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

Thank you, and good afternoon everyone — welcome to the Third Quarter 2026 earnings conference call for Once Upon a Farm. With us on the line today are our Chief Executive Officer and Co-Founder, John Foraker, along with President and Chief Financial Officer Larry Waldman. You should all have received the earnings press release that went out earlier this afternoon; it can be found in the Investor Relations area of the company website, www.onceuponafarmorganics.com. A webcast of this call is running as well, and a replay should be ready to access soon after we finish. At the outset, I want to flag that a few remarks during this call contain forward-looking statements — among them, though not exclusively, our anticipated results for 2026 and the framework we've laid out for 2027. Those statements fall under the safe harbor protections of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect what management currently expects and believes about upcoming events, and they carry a number of risks and uncertainties that might lead actual outcomes to diverge materially from what those statements describe. For a thorough look at the dangers that might make real outcomes vary significantly from what any forward-looking remarks today express or suggest, please consult today's press release along with our other SEC filings. Aside from where the law demands it, we assume no duty to revise any forward-looking statements so they capture events or situations arising after this call's date. Some non-GAAP financial measures will be used on this call as we outline how the business performed. Reconciliations linking those non-GAAP financial measures to the closest directly comparable GAAP measures appear in the SEC filings and the earnings press release. I'll now hand the call to John to get us started.

