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

Good morning, and welcome to the Freshpet Second Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Rachel Ulsh, Vice President of Investor Relations and Corporate Communications. Please go ahead.

Good morning, and welcome to Freshpet's Second Quarter 2026 Earnings Call and Webcast. On today's call are Billy Cyr, Chief Executive Officer; and John O'Connor, Chief Financial Officer. Nicki Baty, 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 Private Securities Litigation Reform Act of 1995. These include statements related to the size of the category and our TAM, our strategy and expectations for growth, the competitive advantages of our manufacturing on quality and cost first expansion expectations, opportunities and capital efficiencies, timing of new lines of capital spending, 2026 guidance and 2027 targets. They involve risks and uncertainties that could cause actual results to differ materially from any forward-looking statements made today including those associated with these statements and those discussed in our earnings press release and our most recent filings with the SEC, including our 2025 annual report on Form 10-K, which are all available on our website. Please note that on today's call, management will refer to certain non-GAAP financial measures such as EBITDA and adjusted EBITDA, among others. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for how management defines such non-GAAP measures, why management believes such non-GAAP measures are useful. A reconciliation of the non-GAAP financial measures to the most comparable measures are in accordance with GAAP and limitations associated with such non-GAAP measures. Finally, the company has produced a presentation that contains many of the key metrics that will be discussed on this call. That presentation can be found on the company's investor website. Management's commentary will not specifically walk through the presentation on the call, Rather, it is a summary of the results and guidance they will discuss today. With that, I'd like to turn the call over to Billy Cyr, Chief Executive Officer.

