Freshpet, Inc. (FRPT) Q1 2018 Earnings Report, Transcript and Summary

Greetings, and welcome to the Freshpet, Inc. First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Katie Turner with ICR. Please go ahead.

Thank you. Good afternoon, and welcome to Freshpet’s first quarter 2018 earnings conference call and webcast. On the call today are Billy Cyr, Chief Executive Officer; and Dick Kassar, Chief Financial Officer. Scott Morris, Chief Operating Officer, will also be available for Q&A. Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management’s current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to the company’s quarterly report on Form 10-K filed with the Securities and Exchange Commission, and the company’s press release issued today for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Finally, please note, that on today’s call, management will refer to 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 a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. Now I would like to turn the call over to Billy Cyr, Chief Executive Officer.

Thank you, Katie, and good afternoon, everyone. To begin, I will provide an overview of our financial highlights and recent business performance. And then Dick will provide greater detail on our financial results. Finally, Dick, Scott and I will be available to answer your questions. We’re very pleased with our start to the second year of our Feed the Growth Plan. Recall, our Feed the Growth Plan is designed to accelerate Freshpet’s rate of growth, enabling us to fulfill our mission of providing more pets with fresh all natural foods that enrich their lives and their relationships with their pet parents. We’re committed to doing so in ways that are good for our pets, for people and for our planet. In the pursuit of that mission, we expect to deliver significant value to shareholders. We will accomplish this by creating a virtuous cycle, where increased investment in advertising drives increasing scale that we can use to drive greater distribution, increased manufacturing utilization and efficiency, and better leverage our organizational capacity. This will produce increased financial returns that we can use to drive further growth and long-term profitability, and enable us to serve more pets. Our financial goal is to deliver $300 million in revenue as soon as 2020 with a 20-plus-percent adjusted EBITDA margin. In 2017, we succeeded in accelerating the company’s rate of growth to 17.5% and our core fresh business grew 20%. While that certainly is robust growth for CPG company today, our goals for 2018 represent a continued acceleration in our rate of growth. We remain committed to delivering 21% growth this year with 23% growth on our core fresh business. Our first quarter results confirm that we are on track to deliver our net sales outlook for 2018. Our increased investment in advertising, in conjunction with consistent distribution improvements and focused product innovation, has enabled us to cycle last year’s strong growth and deliver an acceleration in the growth rate. In Q1, we delivered 28% year-on-year net sales growth with even stronger 31% growth on our core fresh products. As a reminder, last year’s Q1 net sales result were negatively impacted by our efforts to reduce trade inventory in that quarter by approximately $1.6 million. Additionally, last year’s results were helped by $900,000 of net sales from our now discontinued baked product. When you exclude the impact of those two items, we delivered growth of 25% in the quarter, slightly ahead of the 23% core fresh growth rate we expect for the year. The 25% growth rate is also consistent with the consumption data for the first quarter with Nielsen Mega Channel revenue growth of 25%. This growth was broad based. Grocery consumption was up more than 31% and big-box pet specialty consumption was up 15%. Mass consumption was up more than 20%. All of our key product forms Rolls, Roasted Meals and Fresh From the Kitchen, grew at greater than double-digit rates. Further, velocity gains accounted for over 70% of our revenue growth. And even in the face of significant store closures, we grew distribution across the Nielsen Mega Channel by 2.9 points of ACV or about 7%, with a total of 273 net new stores. We also upgraded 495 from smaller to larger fridges in the quarter. We clearly have momentum on the top line. While advertising is the primary driver of that growth, we are also benefiting from continued improvements in retail availability, smart and focused product innovation and outstanding customer and consumer service. We believe those are strong and sustainable capabilities that will enable us to deliver our near-term and long-term growth goals. Adjusted EBITDA in the quarter was $1.8 million, basically flat versus the previous year. I view that as an encouraging result, because we invested $2 million more in Q1 advertising than we did in the prior year period, and we won’t get a return for that until later this year. So delivering flat EBITDA, with such a significant increase in media spend to drive growth with a good outcome and is consistent with our financial plan for the year. Adjusted gross margin in the quarter was 50.1%, which reflects some healthy improvements in throughput and yield that will position us for stronger results as the year unfolds. Like many other food companies, we experienced some commodity and freight inflation along with higher cost inventory we carried into the year from fiscal year 2017 that impacted our results from the quarter. They don’t however diminish our confidence in our long-term ability to deliver the gross margin progress we committed to deliver by 2020. Finally, consistent with our long-term plan to grow into our organizational structure, we improved G&A in Q1 by 130 basis points versus the year ago. In closing, I believe our first quarter results validate that our Feed the Growth Plan is working in its second year and can cycle the strong growth we generated last year. Our founders built an incredibly robust business model that is unique in both its strategic merit and the consumer benefit it delivers. The results we’re seeing increase our confidence that Freshpet has the ability to become a very sizable brand in the attractive pet food industry, and fulfill its mission of delivering fresh all-natural foods to pets that enrich their lives and strengthen their relationship with their pet parents, and doing that in ways that are good for pets, people and the planet. I’ll now turn it over to Dick to discuss our results in more detail.

