Once Upon A Farm, PBC (OFRM) Earnings Call Transcript & Summary

Perfect. All right. Good stuff. Welcome back, everybody, and excited for our next session. I'm thrilled to welcome for the first time actually at our conference, Once Upon a Farm, which went public back in February of this year. With us today are Co-Founder and CEO, John Foraker; and CFO, Larry Waldman. Thanks to both of you for joining us. Appreciate it.

Great to be here.

Yes.

Maybe a good place to start. I think there's probably a bunch of folks here that aren't maybe as familiar with the Once Upon a Farm story. I think maybe it might be helpful to kick it off with just a quick intro to the company and anything else you think that's important, just to highlight regarding Once Upon a Farm and sort of the company's strategy and sort of what differentiates it from a lot of the other offerings out there.

Sure. So Once Upon a Farm is building a modern childhood nutrition brand. Baby first foods, up through about age 12. Larry and I and Jen Garner joined this company in late 2017, almost 9 years ago. It was less than $1 million in revenue at that time. It was really an idea to go disrupt fresh baby food. And we guided to well north of $300 million this year. So there's been a lot of growth, and we think the opportunity is there for this to be a $1 billion brand, very clearly with our strategy. And what you should know about our business is we have very high standards. We're certified organic. We're a public benefit corporation. We have really important values and principles that are built into the way that we're running this business and also the kind of products that we're driving and supporting. We have a very strong process in place that we're known for, or our products, particularly our fresh pouches, which are our really first products that we did. They are made with HPP, high pressure instead of heat. So we take these great fruits and vegetables and other ingredients, put them into a pouch and then process them using pressure, and we get a shelf life that lets us go into retail commerce with them and the product tastes like a smoothie you made in your blender 10 minutes ago, 4 months later. So incredible product quality. And we've now built that and are starting to take that brand from baby all the way through kids, older kids. So we have a really strong position in baby aisles. In coolers, it is a big part of our strategy as growing and disrupting the baby aisle with fresh coolers -- and then dry baby snacking. And then we're over in kid dairy with our kids snacking pouches, which is our first product line that's been very successful, continues to grow. And then about every 12 to 18 months, we'll be taking the brand into another part of the store. And the whole idea is really to bring consumers into this brand, baby through kid. They trust the brand. They know the quality of the products and what the brand stands for. As a result, as their kids aged, we're meeting their needs as those kids age and therefore, creating a really high lifetime value of the consumer. And the other thing you should know about all this, the reason it's working so well is we're extremely incremental to every category we go into, 60%, 80% incremental, which drives a lot of growth for us and our retailers were the #1 growth driving brand in our categories for our retail partners, and we have a long future ahead of us that we're excited about.

Great. Thank you for that. You now raised revenue guidance twice this year. Underlying consumption has remained in the sort of low to mid-30% range. And many of the key consumer metrics you've highlighted, including household penetration, repeat rates, buy rates continue to move in the right direction. I guess one of the biggest debates around Once Upon a Farm today is whether the business is still in the sort of early innings of a sort of multiyear growth curve or whether some degree of normalization is inevitable as the company scales. When you think about the next several years, what are the biggest drivers that give you confidence growth can remain elevated even as the revenue base becomes materially larger?

Yes. So we've built a long-term algorithm with a 20% annual growth rate. Early on for the next 3 years, we expect to be higher than that. And then -- but long term, we're looking at 20%. What's going to be driving that is really a few things. First, we're at a 6.2% household penetration. So a lot of the growth is going to be driven by adding households to the brand and driving household penetration. We believe that we can increase our household penetration by 3x, and that's going to drive a significant amount of growth. Next is distribution. We're about a 70% ACV right now. We added almost 100,000 points of distribution in the last quarter. We're going to continue to add the distribution. We're working on a program. We will be adding doors. We will -- adding different channels over the year. But one thing that we're looking to do is really add a number of assortment in each one of our areas of distribution. So we're currently at about a little under 30 SKUs per door that we're in. And we're looking at adding additional distribution in each one of those doors. We -- we have certain doors that are up at 60, certain doors that are up about 100 points of distribution. Every time we add a cooler in, it adds around 50 SKUs into that door. So we're really looking -- we are going to increase distribution, but we're really looking at increasing the assortments in our existing doors and driving distribution there. The third thing is coolers. We're currently at 4,100 coolers at the end of last quarter. We're continuing to drive coolers, which drives assortment in the baby aisle. We'll have approximately 5,000 coolers by the end of this year. We -- in the S-1, we looked at and we said that today, we believe that's 15,000 coolers doors that we could have coolers in. We think that's the floor. We definitely think that we could be a lot higher than that. Our baby snacks are in over 20,000 doors. We believe that any door that has our baby snacks tends to have a cooler into it. So that's a significant amount of growth. And then really just looking at driving the TAM through looking at adding innovation in additional categories and really just building the breadth of the brand over the store and where we're currently in.