Thank you, Rachel, and good morning, everyone. The message I would like you to take away from today's call is that our results and the number of competitors trying to emulate us continue to prove that Fresh is the future of pet food and we remain well positioned to capture a meaningful share of what we believe can become a $10 billion category over time. Our confidence is grounded in the scale, quality and cost advantages we have built through our owned manufacturing network, our broad product portfolio and are expanding omnichannel presence. We have built a business over the last 20 years around a wide range of product forms, sizes, prices and channels and believe our manufacturing scale and expertise is one of our greatest competitive advantages, enabling us to create the highest quality products at the lowest cost. Our second quarter financial results were ahead of our guidance range for the year. demonstrating the power of our business model. We delivered our strongest growth rate in over a year and our highest adjusted gross margin since Q1 of 2020. As a result, we're raising our sales and adjusted EBITDA guidance ranges for 2026, which John will cover in a few moments. We accomplished this against a challenging consumer backdrop with higher gas prices and weaker consumer sentiment affecting trade-up behavior across a number of categories, including pet food. This is the pattern we have seen before and it is 1 we anticipated. We are encouraged by recent improvements in consumer sentiment, but we are also mindful that the macro remains volatile and are not relying on sustained improvements to deliver our updated guidance. Amidst that volatile consumer backdrop, our consumer franchise remains healthy with an increasing share of our growth coming from increases in the buying rate of our consumers. That is a reflection of both our focus on the MVPs who spend 5x more per year than the average household and account for 71% of our sales and the tentative consumer backdrop. We closely monitor the combination of household penetration growth and buying rate growth as a good proxy for our total net sales growth and know that the balance between the 2 can shift over time based on the economic backdrop and the strength of our efforts to win more MVPs. Over the last 52 weeks, that combination totaled 13%, with 7% coming from buying rate growth as we grew MVPs at a much higher than we grew overall households. Those strong results give us the confidence to continue investing behind the long-term opportunity while maintaining discipline in how we balance growth, profitability and returns on capital. We are seeing encouraging evidence that our business model is working across 3 key areas: omnichannel access, marketing and consumer engagement and manufacturing scale and expertise. First, omni-channel. We continue to expand access to Freshpet in places and channels where consumers increasingly want to shop. We believe we're uniquely positioned to compete in multiple panels rather than 1, and this will really unlock that MVP consumer. Our products are available in over 30,000 stores and approximately 25% of our U.S. and Canadian stores have multiple fridges. That footprint is increasingly valuable because our fridges do more than support in-store sales. They also serve as micro fulfillment points for omnichannel demand. Our multiple chiller expansion will enable holding capacity to support both online and in-store sales and the broadest possible assortment to be available nationally. In the second quarter, digital orders grew 41% and accounted for 16.7% of our total business. This was up from 16.1% in the first quarter and approximately 78% of those sales volume went through our extensive fridge network. Additionally, our growth in D2C and pure-play e-commerce was particularly strong in the quarter. We are encouraged by the way retailers are responding to consumer demand for Freshpet food with total distribution points up 13% in the second quarter. We continue to see opportunities to add fridges to existing high-velocity locations expand selectively with new retail partners and broaden our presence in channels such as club. For example, we have 33 Fridge islands in market today across select stores in mass, pet specialty and grocery. Further, we now expect to expand our presence to at least 700 rural lifestyle retail stores by the end of the year, and we are now taking third SKU in a set of club stores. We will continue experimenting with retail partners on what fridge configuration and merchandising work fast, but at this point, do not expect a material expansion of our fragile in 2026. Distance for 2027 are underway now. Taken together, we believe that both retail-based TDP growth and e-commerce growth are a good representation of how we can continue to deliver strong omnichannel growth. We still have limited market share in the category, with only 4.3% in U.S. dog food and treats, according to Nielsen omnichannel data. However, we are the fastest-growing brand in dog food in dollars and the second most popular brand among new Gen Z and millennial dog households. Second, our marketing and consumer engagement is becoming more effective as we sharpen both the message and audience definition. Our latest campaign, better food