Thank you, Billy, and good afternoon, everyone. As Billy indicated, net sales in the quarter were $43.2 million, up 28% versus year-ago period. I would like to remind you that we adopted new revenue recognition standards this year so the net sales in the prior year quarter one were $33.7 million under the new standards. Also as Billy indicated, our quarter one results were helped by the trade inventory adjustment we made in the year-ago period, and hurt by the discontinuation of baked business this year. Adjusted for those factors, our core fresh growth was 25% in quarter one in line with the consumption growth of 25%. This strong performance gives us confidence that we will achieve our net sales guidance of greater than $185 million through the year. We expect consumption trends across all plant of trade to remain strong throughout the balance of the year and to benefit from the increased penetration that our advertising investment is delivering. There could be modest variations in the year-on-year quarterly comparison for net sales due to the timing of new product shipments, new fridge placements and typical trade inventory variations. But the overall shipment trend should near the strong consumption trends over time. Adjusted gross profit for the quarter was 50.1%, down a 110 basis points from the year-ago period. There are several factors that influence this performance, including 170 basis points in commodity inflation and in-bound freight costs, higher cost finished good inventory at the end of quarter four costing us 110 basis points, and the early addition of new staffing to support our seven-day production expansion, costing us 65 basis points. This was partially offset by very strong results on throughput and yield. We believe that the 175 basis points of the cost headwinds we experienced in quarter one are short-term in nature. Further as our revenues continue to grow, we’ll get additional adjusted gross margin improvement. Looking forward we are now well on our plan to increase staffing to support seven-day production. We’ll absorb the higher cost of the full staffing through a significant part of quarter two with relatively little volume against it. We expect the maximum impact of this step-up in labor will be about 40 basis points for the year with the biggest impact in quarter two. As the balance of the year unfolds, we expect that some of the increased cost will be absorbed by higher volume. Adjusted SG&A in the quarter was $22.4 million, or 51.8% of net sales, an improvement of 60 basis points versus the year-ago period. That includes a $2.5 million increase in selling and marketing expense in the quarter. As Billy indicated, our media spending accounted for the bulk of that increase. As a result, we grew into our organization structure with 130 basis point improvement in G&A versus a year-ago. Adjusted EBITDA in the quarter was $1.8 million, down $100,000 from the year-ago period. As we’ve done in the past, our EBITDA for the year-over-year will be weighted towards the back half due to our significantly heavier media spending in the first half of the year, and the resulting net sales we expect to accelerate in the second half of the year. We are reiterating our guidance of greater than $20 million of adjusted EBITDA for the year as we expect to see continued strength in net sales, less impact from media spending particularly the back of the year, and improved gross margin, more effective capacity utilization and continuing improvements in yield and throughout We drew $6 million in cash from our revolver in the quarter to fund higher media spending in our annual employee incentive payout. We ended the quarter with $3 million in cash. We continue to expect to produce positive annual cash flow from operations, and end the year debt free, excluding the impact of any capacity expansion efforts we might undertake later in the year. To reiterate, we believe we are off to a very good start for the year and remained very comfortable with the guidance we provided early in the year. We also have confidence in our ability to deliver our long-term financial goals. That concludes our overview. We’ll be now glad to take your questions. Operator?

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Brian Holland with Consumer Edge Research. Please proceed with your question.

Thanks. Good evening, gentlemen.

