, I would remind you of 2 things. One is we set a goal in 2017, in February 2017 to have $300 million in sales in 2020, and we delivered $318.8 million in 2020. So we've got a track record of doing this. And then the second part of it is, one of the things that's beautiful about this model that was created by the founders is there's no pricing or discounting in the way we do business. So when we attract a new user to the franchise, there's somebody who joins the franchise who -- based on having made a full price purchase. And as a result of that, when we run advertising and we attract the user, we have a very predictable and reliable conversion to the first usage. And then from there, the product satisfies them in a way that, in a very predictable and reliable way, turns into increasing usage over time. And so we've taken out a lot of the distortion that occurs in a traditional CPG model and instead replaced it with a very predictable and reliable conversion model of -- you control the advertising spending, it creates a consistent amount of demand or household penetration gains, consistent amount of conversion and consistent amount of increased purchasing over time. And so it becomes a very, very reliable model. And that's what our accelerating growth rate has shown.

Your success cannot be questioned. I mean it's evident in results, whether we're looking at consumption data, penetration data or your own financial results. But nonetheless, to get to 11 million households does suggest a real step change in the growth algorithm. Just looking at some of the data we've got at our disposal and using Nielsen penetration, from 2015 to 2020, your penetration amongst consumers who buy pet food went from 3.2 to 6.8. So you picked up 3.5 points in 5 years. Your 11 million households suggest you're going to get all the way to 19. So you're going to pick up 12 incremental points in the next 5 years. So 3.5 points last 5 years, 12 points next 5 years. It's just -- you really believe you're at that point in the S curve where adoption is really going to accelerate. What gives you confidence? And how -- just that, what gives you confidence in your ability to get there?

Yes. Well, first of all, the target of 11 million households implies 24% per year household penetration gains. And we've done that for the last 2 years. And so you look at it and you go, okay, we've demonstrated track record, maybe at smaller basis, but we've demonstrated that. Actually, if you look at the most recent panel data that we just got a week or so ago, you can see that we -- the latest period, we're up 26% versus a year ago. So we're consistently performing in that ZIP code. The other way to look at it is you think about the increase in the advertising investment that we're making, and we hold it constant at 12% of sales. That amount of investment we're going to make is going to be significantly greater in out years than it was in the previous years. And if you could buy the conversion from advertising investment or advertising dollar spend, converts to users at a very predictable and reliable rate, at higher spending, we should see higher number of consumers. And in fact, if you look at the data over the last 5 years, what you can see is even if you exclude the abnormally positive year we had in 2020, what you can see is a consistent decrease in the customer acquisition cost. So the amount of advertising we've had to invest to convert back into a user has gotten -- has decreased. Now at some point, there's going to be diminishing returns. We know that. That's going to happen at some point out on that curve. But the reality is it hasn't slowed yet, and we've increased advertising at a very healthy rate for several years in a row. And so we can get to that 11% number. And I want to put one piece -- the other piece in context around this, which is a lot of people will think about us just as a brand as what brands in the category will have that level of household penetration, and there are. Blue Buffalo is at that level of penetration or above it today. But you have to stop and think that we're not just a brand. We are so differentiated we actually represent a new segment. So we're not just another kibble or a can that's going to split up the market or share the market with other kibble and can based on some positioning difference. We are a noticeable product form difference that we are creating a new segment. And so for the lion's share of time, we will account for the lion's share of that new segment. And so it's going to go beyond what a brand is. It's going to be what is the segment's share of households. And from where I sit and from what I see about the values of the consumers who are entering the category, I think they're going to all look at this and say this segment is going to be the next new major segment in pet food. And over time, it should become one of the largest, if not the largest segment of the category based on the values of the consumers who are buying pet food today. Jason, you're on mute.

Thank you for that. Yes. My office may sometimes make some noise in the background. So I have a habit of clicking on mute before they...

I did that on our earnings call 2 weeks ago where I answered the first question on mute. It was brilliant what I said.

It was brilliant but totally lost. That's tragic. Tragic when that happens. So I hear you on you are creating a new segment within retail and retailers -- that gives us different context in terms of how we can think about size. At what point does that segment reach critical mass that's large enough that says retailers are going to welcome in another branded competitor?