for your better half is designed to deepen the emotional connection with pet parents while reinforcing the difference fresh food can make. In terms of households, we are particularly encouraged by the strength we are seeing among millennials, e-commerce shoppers, club shoppers and our high-value households. These are areas where we made deliberate investments and the early results suggest those investments are beginning to pay off. We are disproportionately winning with millennials and Gen Z compared to the category and/or the future pet parents that are driving the total addressable market growth. They also over-indexed the purchasing online and in the club channel, where we see a long runway for growth. We are building a stronger, more durable consumer franchise by increasing availability and improving relevance and deepening relationships with the pet parents who are most likely to participate in the long-term shift from conventional pet food to fresh. Third, our manufacturing scale, technical capability and expertise continue to be a meaningful competitive advantage, and that is evident in both the operating performance we have delivered and the noticeable difference between the products we produce and those that our competitors are able to produce. We now have 3 lines utilizing our new bag product technology 2 in Bethlehem and 1 in Ennis, and we are encouraged by the improvement in quality, throughput yield and unit economics, and what it could mean for innovation. Those lines are running well, and we expect to continue to refine our operating performance on those lines for the balance of the year, but as you would expect with any breakthrough new technology. You can see some evidence of that in a slightly higher quality cost in the quarter, which are due to disposals we incurred during the start-up phase. We have clear line of sight to the margin improvements that we can unlock with this technology. At fully optimized performance, we expect over 100 basis points of gross margin improvement on the entire business from the lines we have already installed. We expect approximately 25 basis points of improvement from the new technology in 2026 and more in 2027 as we continue to improve and optimize performance. These technology investments are not just operational improvements, they are strategic enablers. They support better product quality, greater capacity and new forms of innovation that can help us serve a broader range of consumer needs over time and attract new MVPs to the brand. When fully optimized, the new technology can produce more product per day than a conventional line, higher quality and more innovative products and do it with greater yields. We've already begun to launch new innovation from these lines in a cross-section of stores including home style creations, beef and healthy mixers. These new products are evidence of our new manufacturing capabilities, and we have a multiyear pipeline of other exciting new innovations, utilizing the new technology. Beyond the new bag technology, we're driving greater capital efficiency through our operational effectiveness program. We intend to, one, get more out of existing lines, primarily through OE improvements; two, get more out of existing sites, whether that be finding ways to optimize our network or add more lines or capabilities to our existing campuses; and three, develop and implement new technologies in order to improve returns on capital investments and we are pleased by the progress we've made to date. Given the strong operating performance of our existing lines, we have ample capacity to support projected demand this year and much of 2027. And when needed, the next new bag line will utilize our new technology. This approach gives us the flexibility to continue advancing our technology, incorporating further improvements that we believe can enhance capital efficiency, quality and cost before committing to additional new lines. We are very encouraged by the new opportunities for further improvement that this new technology enables and are committed to continue developing new generations of it so that we can further expand our leadership in manufacturing technology and drive innovation. These 3 proof points give us confidence that we are building on our advantaged position in the future pet food category, that we believe will be a $10 billion category. Pet food is still attractive with long-term tailwinds that we believe will continue to increase our total addressable market to above 10 million MVP households and 36 million total households as younger generations are increasingly interested in feeding high-quality food to every member of their family, including their pets. We continue to gain market share and expect to capture a large portion of the future growth of the Fresh Frozen category as it continues to become more mainstream. We are navigating a more volatile consumer environment today than we would like but we anticipated this, and we are doing so from a position of strength, with strong year-to-date growth, a more durable consumer franchise, expanding omnichannel access and a manufacturing platform that we believe is difficult to replicate. With that, I'll turn it over to John to walk through more details of our financial results.