Brian, thank you. Everyone, good afternoon — we appreciate you being here; for Once Upon a Farm, this marks a significant moment. Watching our team over these past 2 weeks honor the commitments that have shaped this company from day 1 has made me incredibly proud — food safety and quality come first, along with supporting the parents and families who put their trust in our brand; when a potential safety concern arose on the Tractor Wheels product lines, we acted decisively, and our teams — collaborating closely with the FDA along with our retail and distribution partners — moved fast to pull products off shelves, provide families with the information they need, and deliver refunds as quickly and simply as we could. Everyone in the company shares the view that this is a chance to speak straight to current and prospective Ofarm customers regarding what our brand stands for, and to lift quality and safety benchmarks for our brand as well as for the categories we play in. Tractor Wheels matter a great deal to us, yet on the question of consumer safety our priorities could not be clearer. My honest belief is that we will come out of this as a stronger business and a stronger brand; on this call, I'll begin with a short recap of our third quarter results and the ongoing momentum we see throughout the business. Next I'll cover Tractor Wheels and what we've been doing since the voluntary recall was announced two weeks ago. Larry will then provide more specifics on Q3, the expected financial hit from the recall, an update to our fiscal '26 guidance, and our initial planning framework for fiscal '27, after which we'll open it up for questions. In the third quarter, net sales rose 34.9% to $89.1 million, driven by 32% volume growth, which matched our internal plan. Channel-wide consumption was up 32% during Q3, in line with year-to-date growth. As anticipated, the gap between shipments and consumption shrank versus last quarter, when favorable cooler slotting gave us a boost. So far this year, Tractor Wheels made up 18% of net sales and contributed meaningfully to growth. Beyond Tractor Wheels, the remainder of our business has likewise grown above our long-term algorithm all year long. Our retail footprint keeps widening, including 1,100 high-quality baby coolers added. Velocities are also running higher, helped by better assortments — line extensions among them — plus new functional benefits and flavors that consumers have received well. The adjusted EBITDA loss came in at $1 million, ahead of plan, even with ongoing investment behind our brand, our people and capabilities, along with an incremental $2.6 million year-over-year investment in coolers, which we expect to deliver strong returns over time. Prior to the Tractor Wheels recall, our trajectory had us delivering growth exceeding the original fiscal '26 guidance issued earlier this year by over 1,000 basis points, and we anticipated reaffirming both the raised fiscal '26 net sales outlook and the adjusted EBITDA guidance provided last quarter, despite widely recognized inflationary pressures on freight, packaging and ingredients. Accounting for the expected Tractor Wheels recall impact, fiscal '26 net sales guidance now stands at $290 million to $300 million, with an adjusted EBITDA loss of $4.5 million to $7 million. Larry will share further details. The consumption patterns we've seen throughout our wider portfolio in the days right after the recall give us encouragement. Early figures from a substantial set of retailers spanning several channels indicate that, apart from Tractor Wheels, our portfolio is running a bit ahead of its usual everyday rate. In our view, this reflects the strength and equity of the Once Upon a Farm brand, built over the last 10 years via steadfast dedication to our mission—pursuing systemic gains in childhood nutrition for a happier, healthier and more equitable world. We'll keep watching these trends very closely. Looking at the larger picture, the marketing we've done, along with a wider distribution footprint, has created more awareness and visibility—which drives trial and adoption, and in turn fuels strong loyalty and higher consumption. Over the last year, unaided brand awareness has better than doubled, and according to our analysis, we're converting that awareness into consideration more quickly than any competitor. Based on Numerator data, household penetration reached 6.5% at the close of September, up from 5.4% the year before—the quickest adoption growth rate among established baby or kid brands; across all of baby and kids, we're now the number three organic brand. At the same time, the rate at which families with children come back to us is holding up well—52.1%, higher than it was twelve months ago—as more frequent trips fuel ongoing growth in buy rate, and newly acquired families are returning at an even stronger pace, above 60%. A major force behind the baby aisle overall is Once Upon a Farm. Based on MULO tracked channels in dry baby snacking, within three years of launching we've ranked as the #2 brand across the board and the #1 organic brand, even though we currently compete in only half of the category's available dollars. Within bars specifically, we've built a 40% share and are generating 100% of the dollar growth in that dry baby snacking subcategory. On top of that, among the best-selling organic products in dry baby snacking, we hold 5 of the top 8 and 13 of the top 25. As a matter of fact, strawberry banana puffs ranks as our number one single item in that category; there is very little cross-shopping between Tractor Wheels and the remainder of our dry baby snacking lineup, which shows how differentiated our offerings are in the market. And during the first few days after Tractor Wheels' voluntary recall, those products have been growing at or above their usual year-over-year pace. Ofarm buyers are seen by retailers as highly desirable given the contribution they deliver across our portfolio. Our acquisition of households is happening much quicker than at any established rival we monitor in infant and toddler, and those families spend three times what the typical shopper does in the category. Looking more widely, the average basket size among our households leads every infant or toddler brand, coming in nearly 40% higher than the #1 legacy brand on the aisle. Our confidence that this growth will endure comes from the fact that the core elements of our business model reinforce one another more and more. As brand recognition grows, it brings in new households; strong consumer loyalty boosts retail velocities; and those velocities create opportunities for broader distribution and innovation. We’re watching this play out live across our business, and it makes us confident that we can continue delivering appealing growth as our scale increases. With that in mind, our 2027 commercial plans outside Tractor Wheels remain on schedule. These plans include continuous assortment enhancements across the portfolio, broader distribution of recent innovation, continued cooler expansion, and launches of new products and categories. Among them, we also have some exciting new partnerships in development and look forward to sharing more information soon. We remain strongly convinced of the opportunity ahead of us, and I want to stress that our long-term strategy and objectives have not changed.