Yes. It will happen. There's no doubt about it. We know we are not going to own the space to ourselves forever. It's just not going to happen. We fully expect that we will see competitors in the space and probably sooner rather than later. But at the end of the day, we are banking on the idea that we have such a head start in terms of building out [ what ] it takes to be successful. So we have built a fridge network that's now -- we have 25,000 fridges out there in 22,000 stores. That gives us a head start on broad national distribution that can enable broad national advertising to support a brand that would have a broad lineup, multiple product forms for each kind of pet or each kind of need that a consumer might have. All the metrics of the ability to convert the advertising message to the product usage, all that stuff has been figured out. Will somebody show up? Absolutely. I guarantee somebody's going to show up. But they're going to go through the building curve that this business went through probably in a shorter period of time, but it's a heavy investment they have to make and a lot that they have to learn in a short period of time. And we saw the Australians who pioneered this category in Australia came to the U.S. and tried to do it at subscale. And after 4 years, they left. They were -- we were outselling them 7:1 because of all the advantages that I just talked about. And it's not easy to do what Freshpet has done. What was created took a long time. You could probably create it more quickly if you have more money, but it's still going to be tough to do. It's a heavy lift.

Sure, sure. Back to the growth algorithm, the growth enablers, you mentioned buy rate and the expectation of the plan is to grow, I think, 7% per year. I think if we do the math on -- if a consumer was buying this as the sole source of food for their dog, an average midsize dog, they're going to buy about $700 worth of product per year versus the $160, $170 target. So I guess the question is, why is it so low? Why isn't this being consumed as like the primary dog food right now?

Yes. It's a good question. For those consumers for whom it is the primary dog food, obviously, the buying rate is significantly higher than the $121 that we have in our most recent data. And part of -- there are several factors that influence that. So first of all, if you think about our user base, we have a block of consumers who consume -- use Freshpet as the primary food for their pet. They might sprinkle crunchies on top of it. They might occasionally feed something else, but the lion's share of their product is fresh. And those people account for over half of our sales today. But we do have other users in the user base that when you measure the buying rate, they are included. And because they are included, they kind of dilute the buying rate down. And those people are everything from somebody who might buy one of our products and use it for the dog's birthday or for Thanksgiving or Christmas or just an occasional thing, special event, to people who use us as a mixer or topper. That's one of the factors is sort of the composition of the user base and how much they -- how frequently they use us. A second is that our user base skews a little bit more towards smaller dogs. So when you do the buying rate average that you did to come up with $700, we come up with $630, but it's in the same ZIP code. That's off of an average-sized dog. We do skew today towards more smaller dogs. And so one of our huge opportunities over time is to meet the needs of larger dogs, and that will help drive the buying rate up. There's some product formulation work that we need to do to make that happen, and we've got that work underway in our R&D labs. But there's also another element, which is how you buy the product. People who have larger dogs and particularly those who have higher income and have larger dogs, put a high value on convenience and buy on a subscription basis. And today, you can't buy Freshpet on a subscription basis. So we think that a breakthrough to enable a higher buying rate with larger dogs and the benefits of subscription purchasing on buying rate will come from being enabled in a subscription service. And we expect to have that sometime later this year where the consumer who -- for whom that is the way they want to buy, they would be able to do that and find a Freshpet bought that way. We're not discussing the details of how that will happen, but it will happen sometime this year. And that's the second lever, moving into more big dogs. And then the third lever is the subscription element that comes into it. But to be clear, we're not satisfied with that binary. But if you think about the evolution of a business, the evolution of a brand, especially a food brand, but most CPG brands, the first leg has to be building distribution. So your brand grows based on expanding availability. The second phase is expanding the size of the consumer franchise. So you bring in more larger consumers who shop in against that distribution base. The third phase, which is several years down the road for us, is where you deepen the buying rate. You focus on within that consumer franchise you've created, how do you get them to use the product more frequently. This is CPG 101. It's been done over and over and over again. But right now, the best payback, the best return and the smartest move strategically is for us to expand the consumer franchise as fast as we can and then over time, deepen the usage.

Billy, you put out too many teasers there on the subscription to not invite follow-up questions on that. So I have to follow up a little bit there. I appreciate you're not going to be...

Is it teaser or is it bait?

It sounded like bait. It sounded like bait on this one. Is it fair to say that a successful subscription model is going to be -- it's going to require delivery to the consumer's home rather than a pickup?

Correct.

And most subscription models have sort of a bit of a subscribe and save type component to it rather than a subscribe and pay a premium. Is it fair to say this model will look somewhat similar?