Hello, there.

So first question, just want to try to unpack relative to consensus, the EBITDA mix. It’s my practice – it’s my experience that in oftentimes company gives the annualized guidance, sometimes it could be more of a cadence issue especially early in the year rather than product of any internal disappointment. So I just want to make you to look at consensus and you look at internally your own plan, just to confirm sort of how EBITDA came in relative to your own expectations for Q1. And if there were any – if there was any variation from plan, maybe where that was and why you would expect to still stay on pace over the course of the year?

Brian, as we’ve said, we reiterated our guidance on the EBITDA, so we feel very comfortable with where we are. There’s always going to be some variability quarter-to-quarter in the way things flow through, but we’re comfortable with it. We didn’t give the guidance we thought where the consensus was on the EBITDA. If you think about it, our focus has been on trying to get the top line growth accelerated. We did spend early in the year as we’ve said in the call, the early in the year spending, I don’t know how you or others might have factored that in, but that was definitely designed to get the revenue number up as early in the year as we could and as fast as we could, and that may have also factored into how people thought about it.

Okay, thanks. Fair enough. And so speaking about the accelerated top line, two questions; one, as we look at the scanner, two things stand out to me, one, you’re accelerating your growth here through April, which my view is one month, but you’re doing that against generally tougher comps. I understand some of the headwinds that you talked about. But as we think about greater than $185 million it mean a lot of things, it can mean a lot higher than $185 million or $186 million. But as we look at that Q2 performance, or the early Q2 scanner reads, how is that coming in relative to your expectations? And then secondly, as much as I don’t like to focus on the store count, I have noticed that that’s accelerated in the scanner data last couple of months. So just curious, if that’s generally reflecting what you’re seeing and maybe what the composition of that accelerated store growth is. I know there’s been some sensitivity around the impact of potential retailer bankruptcies in the Southeast.

So start with the revenue side of that of the equation. So as we told folks that we all knew that the first quarter would have a high headline number, the 28% revenue growth because of the actions that we took last year to smooth out the supply chain. We had a counterbalancing offset from the discontinuation of baked. So when we netted it out at 25% growth on the core fresh business, recall that we told folks that we would average 23% on the fresh business for this year. So you can say that we came in ahead of where we expect to average for the year, and we expect to kind of, build momentum and as we go through the year. When we set out for guidance for the year and sort of gave you sort of the broad conceptual commentary on how it might flow, we did tell you the second quarter was going to be the toughest quarter for year-on-year comparison, since for a variety of reasons, part of it was that’s when we saw sort of the impact of the – jumpstart of the advertising last year, kind of, playing through in Q2. Also there are some calendarization differences, Easter fell in Q2 last year, Fourth of July was butted up against the back end of Q2 last year. So it changed some of the trade patterns or how they might have ordered their inventory a little bit. So that’s why we were conscious on that. But we look at the scanner data like you are, we’re very encouraged by what we’ve seen going through April. The rate is continuing to accelerate and from a very healthy place in the first quarter, so it leaves us very optimistic about where we’ll end up for the year. On the – well, the second part of your question was about store count. So there is a seasonality to store count. Customers tend to do a lot of resets late in their first quarter or beginning in their second quarter. So what you’ll see is a ramp-up in the number of stores get added in relatively narrow window of time around the end of Q1, beginning of Q2. But you also see what happens at the beginning of the Q1 is if a retailer is going to go out of business or somebody’s going to close the store, they tend to close them in the first quarter of the year, after they have had the benefit of the holiday sales before they get too far into their slower part of the year. So you have a fairly high number of store closings, offset by a – some category resets that you see. I think the real interesting and headline number that was in our commentary about stores is that we did 495 upgrades in the quarter, which we’re pretty bullish on the potential impact that those will have. So they don’t show up as a new store, they certainly show up on the impact of a store. And the other piece is, I’d comment that, if you look at our long-term look at what our store growth – our ACV growth has been over time, we grew 7% ACV in the quarter. We’ve been doing that pretty consistently for quite some time now. And that’s a really good measure of the net of the closure of small stores and the addition of some bigger stores or more productive stores. Does that help?