There’s a lot of distribution white space available to us. When you look at the biggest legacy baby and kid brands, we’re currently selling in somewhere between one-half and one-third as many stores. As we broaden our reach, we’ve added roughly 197,000 total distribution points across the portfolio during the past year, and about 43,000 of those came in the third quarter by itself. This isn’t only about reaching new consumers. We’re also making things easier for households we already serve by meeting them where they are, and that is showing up in the buy rate growth I mentioned earlier. Our innovation pipeline remains strong. Our core lineup is being improved with additional functional advantages and taste varieties, while we expand current categories via extensions of existing product lines. To illustrate, the protein and probiotic smoothies introduced not long ago are achieving the strongest velocities for any new pouch item launch since Immunity Blends in 2021. Continuing to build on what we've accomplished with functional pouches, we rolled out our latest blends last month — organic electrolytes that leverage real food to aid hydration and nutrition via ingredients supplying electrolytes naturally, including juicy fruits, veggies, coconut water and sea salt. Coming up in January, our fruit and veggie blends will be repackaged and repositioned as superfood blends. We anticipate that this will create stronger consumer resonance and velocity, much as we achieved successfully quite recently with our dairy-free smoothies line. And lastly, we are extending clean options into additional categories and reaching new consumers. Our next breakthrough innovation is still on schedule to launch in the first half of 2027, and retailer enthusiasm for this next category entry is showing clear signs. We look forward to providing more detail on this innovation once it reaches retail. Now regarding Tractor Wheels, 2 weeks have passed since we announced the voluntary recall. Although a great deal of work remains before the product can return to market, I’d like to update you on our current position and what lies ahead. First, as we said earlier, we moved quickly and voluntarily to start the recall within 24 hours of learning from the FDA about 3 reports of a possible choking hazard—incidents we treat with the utmost seriousness. As for what we are focused on right now, we are examining Tractor Wheels, assessing the information from those consumer reports to determine any potential root cause or contributing factors, and, where appropriate, possible corrective steps to bring the product back to market safely, including reformulating the product and changing its design. We brought in outside specialists in product safety, and they've already started a thorough evaluation. That work should take somewhere between 8 and 10 weeks, we believe. At the same time, we're running consumer research of our own, talking with people who already own Tractor Wheels and with those who haven't bought one yet, so we can get a clear read on how they feel and what they intend to do across a range of factors. Alongside that, we're working with our co-manufacturer so that test runs can begin right away once we're set to go. We're pushing hard to get Tractor Wheels back on shelves, but I want to reassure you that we'll take whatever time is needed to finish the proper assessment, testing, and independent validation. We want to get these much-loved items back to shoppers fast, but safety and quality stay at the top of the list. Getting this right matters to us. Watching our team over the last two weeks has only deepened my belief that Once Upon a Farm can lead in each of our categories; our confidence in the lasting strength of our portfolio and in the big long-term opportunity in front of us is unchanged. Finally, before handing things to Larry, I'd like to call out Scott Morris's recent addition to our Board of Directors. Scott comes with over 30 years of CPG experience and know-how, among it building and scaling a fresh refrigerated food brand during the past 20 years. He’s a Freshpet co-founder who shook up a sizable, slow-moving segment—today that business brings in more than $1 billion in net sales. Scott’s willingness to go against the grain, his dedication to growing brands without losing what makes them distinctive, and his future-oriented outlook are enormously valuable qualities our company will gain from in the years ahead. Scott, welcome. We’re eager to collaborate with you. Larry, over to you.