So what we've said consistently is that we will have a business that we will sell -- we'll likely sell through a partner and that our margins that we will deliver on that part of the business will be consistent with the margins we deliver on everything else. So I don't want to go into what the specifics of the pricing will be other than to say that we [Audio Gap] the margin.

Okay. And would it be available nationally or only in select markets?

The expectation is that it will be available broadly.

Broadly is different than nationally.

I know.

Okay, good. I just want to make sure that I'm interpreting that right.

I don't know what your definition nationally is either. Some people include Hawaii and Alaska, some people don't. So bottom line is very broadly.

Yes, yes. No, I'm thinking like where Instacart or Shipt or something like that can reach, which is to a broad, broad swath of the population but not 100% is how I think about it. Okay, which is in it, I don't know. It almost makes the next line of questioning moot . But I want to touch on it. But e-comm, 5% of sales, 55% click and collect, 34% third-party delivery, 11% direct ship. I think those are the stats. Do they still hold? And how does that compare to the pet food industry overall? I'm guessing that that 11% direct ship meaningfully underindexes what the category at large looks like.

Yes. I mean, the pet food category is an ideal category for a subscription model because the dog eats the same product all the time and eats the same amount all the time. And so many of our direct competitors have capitalized on that and built very, very large subscription businesses through the traditional Amazon, Chewy.com, Walmart.com, whoever it is. Because if you're in the consumers' mind, you sit there and say, I can get the same product that I buy at the store. But instead of lugging home a 30-pound bag, I can have it delivered to my door for about the same price that I have to pay to go get it. So why don't just have it delivered, I don't have to worry about it? And that happens quite a bit. Freshpet is shopped a little bit differently. Freshpet is purchased because when it comes to the home, it goes in the refrigerator. And that's very premium space. It's not like you can put it in the garbage can in the garage and use it as you need to. It goes in the refrigerator. Now if you have a second refrigerator in your house, then you know it obviously gives you an expanded space. But all the things that go in the refrigerator are shopped for much more frequently, and there's a sort of a shopping ritual that goes with that. It's Saturday, I go shop for my meats, my dairy, my produce, whatever it is. And Freshpet tends to be a part of that shopping occasion. So I would suspect that we will not look exactly like perishable e-commerce, which is relatively small. And we won't look like dry dog food e-commerce, which is very large. We'll look something in between because we have elements of both. We'll have a lot of the shopping purchase opportunities of fresh, perishable products where the consumer brings it home and puts it in their fridge and has a finite amount of fridge space. And they don't mind buying it on a weekly basis as part of that trip because they're not lugging home a 30-pound bag. Our biggest size is 6 pounds. On the other hand, we have the subscription or the repurchase, the same product every day, characteristics of dog food. So we'll be somewhere between those 2. We'll never be dry dog food and we will never be all perishable. We'll be somewhere in between.

No, that definitely makes sense. And as you know, I am a Freshpet consumer. And these are the guys behind me who eat it. My shopping ritual for Freshpet has been very different. It's been go store to store to store to try to find the freaking product for the last 4 or 5 months. And I'm happy that it's become easier of late. But I'm using this as a segue to talk -- come back to what we talked about earlier. And that's the capacity stuff. So remind us, like you've hit some bottlenecks recently. What drove them, where are we? And I know you've got a multipronged approach to capacity expansion, walk us through those -- or at least high level right now, the plans and the steps to continuously expand your capacity?