Thank you, Billy, and good morning, everyone. The second quarter results demonstrated strong sales and margin growth in the face of a more challenged economic backdrop. Net sales in the quarter were $305.6 million, up 15.5% year-over-year. volume attributed 15.7% growth, partially offset by unfavorable price/mix of 0.2%. We again had broad-based consumption growth across channels and for Nielsen measured dollars, we saw a 12.9% growth in total U.S. pet retail plus with Costco. The delta between Nielsen growth of 12.9% and reported net sales of 15.5% and was primarily driven by underreported or unmeasured e-commerce sales as well as an approximate 1 point benefit from the timing of shipments midyear in 2025 that provided a softer comp for Q2 this year and a tougher comp in Q3. In the second quarter, we delivered adjusted gross margin of 48.6%, a significant improvement from 46.9% in the prior year period. The 170 basis point increase was driven by strong leverage on planned expenses from higher sales and lower input costs, partially offset by disposal-related quality costs incurred and the commissioning of our new technology. We are incredibly proud of our improved operating performance, especially as it came while we were implementing our new technology. The strong performance comes as a result of our continued focus on operational improvements, and is a strong indicator of the progress we can make in this area. In the second quarter, we had limited benefit from the new bag technology, which remains in the start-up and optimization phase. As that technology scales and performance improves, we continue to expect it to become a more meaningful contributor to margin expansion over the next several quarters. Second quarter adjusted SG&A was 31.4% of net sales compared to 30.1% in the prior year period. This increase was primarily due to higher variable compensation and an increase in our logistics costs, which were 6.9% of net sales in the quarter compared to 5.7% a year ago. This increase in logistics was primarily due to higher fuel costs and capacity pressures in the trucking market. Media spending was 13.4% of net sales in the quarter, down from 15% in the prior year period. Second quarter net income was $19.5 million compared to net income of $16.4 million in the prior year period. The increase in net income was primarily due to contributions from higher sales favorable post-closing adjustments to the sale price of our equity investment in Ollie and decreased nonrecurring SG&A charges, partially offset by the increase in income tax expense related to the gain on the Ollie sale. Second quarter adjusted EBITDA was $52.2 million compared to $44.4 million a year ago, an increase of approximately 18%. This growth was primarily driven by higher sales and gross profit partially offset by higher adjusted SG&A expenses. Adjusted EBITDA margin was 17.1% in the second quarter compared to 16.8% in the prior year period. The year-over-year increase was primarily driven by improvements in adjusted gross margin, the cadence of media investments and was partially offset by higher variable compensation and logistics costs in the quarter. Operating cash flow in the quarter was $44.4 million, growth of 31% compared to the prior year period, while capital spending was $29.7 million, representing free cash flow of $14.7 million compared to $0.5 million a year ago. On May 21, we announced a $150 million share repurchase authorization and at the end of July, we had executed $86.5 million and repurchased 1.6 million shares while ending the quarter with cash on hand of $350.8 million. Now turning to our updated guidance for 2026. We were encouraged with our performance during a challenging macro backdrop in Q2. We now expect net sales growth of 10% to 12% compared to 8% to 11% previously. Our strong growth in the first half gives us confidence in our ability to navigate the challenging operating environment. However, we have a tougher comp in Q3 from the significant expansion in a large club customer and shipped in ordering around the fourth of July last year, which will impact our year-over-year growth by a little more than 2 points in the third quarter. We have also started to see total household penetration growth flow given increased inflationary pressure on consumers. To achieve the low end of our sales guidance, we assume the macro environment stays the same as it is today with little to no sequential sales or household penetration growth to meet or exceed our guidance, we would need to see greater impact from our advertising and outperformance of our omnichannel efforts and additional distribution gains. And from a category perspective, we would likely need to see stronger dog food category growth and/or resurgence in trade-up behaviors. At either end of our net sales range, we continue to expect to grow market share as we benefit from a generational shift from dry and wet food to fresh. We now expect adjusted EBITDA to be in the range of $210 million to $220 million, an increase of 7% to 12% year-over-year compared to $205 million to $215 million previously. Adjusted EBITDA dollars and margins are still expected to improve sequentially for the remainder of the year. Media as a percent of sales for the year is still expected to be roughly in line in 2025 at approximately 12.5% of net sales. We now expect further elevated logistics costs for the remainder of the year, primarily due to increased fuel costs and a pressured market for trucking capacity. Given where costs are today, this updated guidance assumes an additional $8 million versus our original expectations. As we said previously, 2026 is not necessarily indicative of the underlying operating leverage in our model given the significant investments in omnichannel capabilities we are annualizing from 2025 and the reset in variable compensation we previously outlined. Beyond 2026, we still expect adjusted EBITDA growth to exceed net sales growth with an expectation of continued gross margin expansion and a more consistent variable compensation expense. We now anticipate adjusted gross margin to improve by approximately 100 to 150 basis this year at the midpoint of our net sales guidance compared to 50 to 100 basis points previously primarily driven by improved plant leverage and partially offset by mix. As we have raised our sales outlook for the year, we have decided to add additional staffing starting in the fourth quarter to support additional volumes. From an inflation standpoint, we are carefully watching for any higher costs to be sustained. To address any higher input and fuel costs, we are evaluating opportunities to offset through network efficiencies and product reformulations. Capital expenditures are still projected to be approximately $150 million in 2026. As Billy mentioned earlier, we do not expect to spend incremental capital on implementing new technology this year because our operating performance on our current base has exceeded expectations. Improved operating performance on the lines in place today and incremental staffing will also help defer future capital. Regarding our fiscal year 2027 targets, we are confident in our ability to deliver net sales growth well in excess of the U.S. dog food category growth. We are raising our adjusted gross margin goal from at least 48% to now at least 49% based on our significant gains in our operating performance this year and the small benefit from the new technology we expect in 2026. The upper bound for our adjusted gross margin in 2027 will be determined by sales and a number of factors, including commodity inflation, any pricing actions we take, formulation changes and other cost improvement activities. We also expect meaningful incremental contribution from running the new manufacturing technology at full rate, which we expect to reach during 2027. We are reiterating our 2027 adjusted EBITDA margin target of 20% to 22%. We expect leverage on G&A expenses and benefits from optimizing our logistics network. Our operating performance to date demonstrates our ability to achieve stronger adjusted gross margin and our ability to achieve our 2027 margin goals. To summarize, our ability to raise our outlook in this environment reinforces the resilience of our model and the bit of having multiple growth drivers across channels, households, buy rate and operating efficiency. We are pleased with our second quarter results and remain cautiously optimistic with our outlook for the remainder of the year given the volatile macro environment. Looking ahead, we see significant opportunities for continued growth and remain focused on leveraging our scale, expertise and innovation to reinforce our leadership position in fresh and frozen pet food. That concludes our review. We will now be glad to answer your questions. As a reminder, we ask that you please focus your questions on the quarter, guidance and the company's operations. Operator? .