Thanks, John, and good afternoon to all of you. Net sales for the third quarter rose 34.9% to $89.1 million, up from $66 million in the same period a year earlier. Volume grew roughly 32% and accounted for the bulk of that growth, while favorable mix made up the remainder. Gross margin came in at 36.1%, a drop of 600 basis points versus the prior year but consistent with what we had anticipated. That decrease mainly stemmed from trade investment behind the national club program, product mix, and cooler placement costs tied to more than 550 installations. Pricing and favorable customer mix partly offset those pressures. SG&A rose $8 million to $36.8 million, which reflects continued spending on marketing, people, and public company capabilities. Even with that spending, SG&A as a percentage of net sales fell about 230 basis points to 41.3%, showing the leverage from our revenue growth. Net loss narrowed to $3.8 million from $11.3 million a year earlier, largely because the prior year included a non-cash change in fair value of a derivative liability that is absent this year. Adjusted EBITDA loss was $1 million, versus positive adjusted EBITDA of $0.9 million in the prior year period. That year-over-year swing mainly reflected a lower gross margin, partly offset by SG&A leverage, which was better than we had expected. All things considered, our third-quarter performance beat the plan we had set internally. Since the Tractor Wheels recall started only after the quarter ended, Q3 numbers were unaffected by it. Its anticipated impact is now factored into the revised guidance for Q4 and fiscal 2026 that I'll cover in a moment. Turning to the balance sheet: we feel our financial standing provides the room to maneuver through this stretch. We closed out Q3 holding $106.4 million in cash with zero debt. On top of that, our existing credit facilities give us the ability to borrow up to an additional $95 million, subject to the terms of those facilities. Right now, we expect costs from the Tractor Wheels recall to reach as much as $30 million in fiscal 2026 — that covers customer returns, retailer chargebacks, legal expenses and other recall-related costs, plus costs tied to work in process inventory at our co-manufacturers. We're looking into possible insurance recoveries, though we can't predict yet when they might come or how much they'll be. In Q4, we intend to begin rolling out the supply chain productivity and automation projects we mentioned earlier, and those have nothing to do with Tractor Wheels. The purpose of these initiatives is to add capacity, enhance service quality, and achieve structural reductions in production costs throughout our highest volume platforms. As previously stated, we anticipate initial benefits during fiscal 2027, followed by a more meaningful contribution beginning in fiscal 2028. We intend to finance these initiatives using existing cash while preserving substantial liquidity. In addition, while assessing how the recall has affected us, we are reviewing whether adjustments to the timing or scope of projects tied to Tractor Wheels are necessary, and we will keep you updated regarding any changes to those plans. As John noted, we are revising our fiscal 2026 outlook to account for the impact of the Tractor Wheels recall in Q4. Our current projection is net sales between $290 million and $300 million, along with an adjusted EBITDA loss ranging from $4.5 million to $7 million. That net sales range assumes zero Tractor Wheels sales following the recall date, plus our present estimates for customer returns and chargebacks. We've additionally removed planned Q4 Tractor Wheels shipments that were meant to support new distribution and Q1 2027 promotions. And although early indicators look encouraging, with under 2 weeks having passed since the recall, we think it's wise to presume some pressure on base velocities throughout the remainder of the portfolio. This adjusted EBITDA outlook incorporates those revenue effects and anticipated recall-related costs. We're giving you a first look at how we're planning the business for fiscal 2027. Based on what we assume right now, we'd expect net sales to come in at no less than $330 million, with adjusted EBITDA at or above breakeven. If you compare that with fiscal 2026 on a like-for-like basis and leave Tractor Wheels out, we think net sales growth will beat the long-term algorithm of 20% we've previously stated, with innovation and distribution gains driving that. This framework takes into account a variety of possible outcomes, including when Tractor Wheels might potentially come back and how the recall could affect velocities across the wider portfolio. We’re also taking into account the effect of comparing against sizable increases in awareness and household penetration that followed our IPO, along with two national club programs that are now part of our base, one of which is for Tractor Wheels. We plan to give formal guidance alongside our Q4 results in March, at which point we expect more clarity on when Tractor Wheels may return to market and on the wider implications. Aside from the recall impact, our present market-based assumption points to low single-digit inflation across our core refrigerated pouch platform, with packaging being the biggest variable. We are additionally experiencing pressure on cost and availability for certain organic fruit and vegetable inputs, grain-based and other dry ingredients, and imported agricultural commodities. Beyond that, we anticipate that fuel and other transportation expenses, material contract resets, and regulatory packaging fees will stay elevated. Those assumptions are based on the contracted positions we already hold, current market quotes, and expected contract resets, and how much visibility we have varies depending on the input and the period. When we come out of fiscal 2027, we fully expect total company net sales growth to be at or above our long-term algorithm, assuming Tractor Wheels is back on the shelves. We also fully expect margins to stay on the trajectory we outlined at our IPO, as recall-related impacts moderate and the benefits of scale, trade, productivity, and supply chain efficiencies come through. Our commitment to funding consumer safety, service, and the capabilities that let us serve additional families remains, even as we keep expenses under strict control; that wraps up our prepared remarks. Operator, kindly begin the question-and-answer portion of the call.

One of the main pillars of your growth story has been expanding household penetration. So could you discuss how you're thinking about keeping customers through the recall? And then how you're thinking about winning them back once this period is over, given you have to go through reformulation and an uncertain timeline?