Yes. So first of all, our overall goal is to get to the point where we are one production line available ahead of demand at all times, but we have to catch up first until we can get to that goal. But we've authorized the investment in the capital that would get us to that point where we wouldn't have these bottlenecks or constraints we've had. Our big problem that really occurred last year where we were hit on 2 sides. The one side was the demand grew faster than what we had previously modeled. As I said, this business is very predictable. We never predicted the impacts of COVID. Meaning media got less expensive, the conversion from advertising to first purchase was at a much higher or better rate than it had ever been before, one that we wouldn't expect to repeat again soon, but it was really, really remarkable. So you had this outsized demand that was created in the midst of uncertainty. We didn't know what it was going to do, and it did much better than we expected. The flip side is, despite adding significant new capacity throughout the year last year. So we started up a second shift on -- we started up Kitchens South. We put a second shift to Kitchen South. And we started up our bag line in Kitchens 2.0. And despite all those capacity additions, we got no incremental throughput in the year. I mean our throughput was -- basically got to its going level in April, and it stayed there until the end of the year. And that's because we lost staffing to COVID testing and quarantine. At its worst in the November between Thanksgiving and Christmas, we were losing 40 people per day who were out for testing or quarantine. And that meant we were shutting down lines at night or even during the day and not producing. So we got hit pretty hard. So we had demand that was through the roof and we had supply that was dropping through the floor. And that basically started in August, and it kept going throughout the end of the year. We've now fixed that by -- the COVID piece is starting to go in the rearview mirror. It's still there, but it's still -- but it's getting much smaller and more and more of our employees are getting vaccinated. But what we're also finding is we hired incremental people to buffer us against -- to create a buffer against the absenteeism that we might see. And so that buffer that we've created is -- enabled us to run all of our lines on a very consistent basis and catch up to the production that we needed to catch up to. And now my dog just arrived in the room, you're going to hear a bone banging around on the floor. So sorry about that. Yes, hi there. So anyway, the -- we've now fixed the supply end of it. And we are now ramping up our staffing. We are in the market hiring incremental people to add to the incremental staff, to add to the staffing, to increase the production. And we are producing consistently in excess of demand. So we can measure what we produce this week and what moved across the scanners in the week and we are producing excess of demand, and you're seeing it show up in the retail availability. We now have a plan going forward that it has us adding lines and staffing continuously over the next 2 years that will get us out to -- by the end of next year, we'll have almost $1 billion in installed capacity. By the end of 3 years, we'll have $1.5 billion and going to $2 billion 4 years out. So it's a very significant step-up in our capability, and we think that will get us ahead of the demand. But we can now do a much better job of controlling the demand side because we understand the dynamics of COVID. We're seeing a little bit more predictability. So we'll control the demand side to fit within the capacity side once we get caught up.

Sure. What does this do -- it's clear what it does to your capacity. What does it do to your cost, right? You started, I think, subscale. You then acquired an old dairy plant and retrofitted it in Bethlehem to start making this product. I'm sure you've learned a ton since you initially got this up and running. Is there a material step change to the cost of producing your product as you bring on this new capacity and presumably bring on like some different production techniques?

It does. Yes, it does, Jason. So it comes in a few different aspects. One, it comes from higher throughput. So the equipment that we've put into Kitchens 2 and that we are putting into Kitchens 3, the first phase is effectively on the bags line, almost doubling throughput. So that has a meaningful cost improvement in terms of being able to produce with the same amount of labor and producing much more product. So there's a scale benefit there. We also have put more automation into the production line in 2.0, and that will continue into the Ennis facility as well. A good example is sort of the whole end-of-line processing in terms of automated palletizing, et cetera, is a big step change taking out, call it, 4 or 5 heads at the end of the line, reducing labor costs in that facility as well. Now when we get to Ennis, we have even more innovation coming in terms of how we've mapped out that footprint, which does both. There's some cost improvement, but it's more around quality and safety improvements that continue. So there's both a cost benefit, but also continued improvement in quality, safety as well as sustainability. And so there's a continued innovation that happens. We also are working on some process technology that is not in the plans yet, but we do depict it now sort of as potential new technology that we'll put into our Kitchen South partner in terms of a third line we're putting into a first building and a second building that we're putting in place. That partner produces all bag products. And the process innovation that we have is a big step change in throughput on a much smaller footprint. So it would allow us to actually have capital efficiency as well as higher throughput benefiting on the cost side as well. And we would look to put that, like I said, in our South partner in this new building. And then Ennis Phase 2, the bag ones that we would put in there would also have this new technology from our side. It's something we're working through. The preliminary testing on it is very favorable.

And speaking of cost, cost inflation is the topic du jour across consumer staples right now. There's really been almost no place to hide, and whether we're talking agricultural inputs, industrial inputs, et cetera. Remind us what are you seeing on the cost outlook. I know you -- at least from some of your protein, chicken, you've got a relatively unique relationship in terms of how you procure it. Is it fair to assume that the shelf that you have in place this year is not going to exist next year? Would new contracts come in?