[Operator Instructions] And our first question comes from Robert Moskow from TD Cowen.

I guess my first question is about the commentary on household penetration slowing. Your chart shows that it still grew 5%. I think that's a year-to-date number. Billy, maybe you could just tell us like did I get this right that are you still expecting -- are you expecting household penetration to continue to grow at 5%? Or does the guidance assume that it kind of flattens out here and that the growth comes from the higher usage rates in the MVP?

Yes, Rob, and Nicki might add to this. But let me just start with the comment that's in the prepared remarks was referring to a sequential growth rate in household penetration. You're right, it's a year-on-year, not year-to-date. It's a year-over-year on a 52-week basis, they were up 5%. And then buying rate is up 7%. And what we said in the commentary is that depending on the macro, you might see more buying rate than household penetration or more penetration than buying rate. It just depends on what the macro is doing. But the low end of our guidance makes the assumption that on a sequential basis, we're roughly in the place that we are today from a household penetration perspective, and anything beyond that moves us up in the guidance range. Ricky, if you want to add anything to that?

Yes. Thanks, Billy. What I would say, Rob, is that we're very much focused on moving away a little bit from being a Charles model to a much more durable consumer franchise. So you will start to see that rebalance between buy rate and household acquisition. But in saying that despite the macro environment, we actually were the fastest-growing brand in terms of household acquisition over the last quarter. So we still remain really pleased with the number of households that are coming in, and we're bringing in much higher quality households than what we've historically done.

Okay. So if let's say, household penetration kind of stabilizes, how does that relate to like the 7% to 10% kind of algorithm that you've put out there? Like -- do you need -- can you still hit 7% to 10% through that higher usage rate? And I guess, maybe just a worst-case scenario where household penetration kind of stays the same.

Yes, absolutely, Rob. I mean you saw we went up 7% on buy rate in the most recent data, and we'd expect to see that grow even higher if you saw the household penetration gains weren't as robust as they have been. But again, we feel very good about the model in total. We think the model is working. It does give us some optionality in terms of how much you get from penetration, how much you get from buy rate. And what we're seeing right now is that the market is giving us more by rate than penetration, but both of them are for us.

Our next question comes from Peter Benedict from Baird.

First, maybe, Billy, an update on the fridge island test. I know you've got 33 out there. sounds like 27 would be more of the time we would see some expansion in those if that happens. Just an update on kind of the performance there and what the decision tree is for getting more of those in market.

Yes, I'll let Nicki take that one.

So we're really encouraged by the performance of the Island units. As we said all along, this is a trial. And what I would link it to is it's a much stronger signal of retailers now seeing us going from proving out that a category exists and there's demand for it to now leading a category. So we will continue to get learnings from those island units, but we're not banking only on island units being the unlock for future distribution and capacity. We're in many different discussions at the moment, surrounding multiples expansion bringing in new assortment, expanding capacity to make sure that we don't have out of stock in particular on our best-selling items. So I see island units as being a vehicle that will help enable a certain amount of growth that fits certain retail footprints, but I see broader opportunities than that for us to gain distribution.