Yes, absolutely. At the close of the quarter, our household penetration stood at 6.5%. Over time we've grown our households by getting the brand message out, expanding distribution, and putting these great products into many millions of homes; we'd expect to keep growing household penetration the same way. We'll be introducing new innovation into new categories, as we've mentioned previously, every 12 to 18 months, the first of those major new innovation platforms. This year we didn't have one; it arrives in the first half of '27. So that's what we'll be doing; and what I can tell you, Leah, is that we've spoken with thousands and thousands of consumers over the past couple of weeks as part of the recall; we've talked with all of our customers, obviously, many times and worked diligently alongside them through carrying out the recall. Talking with them about where the brand stands; and I'll make 2 points. First, on the retailer side, retailers have been extraordinarily supportive and believe we did the right thing for consumers. They respect that, and they're ready to do business with us and want us to keep growing, including no change to any of the plans they have on existing products that we're bringing to market. We're bringing some new dry baby items and new subcategories into market in the first quarter, for example. So they're just — they're ready to move forward with us and let's go. And then on overall consumer sentiment, obviously, some consumers are calling in and they're concerned about what they've heard. The overall sentiment we're getting from consumers is that they really appreciate what we did. They recognized it was a significant move and that we were doing it because we're prioritizing their safety and their children's safety; and this generated a lot of love for the brand, including a lot of comments from consumers about wanting the Tractor Wheels platform to come back as soon as possible; so obviously, we'll monitor sentiment very closely. And we think that over time, we'll win back many of those consumers who would have been impacted by this recall. And we just have to keep doing what we've always been doing, which is bringing great quality products and making their lives easier by doing that. So that's our approach. As I said in the prepared remarks, we've seen no negative impact on the rest of our portfolio in the couple of weeks after the recall versus the couple of weeks — days before the recall, which is very encouraging on everything outside of Tractor Wheels. So I'd say our position is strong. At this point it's simply a matter of getting it done, correct? We need to deliver results while also ensuring those products return in the proper manner. After that, we simply have to continue engaging consumers on the topic. And we'll be raising the profile of our messaging regarding what we're doing and how we're working to lift the whole category when it comes to safety too, and that will factor in.

That's really helpful context. You mentioned the retailer relationship aspect, and I'd like to explore it a bit further. A portion of the growth narrative beyond Tractor Wheels involves, first, the cooler expansion into baby pouches, and second, SKU expansion across broader snacking. So what visibility do you have right now regarding continued growth for those 2 products? What are you expecting going into spring resets? Where do you actually have firm commitments? And just help us understand that growth trajectory as we look ahead to '27?

Yes. On the baby cooler side, we anticipate continued very strong growth across our cooler assortment, along with placements, over the coming year. We aren't providing specific guidance on that today, but I can say the momentum we have with retailers on coolers remains very strong and hasn't been affected by any of this recall noise. So we expect that it will keep growing. The coolers are performing really well. They're highly incremental. Repeat rates coming out of the coolers are very high. That story remains entirely unchanged. So we'll keep doing that. And then, as I mentioned, we have new innovation coming in dry baby snacking. We have changes — positive changes we made in packaging and other things coming. We've got some new relationships that we'll be announcing soon. There's simply a great deal of momentum on the TDP side of the business, and our visibility into next year is quite solid. It's basically mid-November at this point, and we already know how the first-quarter resets will look — those are locked down, and even into the second quarter. So visibility is pretty strong. And when we report Q4 earnings, which will land sometime in March, we'll of course provide more specific full-year guidance, but you should expect that we'll be signaling really strong growth in both of those areas based on what we know right now.

You mentioned this briefly, but I'd like it stated plainly. Has anything from the past couple of weeks altered your 2027 commercial or operational plans in any respect — whether in commercial, innovation, distribution expansion, or elsewhere? And on operations, what about some of the items Larry brought up — the productivity initiatives and supply chain upgrades intended to produce margin expansion in '27 and even more in '28?