Yes, exactly. I think we're -- we feel protected in terms of 2021 on chicken. And our expectation, beef kind of follows chicken in terms of input costs, percentage impact to our overall cost structure. And we've anticipated higher beef costs as we came out of 2020 into 2021. We -- chicken -- the chicken pricing is quite volatile, as you know, right, very short cycles. And so where we will be at the end of the year, we have the annual contract that you allude to, where chicken pricing will be at the point of contract renegotiation is -- we can't predict that right now. There's -- the near-term inflation in chicken is driven by higher feed costs, which -- so for our competitive set, that's actually a direct input cost in terms of their ingredient that for us, it's a feed cost into chicken pricing. And that's a key driver of chicken inflation right now as well as labor being very tight in terms of chicken processing having an impact as well. How that evolves through the year, where we end up as we do that renegotiation, we don't know. But we would definitely leverage the pricing lever. We're not uncomfortable doing that. We do it selectively. We've done it in the past, and we will probably use a similar approach in terms of, what I would call, more strategic pricing, selective pricing as opposed to a broad-based pricing. But we also purchase different parts of the chicken. So we're purchasing sort of not the mainstream breast. But so as food service picks up, potentially, there's a benefit to us in terms of the other parts of the chicken becoming available. So the whole supply and demand cycle, it will continue to evolve, and we're watching it closely. In terms of packaging, we anticipated packaging inflation this year. We've got that built into our guidance around corrugate. There's some resin risk. Packaging is a little less than 20% of our overall input costs. So nothing in the near term that we're too concerned about, but we're watching it closely. Again, pricing is a lever that we would use as needed.

Yes. Your point that you don't buy -- that you don't use direct grains as an ingredient is a good one and a good play differentiation versus other pet food. Rendered meat is another one, I think, too. If you look at rendered meat costs, they're through the roof even -- they seem even more inflationary than some of the grain complex. You don't use any rendered meat either, do you?

No.

So it sounds like traditional pet food is going to see a lot more inflation than you are. Do you expect price gaps to close, making your product even -- on a relative basis, even more affordable? It doesn't even matter.

I'd say the answer is we're going to see it closer because most of our competitors have recently taken pricing or announcing pricing. We're seeing pricing in the market. But I don't think that's the basis in which the consumer moves to buying Freshpet. I don't think the price gap getting a little bit smaller makes you different. We're purchased in such different sizes, such different product forms. It's very difficult to make a direct price comparison. So that both helps us, and in this case, it might hurt us in that you don't get some pickup from that. But at the end of the day, I don't think that makes a big difference. I think the biggest difference it makes is when you go talk to your customer and tell them that you need to take a price increase. It gives you justification or you become part of a crowded team photo of other people who have taken pricing or are taking pricing, so it's met with less resistance. But I don't think the consumer side of it is as big. We're more focused on price points frankly, keeping the right size package at the right price point. And if you break a price point, you might as well go to the next one rather than kind of just linger slightly above one.

Sure, sure. In terms of other tools in your toolbox to manage, you mentioned pricing, straight list price. You also see companies play with pack size, maybe shrink the bag down a bit. And obviously, a lot of other people out there playing with trade spend and use that as flex, but I don't think you promote very much. I don't think your trade spend is very big. So talk to me about these other levers. Is it really just list price? Or are you willing to lean or do you have other levers to lean on?

So we have to take pricing. It's bare-naked pricing and the consumer will see it because as you said, we don't do trade deals, so there's no trade spend to reduce. And you kind of look at it and go, okay. And we also will not do pack size reductions because if you think about it, if the consumer walks in the store and buys the package that they've been buying all along and they expect that this is going to feed their dog for the week, and then they get there and they find out on Friday afternoon that they're suddenly out of dog food and they look at it and go, wait a minute, there's not as much in this bag as there used to be, we've got a problem. And they're going to recognize that the downsizing is what created the shortage. And so they're going to see it and they're going to feel deceived. So we will not do that. We'll just take the pricing. We'll keep the sizes the same and we'll take the pricing and be very strategic about it, very focused about it. But we will not use downsizing as the vehicle to get there. So you asked the question, where else do you have leverage within the P&L. I mean, I think Heather pointed out the couple of places in the manufacturing. But I think you have to remember, for us, one of the biggest levers comes in G&A. We get -- as we're scaling up, we're getting enormous gains in G&A. And that does help us both improve the margin and potentially offset some higher costs. And I should -- I include -- we include freight in that as well. So we're getting some scale benefits in freight as we go from $300 million to $1 billion or $1.25 billion.

Sure, sure. I mean, I know there's some inefficiencies in freight right now too just given the supply constraints that hopefully should result in self-improved transitory. You mentioned price point is not an impediment to trial or adoption here. What are the biggest impediments to trial and adoption?