Household penetration increased from roughly 5% to over 6% in a relatively short period of time, while repeat rates and buy rates have also continued to improve. Typically, rapid household acquisition comes with some dilution, right, in those other metrics as less loyal users kind of enter the brand. Why do you think Once Upon a Farmer has been able to add households while simultaneously improving the engagement metrics?

Well, the main reason is because we have very high repeat rates. We're over 50% with households with kids, and new families are significantly higher than that and product coming out of the coolers is even higher than that. So we know that when we build awareness for the brand, we get into the consideration set and we get trial, we're going to get very strong repeat. That's been a big part. And then the other thing is we know that when we -- when consumers come in and buy more than one category that we're in, their basket is significantly bigger. We can see that in the retailer card data. It's one of the reasons why we think the strategy of building out these multiple categories and then cross-pollinating the awareness with our consumers of these categories and building it out is going to drive just much bigger outcome over time. And we think there's a significant opportunity to do that. We have -- we finished -- like right now, we've got about 11% unaided awareness. So it's unaided awareness that is almost double what it was a year ago. And unaided awareness and awareness in general is really like an early indicator for household penetration gains. So we feel like we are at the very beginning of continuing to drive that curve into many, many more households. And we think that there's a very good opportunity for us to hold buy rate at a minimum, but hopefully grow it over time as we cross-pollinate.

I think most investors have viewed the cooler opportunity primarily through the lens of cooler count, which is understandable. More recently, though, productivity appears to be emerging as an equally important part of the cooler story. As you look out over the next several years, is the bigger opportunity ultimately adding more coolers, improving productivity within the existing installed base, or really some combination of the two?

It's really both. And we're seeing -- we see significant growth opportunity for coolers just in the retailers we're engaging with, the success they're having. And it doesn't matter the -- there's a lot of difference in productivity retailer to retailer across coolers. But in every one of those situations, retailers are happy with the productivity, and they're seeing growing productivity over time. So there's a compounding effect. Part of it is driven by -- we've been really intentional over the last couple of years, including over the last couple of quarters in bringing incremental innovation into the cooler that's covering off incremental need states for consumers like we brought meat-based products. We've legume protein-type products, Belly Blends, things like that. These are all adding to better and better cooler productivity. And we now have had multiple years of experience with coolers. And one thing is absolutely true. Coolers, as they age, they mature. It takes a couple of quarters for them to come up to a base kind of productivity level, but they continue to grow. And as coolers become more concentrated in a market, consumer awareness increases, the coolers become more productive. So we see significant growth opportunity in both places. And we see a significant growth opportunity out there in coolers right now. If you think about -- we know what the fresh baby business is because we know what SKUs were most -- 99% of it, and we know where most of it is in coolers, and it's about a $50-plus million kind of retail business out there today. If you think of 20,000 -- let's say, 15,000 coolers and average productivity of $20,000, that's a $300 million market opportunity. And we think both those numbers are low. So the potential is really high. And so that's the growth curve we see for coolers. And we just need to stay focused on delivering against that kind of performance.

And as you've spoken about, cooler productivity, right, improves as placements mature, consumer awareness builds, innovation broadens the assortment. For investors trying to understand sort of the long-term economics of the program, I guess, what separates a highly productive cooler from an average one? And how much opportunity remains simply from better execution within the current sort of fleet?