Thanks, I appreciate the color. Yes, that’s perfect. Thank you, Billy. Last one for me, and I’ll turn it over. Just household penetration, just curious what you guys are seeing on that end, coming out of Q1 here with the ramp in marketing spend. Just any color you’ve could provide around that, and I’ll turn it over. Thank you.

Yes. Well, we’re going to report a houseful penetration number on a quarterly basis, we may do that at the end of the year. What we can say is that the advertising is clearly having a very positive impact on driving the penetration up. We saw that when the advertising went on in the air, again, at the beginning of the quarter we saw fairly quick step up in the household penetration line moved up quite a bit. I’ve seen it in your numbers that are reported and it’s certainly showing up in the numbers that we reported.

Thanks, appreciate it. Best of luck.

Yes.

Thank you. Our next question comes from the line of Rupesh Parikh with Oppenheimer. Please proceed with your question.

Good afternoon. Thanks for taking my question. Two questions on the gross margin line. First, I want to understand your commentary that commodity freight costs are more short-term in nature. Just want to get a sense of how you guys are thinking about those headwinds for the balance of the year. And then just related to gross margin overall, just wanted to understand whether you guys have any changes in your view right now versus what you gave in March. Thank you.

Let me – Rupesh, first of all, we didn’t call the commodities short-term in nature. What we said is of the sum total of cost increases that we saw in Q1, of which, one of them was commodities. We said that the meaningful portion would be short-term. And there, we were talking about the inventory carryover from the end of the fourth quarter of last year as well as the staffing that we put in place to get to a second shift. Those are the things that are sort of short-term. We think the model changes are – that’ll obviously, shift over time and what we think it will be here for the bulk of the year so we are going to factor those into our thinking. I know if you have any comments – Dick, you have any more comments regarding that?

No, that’s exactly correct.

Yes.

Okay, great. And then on your gross margin, are there any changes versus what your peers were in March, or is that fairly consistent? How are you thinking about it for balance of the year?

Yes, we’re fairly consistent. We have scale coming, as our velocity continues to grow, and we’ll enjoy the benefits of that scale. The one issue is, we say we’re going to have basically – and we’ve said it at the beginning of the year about 40 basis point hit for the year on going through a seven-day production, which we’re now planning to commence in late July.

Okay, great. Thank you.

Our next question comes from the line of Bill Chappell with SunTrust Robinson Humphrey. Please proceed with your question.

This is actually Stephanie on for Bill. My first question just has to do with how the marketing and media spending looks in 2Q of this year versus 2Q 2017, kind of, anything we should be aware of there? And then second would just be, kind of, further thoughts or an update on your potential second plant that you may consider. So just any update there would be helpful. Thanks.

Let me start with, we told you at the beginning of the year that our advertising would be like it was last year, skewed towards the front half of the year versus the back of the year, but we would have meaningful additions in the back half of the year this year. At the time, I think, we said we’d be skewed about 60-40, we think it’s more like 70-30 this year. We did some testing in January, saw some pretty positive returns from the media plans that we’re using, and so you’ll see a little bit more skew towards the front half of the year. But remember, that get us the trial or gets us that household penetration. We start seeing the benefit or the payback from that coming later. But you will see heavier media spend in the first half than what you may have originally expected. In terms of the plant expansion, we’re clearly on track with the volume growth that we had anticipated when we laid out our need for having new plant capacity coming online sometime in 2020. We’re doing an awful lot of work to figure out how big a plant we need and where that plant will go, and we are making a lot of progress on it. But we’re not at this point ready to announce anything. We do want to see the volume continue to grow but if we stay at the pace we are growing, we have to make a decision on that sometime in the second half of this year.

Great, really helpful. Thanks so much.

Our next question comes from the line of Peter Benedict with Robert W. Baird. Please proceed with your question.

Hey, guys. Just circling back to that gross margin question. Do you think that, kind of, you mentioned that the staffing pressures, I guess, would be the largest in the second quarter. Should we expect that, that adjusted gross margin in 2Q to step down from the 51.1% that you saw in the first quarter and then start to pick back up in the back half of the year? Is that the type of cadence we should think about?