So for us, the biggest one is awareness. Our awareness still is like 45% or 46%, and that's aided awareness. The unaided awareness is obviously lots lower. So that's why we're investing so much in advertising. So we've got to create that awareness and that helps considerably. The second thing is you have to remember that in the world of pet food, people generally don't want to change their pet food until it's not working for them. And so from where we sit, what we need to be is available and visible at the time when the consumer is deciding to make a change in their pet food, that the pet food they're feeding today isn't working for them anymore. One of the things that we've been noticing quite a bit in the consumer calls and comments that we get is a very atypical entry point for our brand. A lot of times, you focus on [Audio Gap] when people get their first pet or the dog comes home from the breeder or from wherever they got their pet from the shelter, for example. We get a very large number of people who write us letters or call us and tell us that they started feeding Freshpet when their dog was very old and would no longer eat the food they've been eating or was having health issues that were related somehow to the diet and they were desperate to try something else. And so they started trying -- they somehow found Freshpet, whether they saw one of our ads or they ran into our fridge in the store. But they discovered Freshpet and they see a dramatic transformation in the vitality of their dog. The dog that wouldn't get up and had no energy now has energy. The dog that wouldn't eat now -- was a picky or finicky eater now eats very robustly. And so all of a sudden, they're writing to us and saying, "You saved my dog. You gave me 2 years extra on the life of my dog. My dog has never been happier." We get all these things. And what happens is when that dog eventually passes away, the next dog starts on Freshpet. And it's a very odd way to think about an entry point for the brand, but we've become an entry point at the point of highest need. When nutrition is the absolutely most critical thing to keep that animal vital, once -- when that happens and then you discover the benefit of it, then you're going to stick with it for the next dog for their entire life. And that's a huge advantage that we have.

That's exactly how I became -- we became a Freshpet household. That's exactly the journey we went down. And now my newer dogs, the next batch has started from day 1. So now you have a lot of new first-time pet owners, a lot of millennials becoming pet owners for the first time. And in the wake of the DCM concerns, it seems like a lot more have turned to their vet for recommendations. And it seems like the vets have been a lot more aggressive of late, and you see it reflected in the marketplace where the 3 brands they recommend most, Purina Pro, Royal Canin and Hill's Science Diet, have been on fire in the wake of this. So 2 questions. One, has that -- the impetus that drove them to the vet, this DCM stuff, has it abated? Or is that dynamic still at play? And secondly, what efforts do you have to influence the influencers at that point of first adoption?

I'd say the DCM thing is still lingering in the background. If you do a Google search on pet foods, you can still find references to it, and there’s sort of urban legend about it. So it's out there and people know. And we think that, frankly, has helped us to some extent because of the simpler ingredient set that we have and the natural healthfulness of the product. But it has certainly abated since it was at its peak. I think COVID interrupted a lot of things, and that's probably one of the things that interrupted quite a bit. In terms of how do you influence the influencers, the brands that have invested very, very heavily in building out their vet network obviously are benefiting quite a bit from any interactions they have with their patients. And we view that as a little bit of a walled fortress. It's very tough, very expensive to get in there. And so frankly, what we want to do is neutralize at best. Think about it as -- if you ask your vet about Freshpet. We want the answer to be neutral. If they say something nice, that's great. We just don't want them to say anything that's wrong or negative about the brand. So we do some communication, present at conferences with nutritional data. We're running clinical studies that demonstrate the nutritional benefits of Freshpet, publishing them. Just trying to make sure that there's general awareness. We have a Nutrition Advisory Board that advises us on the formulations of our products as well as on the research that we do. And we want to get as much of that out as aggressively as we can. But we aren't going to invest in the resources it takes to actually convert that into recommendations at this point. That's not our business model. It's one that, frankly, at a much larger scale we might do. But today, we've got a model that works without it.

Yes. Yes, that makes sense. That makes sense. And it’s clear that your model has worked quite well so far without it. Tremendous momentum on your side. And with that, we're pretty much pushing up against the time limit. So I think that's a good note to wrap it up on. But Heather, Billy, thank you so much for your time.

Thank you.

It's great having you here. And congrats again on the phenomenal success that you have had and continue to have for the business overall.

Thank you. And good luck with those dogs. They look great.

Yes. Happy Freshpet consumers over there. Thank you.

There you go. Great. Thank you. Thanks, Jason.