What separates the best-performing coolers are coolers where we've got the right assortment. We've got the exact right assortment, where the retailers' execution into the store, from the backroom into the store and keeping the cooler productive and in stock is really being managed well. And we've had a lot of experience over time. Every retailer is different, and there's a learning curve that they have to go through when they start putting coolers in, because it's typically an aisle where there's no refrigerated products. The products are having to come either out of the dairy backroom or the produce backroom depending on the retailer. And so once that executional stuff is really locked and we support that as we need to with third-party merchandising or whatever just to make sure we're excellent, that's what drives really strong performance. And then it's just awareness that builds over time.

Historically, Once Upon a Farm is largely a refrigerated pouch company. Today, innovation is certainly playing a much larger role in driving distribution gains and household acquisition. How do you think about balancing innovation within existing categories versus entering the entirely new ones? And how do you ensure that the brand has sort of broad enough shoulders to reach into other categories without diluting the brand equity?

Yes. It's a great question. And Larry and I both learned a lot about this, like we were at Annie's for a very long time. And we did a lot of category expansion at Annie's, and some of that turned out to be very successful, but a lot of it didn't. A lot of it didn't work. It was too small or it became geometrically complex in the supply chain. So when we came over here, once we figured out what our core was, which was these core pouches, we really stayed focused on that for 7 years. We built that business to well over 100 before we considered anything expanding outside. So that's the biggest principle is really build the brand and build depth in our supply chain and capabilities and just own that in terms of the brand's perception in the mind of the consumer. And then methodically build out through other categories. So we've been doing that since '24 very successfully. We will -- every 12 to 18 months, we'll go into a new category, which should, by definition, be almost either 100% incremental or virtually 100% incremental in building the brand out with the -- back to the earlier comments I made about extending the lifetime with that consumer from babies first foods up through about age 12. And so we have a new category we'll be entering in 2017 -- I'm sorry, 2027. We're not announcing that category today, but we are very firm on what that is and the timing of it, and we'll be bringing that. And we'll just be very methodical about it. But back to the first part of that question, it is the most important thing we do is continue to innovate in the categories we're already in. Like the biggest mistake we could make would be to get focused on the flashy new thing and not continue to just drive our current categories. And so you see a lot of innovation last year in our existing categories. There's more innovation coming this year in our existing categories, including kid pouch. There's packaging improvements that we're bringing through kid pouch. There's packaging improvements coming in kid pouch. Those are really focused on just driving continued performance of that business and staying ahead of competition is really important to us.

What characteristics need to be present maybe before a category becomes attractive enough for Once Upon a Farm to enter?

It needs to be a category that appeals to the generally same household population that we're in. We like to look at categories that are big, sometimes slow growing, sometimes even like negative growing because the category -- the modern consumers' needs are not being met. There hasn't been a lot of great innovation in the category, sometimes for 15 years. And so we're looking at opportunities to come into those categories, bring something new and fresh, excite consumers, bring a lot of new consumers incrementally into the category, like I mentioned earlier, and then turn it into a growth-driving category again or at least significantly increase the growth rate that's there. And also, we need to make sure that we're confident that we can build a supply chain and a margin structure in that business over time that can really build out our total business.

And one of the more interesting aspects of the story is the ability to, as you said, retain consumers of the age from baby into kid. I guess how much progress have you made in creating a true sort of lifetime value model where a consumer effectively grows with the brand over time?

Yes. It's a work in process. Obviously, we're doing a lot of research and have done a lot of research over time. So I wouldn't say that there's like a mathematical algorithm that's perfect on that because our business is retail, but we do -- we do a lot of consumer research. We've done A&U studies. We have comparative A&U studies from a couple of years ago to now, and we know we can very much see the brands -- the shoulders of the brand widening in terms of age. And also, we can see the participation in the brand increasing very dramatically in the early stages of babies first foods because of what we've been able to do in coolers and fresh baby and also what we've been able to do with our dry baby snacking business. So we're continuing to evolve those metrics in ways that we can talk to retailers about and get them excited about our brand and expanding into other categories.

A recurring theme right, across your discussions with retailers is the degree of incrementality that you bring to both categories and baskets. How do those conversations evolve as you move from being sort of a new brand seeking shelf space to becoming more of a strategic growth partner for retailers?