That's helpful. And then my follow-up would be just around the gap between sales growth and the scanner growth. I know it was a couple of hundred basis points here in the last quarter. Part of that was some timing stuff from a year ago. But can you expand on the unmeasured channel growth a little bit further? What's driving that? And how durable you think that is as you look over the balance of the year and longer term?

Yes, Peter. We think that the gap between the scanner growth and the reported net sales is about 100 basis points of that was related to last year's soft quarter. The remainder is what we would put under unmeasured. And including that unmeasured is everything from some of the e-commerce pure-play e-commerce guys who may not be fully represented to our DTC business as well as places like Tractor Supply, which are not included in that. that's the composition of it. How much of that is going to be continued as we go on throughout the year. We're very bullish about our e-commerce business. We feel very good about it. We'd expect to see strong performance there. As you heard in our commentary, the business that we've got in the rural lifestyle retailer is doing well and going to be expanded. So that will do well. So we feel good about the unmeasured part, how big it will be in total remains to be seen, but we feel about it in the absolute.

Our next question comes from Rupesh Parikh from Oppenheimer.

So just on advertising. So to the extent that you see upside in the business on the EBITDA side for the balance of the year, would you consider ramping advertising to help sales growth for next year. So just curious how you guys are thinking about potential increases in investments. .

Let me frame it broadly and then Nicki will make some comments. We are always looking at opportunities to invest in the advertising, and there's obviously a lot of complications as we think about both capacity as well as the profitability that we want to deliver and the cash generation. But we feel like we're in a really good spot right now. We feel like we've got a strong balance sheet. We've got a lot of momentum. Our supply network is running really well. So if we see good opportunities to get good returns, we would certainly consider them. We're obviously going to take into account the time of the year and what the competitive environment looks like. but we would not hesitate to make investments that we thought we would get a good return on the investment. I don't know, Nicki, if you want to add anything to that?

Only that we continue to be very pleased with the results that we see from media. It's the main growth driver we have. As we always say, we don't promote price promote our product. So media is the biggest demand generation activity. We've got -- we're very encouraged with how we're starting to work our advertising to continue to focus on broad awareness but also getting increasingly better about targeting those higher-value MVP households. And that's really coming through in the sales growth. It's coming through in the millennial and Gen Z growth that we are seeing. And we will be moving forward with how we measure advertising to make sure we continue to get a very strong return on investment.

Great. And then my follow-up question, just on the FY '27 targets. So as we look at the adjusted EBITDA targets of 20% to 22%, what type of sales growth would you need to achieve the low end of that range?

John, do you want to take that?

Sure. Yes. Thanks, Rupesh. So consistent with what we said before, if we were in the kind of high single-digit type range in terms of sales growth. We think that positions us among some other factors to be in the lower end of that range. And as we got into kind of low to mid-double-digit kind of teens range, that would help position us to get to the high end. But as I outlined in my commentary, there's a number of other factors that we're working on just relying on sales growth to get us as far into that range as possible.

And our next question comes from Tom Palmer from JPMorgan.

Maybe just first to follow up on the gross margin and EBITDA outlook for next year. You took it up by 100 basis points gross margin. How much of that is related to the new lines versus other items? I know they're kind of still ramping as we move into next year and the ultimate impact is kind of 100 basis points. So I'm just trying to figure out like if the 100 is entirely the new lines versus maybe some other considerations.

Yes. Thanks, Tom. It's actually the inverse of that. It's very little of the new technology that is contributing to our updated view on adjusted gross margin for 2027. And look at our performance year-to-date, we've delivered 150 basis points of adjusted gross margin improvement, and that is entirely from our operating performance with limited to no benefit so far from the new technology. So as we get through the rest of the year, we expect about 25 basis points for 2026 and that's the amount that we rolled forward into 2027. But remember, the way we've structured guidance for 2027 at this point is that as a floor for our gross margin next year at greater than 49%. So Continued improvement in our operating performance will tell us how much further above that 49% we can go. And then in addition, when we get to that full realization of that annualized 100 basis points of margin improvement from the new technology that will also help push us even higher above that 49% floor.