No. We will pick up that, we – as we mentioned in the script, the 110 basis points from our December production. What happened in December is we are producing and then all of a sudden retailers and trade inventories was reduced. So we slowed our production in December, which caused us carryover into January, which impacted our January gross margin, which affected the entire quarter. And that hit was 110 basis points. So we should get that back. And then the 40 basis points, not all [indiscernible] this quarter but a good piece of it will hit the second quarter. So we should be higher in the second quarter on a gross margin basis – adjusted gross margin basis.

Okay, that’s helpful. And just on the pricing environment, can you talk about your ability to pass on commodity and freight costs? How are you kind of going with those initiations or what was, kind of – what were you planning for the year, I guess, on those items? And it sounds like those are coming a little higher than you expected, but just talk about maybe the receptivity of your retail partners to passing these through?

At this point, the amount of the commodity increases is not sufficient to warrant us going out in to the market and try to take price increases. We’ll obviously be very watchful of what the broader market does and whether it becomes necessary. But at this point, while there is an impact, it is something that we have to offset. We don’t think it big enough to justify going to our customers at this point and raising prices. We also like the consumer proposition the sizing, pricing dynamics that we have, it’s working, it’s driving the growth that we’ve got, and so we prefer to keep the status quo for as long as we could. So we’re going to stay right where we are at this point, however, if commodities do go up a lot and freight goes up a lot more, we certainly would be open to that possibility.

Thank you, Billy. And then my last question is just on the step-up in media spend, you said it was $2 million higher in the first quarter this year versus last year. Should we think about a similar magnitude in step-up in 2Q year-over-year or do those increases – does that – should we think of something higher than $2 million year-over-year? Thank you.

Yes. So think about it this way is that, we told you last year, we spent $13.5 million. We spent something in the low 20s kind of numbers what we’ve kind of guided to. If you split that evenly across the year that would be – you’d a little bit higher, you’d be about $2 million higher in each of the quarters. I’m not saying that’s what we are going to do, but I’d say, things in that kind of ballpark. I will say that last year the media plan was very robust in the first quarter, it was less robust in the second quarter, we had little bit of room to increase there.

Okay. That’s great, thank you very much.

Our next question comes from the line of Jon Andersen with William Blair. Please proceed with your question.

Hey, good afternoon, everybody.

Good afternoon, Jon.

Just wanted to ask, first of all, on the stores that you’ve upgraded, I think 495. Can you talk a little bit about what changes were made to those locations or those fridges? Is there any, initial kind of, postmortem on what you’ve seen from those upgrades? And what are your plans on a full year basis for, kind of, the overall plans for upgrading fridges across the network?

So typically, most of the upgrades that we’ve done so far have included the ability to, kind of, go from, call it, a mid or chest-high cooler to a full-high cooler. So we’re just increasing the size of the cooler, which enable us to have much better merchandising presence in addition to adding a handful of SKUs into the mix that help broaden this portfolio and generate incremental sales by that cooler. So we are seeing a significant increase in growth rate typically in the range that these chillers are accelerating an additional almost 20 points of growth when we’re putting those in, and that’s how we get the payback, which is what we talked about earlier in the year, but that’s how we are getting the payback and the return on that capital investment on those fridges. So it’s still really early. The results are in line with what we planned and budgeted. If you start doing the math around, you can see that it’s a really nice and very positive contribution to the growth, but it’s really very small at this point because it’s only a small number of coolers. But it’s a program that we are putting in place, continue to evaluate and continuing to look at how we leverage and set ourselves up for – over the long term to have a better presence of retail.

How many locations could you do if you were to move – if this approach were to be rolled out more broadly? I mean, what’s the addressable location count over and above the 495 that you’ve done? And are you doing this today with one specific customer or is this happening across multiple customers?

We’re doing with a handful of what I would call preferred customers for the most part. The addressable total market is around 9,000, I would, say, of our current coolers, maybe a little bit less but that’s something that’s way off in the distance at this point. Something that, every year, we’ll continue – every year and every quarter, we’ll continue to review what the opportunity is, what the payback is, and then we’ll, kind of, determine how quickly we go forward with that program.

Okay. And then shifting gears to ACV. You mentioned that ACV is up about 7% in the quarter and that’s been pretty consistent with what you’ve seen historically. Where are you in terms of an overall level of ACV in the market today? And where do you think you’re headed during the course of, kind of, the 2020 Feed the Growth strategy timeline?