Correct. The Tractor Wheels platform has clearly been impacted; however, the response we've gotten from every one of our retailers — and we made this recall announcement on a Friday night, and by 6:00 a.m. By the next morning, I was on the phone, and so was our sales team, reaching out to retailers nationwide. I personally talked with the majority of our biggest retail partners. After we sorted out the specifics of coordinating the recall, they made clear they back the brand, the business, and our efforts; as a result, nothing has shifted, consistent with what we stated in the script about our '27 commercial plans. Plus, we have fresh innovation on the way. We have considerable distribution expansion ahead. Aside from Tractor Wheels, our core dry baby products keep performing strongly; we see distribution opportunities in that area too. So we're in a good place. Larry noted during the prepared remarks that, clearly, when it comes to the capital projects tied to machinery and the investments involving Tractor Wheels, we need to revisit their timing, their scale, and all related aspects, and we will share an update once we've settled on a conclusion. That decision will be closely linked to whatever we finally determine regarding bringing Tractor Wheels back to market. Our retailers are asking us to do that. The overwhelming majority of consumers we speak with are asking us to do that. We'll go about it properly. Clearly, we'll move forward once we feel confident that every safety concern has been resolved in the way we outlined during our prepared remarks. That covers it—there’s still considerably more to figure out on that front in the coming weeks and months, and once we have additional details, we’ll return to bring everyone up to date.

That helps. It was good to hear that outside of Tractor Wheels, consumption figures up to now have remained solid throughout the portfolio; however, I believe you said you assumed or thought it wise to factor in some broader impact, or a halo effect, on the base business and velocities. How do those 2 things fit together? And if you do consider it wise to factor in a slight slowdown in the base for a while, how much should we weigh that when we look to update our view of 2027?

Okay. Yes. Both of those things hold true; we felt it wise to assume some impact there. What we're saying at the same time is that, based on a couple of weeks of data, we don't see it. But we're still early in this, and we want to be sure we're guiding appropriately for the remainder of this quarter. There's going to be plenty of noise in the fourth quarter. We want to be sure we're setting expectations the right way; but right now we don't see any negative impact on the rest of the portfolio. And in fact, year over year, there's been some acceleration in it following the recall—more about comping better against last year than an acceleration in the business—but the business is flat to up a couple of weeks before versus a couple of weeks after; so all that looks good, but it's early. So we just want to be pragmatic about it.

Luke Notaro here, sitting in for Rupesh. We wanted to ask whether you can give us an update on the competitive front — what are you seeing there? Any notable shifts, particularly after the Tractor Wheels recall?

Yes. Since that Tractor Wheels recall, we haven't seen any notable shifts. That covers the past couple of weeks. Nothing significant has changed in the competitive situation overall. Over the last year we've been competing broadly against plenty of other brands that have tried to enter our spaces or that were already in them, and our performance is really strong, including against private label; so our brand is very strong. Our velocities are high. Wherever we face additional competition, whether in a cooler, in a dairy set, or in the dry baby snacking aisle, we expect to stay in the top third of velocities and to perform exceptionally well. So there's no real change to report there.

I was hoping you could give a bit more detail on the fourth quarter components that are hurting sales, Larry. So, for instance, what portion of this comes from the recall cost? And what portion of it — of the call down is, say, the base velocity assumption coming in weaker?

The bulk of the impact stems from the recall, whether through customer turns, anticipated chargebacks, or pulling Tractor Wheel, the rest of the quarter's Tractor Wheels sales, out of the Q4 forecast. We did bring some velocity down. It was more about holding it flat, to kind of offset a portion of the growth we had built into the fourth quarter. But most of it was strictly related to the recall.

Yes, significant majority of it is what I would emphasize.

Okay. But since it accounts for 18% of your sales, does that cost come on top—just to carry out the recall? Something like another 5% or 10%? Or can you isolate what it costs just to do this?

Well, really the cost is writing off inventory at all our retailers holding the Tractor Wheels. More than 20,000 doors sell Tractor Wheels. So taking all of that off the shelf and disposing of the product makes up most of the cost hitting net sales. Also, as I said, we don't expect to be back in the market until sometime in '27. So all the sales built into the forecast—in fact, we had purchase orders in Q4 for Tractor Wheels shipments, and those were taken out too. So think about the 20,000 doors where we retail it and how much product is coming back. We also have customer refunds for customers who have product in their pantries. And so—but that's a fairly small amount next to the inventory write-off.

All right, one more question. About that shelf space you lost — suppose we wanted to begin figuring out how to model getting it back at some point. Do you have — is regaining that shelf space difficult? Would you need to pay slotting fees to win it back? What's the process going to look like?