Great. Then next, just on the input cost environment, there was a comment in the prepared remarks about addressing higher costs and fuel costs. mainly network efficiencies and product reformulations. I think later in the call, there was reference to potential pricing. I guess how are you thinking about kind of the decision-making process here around pricing? And when does maybe the input cost environment matter enough to really consider that more seriously.

Yes. Let me take a shot at that and John and Nicki might have something to add to it. But I would just start with have to recall that our business model is different than most other CPG companies where we don't do promotion. So as a result, we don't have the ability to move up and down on pricing as readily as others. So when do we make a move to take a higher price it sticks, and it becomes, in essence, permanent. So we want to see that the cost structure has permanently moved upward. As you can all see that oil prices have gone all over the place up and down in the last, call it, 6 months. . And so we want to get a good handle on where our logistics costs are, for example, or other input costs are, for example, before we make a decision that would be fairly permanent. But we are not afraid to take pricing if we think we need to because we believe we have pricing power. We think we're in a position where our products are high-value products that consumers enjoy. And if we need to take pricing because there's broad scale inflation, we would not hesitate to do that. I don't know if you guys want to add anything to that?

No.

No.

Our next question comes from Jon Andersen from William Blair.

I had 2 questions. Allow them both in right now. One is just related to competition. You've talked about some of the main competitors. I'm kind of curious what you're seeing, if anything, new from customers or channels as it relates to some of these offerings like dried air dried products or Kibbles, if that's something you see as viable formats that are also winning share against traditional kill and then the second question I had is there have been quite a few leadership changes at the company for the past couple of years. And I'm just trying to get a sense for where you kind of feel things are in terms of the team and that process and anything we should be kind of thinking about going forward? .

Yes. Let me make a comment on the competition and Nicki might add to it, and then I'll touch on the talent as well. Actually, let me start with the talent. As you can imagine, we're a growing company. So we're constantly adding new talent. One of the benefits of the added scale that we've created that we can get a higher and higher level of XTs and specialization in areas where we may not have had it before. And we've done quite a bit of that, and we'd expect to continue to do that. the skills that are required to run the company of a scale that we are different than the skills that were required to run the company that we were 5 or 10 years ago. And we're taking advantage of the opportunities to add talent where we need to. It's going to be an evolution. You're going to see it. got we're going to continue to add talent as you go, and you should expect to see that. On the competition question, let me frame it and he can talk about -- more about the specifics, but we feel really good about what the results in the market are telling us about the strength of our business. We've seen a wide range of people trying to compete with us with a variety of frozen forms, drive forms. They've tried to do it in different channels like D2C. They're now trying to do it through the vet channel, trying to go through mainstream channels. And despite all those different efforts, we still end up being 1 of the larger players in this space, and we don't think people are able to touch the quality or the cost structure that we've got and leaves us in a very strong position. We think we have preferred products, the ability to produce preferred products. We built an incredibly strong brand around it. We have an omnichannel capability that allows us to reach channels that others cannot reach. so people are much more singularly focused on channels. And our cost structure, we believe, continues to get increasingly more competitive and is in a strong advantage position today. So no matter who all these innovations are, where they're coming from, we feel good about our ability in pet over the long haul. But you should also know, going back to the talent question, we're going to continue to invest in more talent to extend that advantage as much as we possibly can. I don't know, Nicki, do you want to add anything to the competitive environment?

Sure. Thanks, Billy. What I would say, John, is that as we continue to see consumers move away from more traditional food. We continue to see that correlate with less and less distribution and space available in traditional retail -- and we're starting to see that we're really becoming a bit more the beneficiary of that. As you can see from the distribution point gains that we're making and why we strongly believe that our big opportunity is much more around expansion in existing retail formats.

And the next question comes from Eric Serotta from Morgan Stanley.