We’re right at about 50% ACV of measured Nielsen. And I think that our overall store growth will probably be in the neighborhood of what we’ve done over the past two to three years in total stores. From an ACV standpoint, I would anticipate we’ll continue to see 5%, 6% and 7% growth rates throughout each quarter versus prior year.

Great. Last one – go ahead.

No, no, so I – still I don’t – I’m not – I don’t want to give out a specific ACV number on that but I think our growth rate from an ACV standpoint will be consistent with in the 6% to 7% growth range.

Okay. And so when you think about the – I mean the tremendous acceleration you’ve seen in the velocity of your products in your coolers, there’s obviously the step-up in marketing spending that’s been a big factor in driving that building household awareness, promoting trial, driving the buy rate per household. Are there other things that you’re doing, and I’m thinking about, like merchandising in the store, keeping the shelves well merchandised that are contributing to that as well and how far along are you on some of those initiatives, and where would you like to see, kind of, other improvements that can come in and continue to drive the momentum that you’ve had. Thanks.

Jon, we’re doing everything. In all seriousness, we are – obviously, the advertising and the messaging and driving awareness and then also buying rate – penetration and buying rate are absolutely core, but there’s a lot of aspects that we can do to help contribute to the growth of business. One of the areas that’s done really well is we’ve done some like really nice closer-in innovation, which has really been a great contributor to the velocity increases. We’re really taking a hard look at what we can do from a merchandising aspect. The fridge pieces is a – the fridge upgrades that we were talking about a moment to ago is a component of that, but we’re also making sure that in a lot of cases, we’re doing a much better job having our overall presentation look better at retail and assisting retailers and making sure that things are not only stopped to clean and well rotated. And that’s another program that we’re really trying to be very well educated around and smart around how we invest in that to make sure that we’re getting the best returns out of it. But really across every single medium we’re taking a hard look. I would say, those are the two biggest highlights where it’s – the kind of the innovation piece that we’ve layered in, in addition to the retail conditions. I won’t say that we’ve had – on the retail conditions, I think we’re making good slow steady progress. But we have plenty of opportunity there from an upside standpoint. Even simple things around supply chain and the work that we’re doing there help us to be better at retail and make – have a better presentation from a consumer standpoint in addition to the extra hands that were putting in at retail.

Thanks for all the color. Good luck.

Thanks.

Thanks.

[Operator Instructions] Our next question comes from the line of Robert Moskow with Credit Suisse. Please proceed with your question.

Hi, everyone. This is Neel Kulkarni on Robert Moskow’s line. So just a quick question around the recent M&A activity in the space. Has it changed your outlook at all and do you see any risks, perhaps from peers expanded distribution, now that they’ve been – maybe acquired and are you factoring any of that into your plans or has anything changed? Thanks,

So obviously, we obviously pay attention to what’s happened on the M&A front in the new owners. I think the Blue Buffalo deal just closed a little bit ago and the Smucker’s deal hasn’t yet closed. But we certainly would expect each of those new owners to invest in those businesses quite a bit, but I would point out that one of the things that we spend a lot of time talking with our investors that, at the end of last year and early in this year, was what impact would it have when those significant brands so move up or low or neutral, moving from pet specialty over into the grocery channel and that consensus was and our feeling was, that the – they would not have a material impact on our growth rate. I think the results that we’ve seen so far this year confirm that to be the case, that despite the competitive activity on behalf of those brands, that what we’re seeing is our brands are growing and the growth is accelerating on top of very strong growth from last year, and we believe that to be the case. We always expected the category will be competitive, that the competitors we have will do everything they can to be successful with the assets that they have acquired, and there might be a little bit different approach than what they’ve done before, but we feel very comfortable with the strategic distinctivity of our offerings. How preferred we believe our consumer offerings are, and we feel comfortable playing that hand. We feel like we’ve got a very strong very distinctive hand that we can play, no matter who the owners of those competitive brands are.

Got it. Thanks for the detail.

Yes.

Our next question comes from the line of Mark Astrachan with Stifel. Please proceed with your question.

Yes, thanks, and afternoon, everyone. I guess, I wanted to just –

Hey, Mark.

Hey, guys. Wanted to just clarify, you said 273 new fridges, that was sequentially, year-on-year?

Yes. 273 – no, versus the end of Q4.

Q4? Got it, okay.

So 273 versus the end of Q4.

Got it. Just wanted to make sure that. And you also said that your expectations for the year would be that you have new fridges increasing at the rate of previous years, is that correct as well?

Yes, similar. We didn’t set any guidance. But we said, yes, it would be similar along those lines, and remember, that’s net new stores that we talked about when we’re – that’s the way we think about it.

Yes, just clarifying that. And I guess, related to that, it’s been another quarter now obviously, the retail dynamics continue to shift. So any learnings you had just in terms of how you’re thinking about dealing with certain retailers, dealing with certain geographies and placements of fridges and then learnings, specifically, about where folks go to buy Freshpet if a store closes in an area, can you do things to help offset, what have you learned and how do you – how are you potentially doing things differently?

So from a store closing standpoint; two things that is – we have a lot of upside and a lot of opportunities from ACV in building out our overall distribution standpoint. The nice thing is that if you type in a Zip Code and it’s a reasonable – reasonably populated ZIP Code, you can get Freshpet in your area. So we want to make sure that people can find Freshpet very easily. If you go on our store locator, you type in our ZIP code, it’s going to show everything within your location, and we’ve actually enhanced it to even show specific products around that. So we’ve worked really hard to make sure that’s really highly visible for consumers. The second thing we’ve done is, anywhere – now we don’t have a tremendous amount of online business but anywhere you can buy it online and there are several different retailers, we’ve also made that available also using things like Instacart and any other kind of click-and-pick technologies that retailers are – have in the marketplace. So we’ve actually found that it’s – there’s a small number of stores that are going out. We’ve been able to drive people into those other directions and fulfill their needs. And then the other thing is, we really encourage people to call us, and we’ve made a dedicated effort to have internal people within the organization that sit literally feet away from our desks and offices, answer our own phones and help our consumers out to find the products that they’re looking for.

I would – Mark, I’d add one other thing, which is your question is a little bit about the environment of placing fridges and getting new fridges out there at the beginning of your question. What we’re seeing is, obviously, as we get bigger, and we have more velocity, and we can continue accelerate, that’s very attractive to the retailers. But we’re also seeing an increasing number of retailers who are recognizing that their core reason for being is going to be built around Fresh. Whether that’s produced, whether that’s meat but fresh products, and we played very nicely into that. So we fit from a strategic and conceptual basis with those retailers, as well as we’re now becoming big enough and important enough that they can start seeing us in a different light than they may have seen us in a year or two ago. So I think that helps us with our case in placing the fridges, but the reality is that the retailers are facing an awful lot of pressures and so they’re making some important choices about where they deploy their capital. But when they decide that they’re going to focus, they focus in fresh, oftentimes we’re beneficiary.

Right. Related to that, I guess, it’s interesting that some of those retailers are more pressured than others, some are focused more on pressures from online than others as well. And so, the idea of people being able to walk into stores, I think, will be more attractive. Within that 273 new fridges then, how do you break that up between existing retailers and new retailers and what do those retailers, for example, some of the bigger ones without naming names, that aren’t fully penetrated or even close to fully penetrated telling you as to push back us while they wouldn’t want to fully penetrate the fresh brand across their stores.

So of the 273, the vast majority is the existing retailers but throughout this year, we’ve got a very good cadence of new retailers – brand-new retailers coming on. And I think that what that speaks to is that people that have been holdouts and maybe for – in the early days that were skeptical or recognizing that this makes a lot of sense and it’s exciting to see because there are people that really just didn’t think it was right for their type of consumer and their types of stores, are now really coming into the fold and really becoming believers in what this is. And what really the potential of Freshpet and fresh food is for their consumers. So that’s really exciting to see and we’re really excited about that aspect throughout this year.

Thank you.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to management for closing remarks.

Thank you very much for your interest and attention. As we said at the beginning of the call, we feel very good about what we’ve accomplished, we feel like we’ve been able to cycle the strong numbers that we put up last year and showed that the Feed the Growth Plan can succeed again this year. And we look forward to continuing that as we push through the balance of this year. We feel very good about the start that we’ve got and the momentum that we have heading into the balance of the year. So thank you for your time and interest. Turning back to the operator.

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.