Vital Farms, Inc. (VITL) Q2 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to Vital Farms Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] It is now my pleasure to introduce Investor Relations, ICR, Ashley DeSimone.

Thank you. Good afternoon and welcome to Vital Farms second quarter 2020 earnings conference call and webcast. On today's call are Russell Diez-Canseco, President and Chief Executive Officer; and Jason Dale, Chief Financial Officer and Chief Operating Officer. By now everyone should have access to the Company's second quarter earnings press release filed today after market close. This is available on the Investor Relations section of the Company's website at www.vitalfarms.com. Before we begin, please note that all of the financial information presented on today's call is unaudited. And 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 today's press release, the company's quarterly report on Form 10-Q for the quarter ended June 28, 2020, filed with the SEC and other filings with the SEC 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. Please note that on today's call management will refer to adjusted EBITDA, which is a non-GAAP financial measure. While the company believes this non-GAAP financial measure provides 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 adjusted EBITDA to its most comparable measure prepared in accordance with GAAP. I'd also like to note that we are conducting our call today from our respective remote locations. As such, there may be brief delays, crosstalk or other minor technical issues during the call. So thank you in advance for your patience and understanding. I'd now like to turn the call over to Russell Diez-Canseco, President and Chief Executive Officer of Vital Farms. Russell?

Thank you, Ashley, and good afternoon, everyone. It's great to speak with all of you on our first earnings call as a public company. On today's call, I will briefly review our second quarter financial highlights, provide an overview of our business model and discuss the reasons we believe our brand is well positioned for long-term growth. Jason Dale, our Chief Operating Officer and Chief Financial Officer will then review our second quarter financial results in more detail and discuss our fiscal 2020 outlook. We then look forward to taking your questions. First, our second quarter financial highlights. We're pleased to report a strong second quarter. Net revenue increased 84% to $59.3 million compared to the second quarter last year. We also saw positive trends in our key profit metrics. Gross profit margin increased over 400 basis points year-over-year. Adjusted EBITDA improved 111% from the second quarter of 2019 to $9.3 million, demonstrating our continued increasing profitability. Because many of you are new to our story, I would like to provide an overview of our business model and our growth strategy. Vital Farms is on a mission to bring ethical food to the table by coordinating a network of approximately 200 small family farms and bringing their products to a national network of approximately 14,000 stores. Our values are rooted in conscious capitalism, exemplified by our belief that to build a sustainable enterprise, we must prioritize the long-term benefits for each of our stakeholders, our customers and consumers, our employees, whom we call crew members, our farmers and suppliers, our communities, the environment, and our stockholders. We are a Certified B Corporation as well as a Public Benefit Corporation. Our premium and values driven positioning in genders trust with consumers and makes Vital Farms a strategic and valuable brand for retailers. And as we continue to build trusted brand in eggs and butter, I am optimistic about the categories we could potentially disrupt to offer consumers and other stakeholders better options. Since our founding in 2007, we have focused on delivering growth and profitability. For example, we delivered a net sales growth of 64% and a gross profit growth of 71% in the first half of 2020. In the last 52 weeks ending June 14, 2020, we were the number one pasture-raised egg brand with 78% dollar share of the U.S pasture-raised egg market and the number two overall egg brand based on retail dollar sales. Next, I'll turn to our growth strategy. Our growth strategy consists of four key elements. First, expand how full penetration through greater consumer awareness. Second, grow within the retail channel. Third, expand our footprint across food service; four, extend our product offerings through innovation. Now we'll walk through our highlights from quarter two along each of these four dimensions. First, household penetration. In the second quarter, household penetration increased to 2.7%, up from 1.9% at the end of 2019 and up 70 basis points on a sequential basis from the first quarter. We recognize that some of these gains are driven by trends toward more eating at home due to COVID-19. We do see some early signs that consumers who are trying our products for the first time are making repeat purchases. For example, during the COVID stock-up period, the eight weeks ending April 19, approximately 450,000 new buying households purchased Vital Farms eggs. In the following 8 week period ending June 14, 20% have already become repeat purchasers and 45% of those purchased Vital Farms eggs multiple times during those 8 weeks. Second, grow within the retail channel. During the second quarter, Vital Farms store count increased by over 700 doors, driven primarily by the grocery or food class of trade. Our velocities in that class of trade remained robust despite the extended distribution. And in the natural channel, including whole foods, lot of these increased by double digits. Third, expand our footprint across food service. Well, we see growth opportunities in food service, the headwinds in that sector in quarter two limited our ability to attract new customers. This remains a small segment of our business, and we look forward to bringing additional focus to it as the sector rebounds. Four, extend our product offerings through innovation. Our focus in quarter two was on the successful ramp up of production of our new Egg Bites, which we launched in August. Egg Bites are a new line of single serve, refrigerated bites made with high quality ingredients, including Vital Farms pasture-raised liquid whole eggs, pasture-raised cheese, humanely raised meats and vegetables. Consumers are staying at home more than usual right now. And for many, their days are busier than ever. We created Egg Bites to address the growing number of consumers who crave a protein packed breakfast made with fresh ingredients, but who don't always have the time to cook. As our first multi ingredient product, this launch has given us valuable experience in the entire innovation process from ideation to procurement, to co-manufacturer management. Our successful launch involve many crew members from across the company and we thank them for their tireless efforts to bring this product to market. Now, I'll talk a bit about the impact of COVID on our business. As we mentioned earlier, we believe COVID related shifts in consumption toward in-home have created tailwinds for our retail products. Since late February, we have focused on the health and well-being of our crew members and other stakeholders. As a result, we have seen limited impact on our supply chain with just two confirmed cases among our operations team at Egg Central Station in Springfield, Missouri. Their continued help and commitment has allowed us to deliver increased production above pre-COVID levels to help supply the increased demand we are experiencing from our retail partners. In summary, we believe Vital Farms is incredibly well-positioned for growth as we remain focused on increasing penetration in both retail and food service channels, increasing brand awareness, ongoing product innovation, and continuing to support family farms as we serve a robust market for food produced from humanely raised animals. I'd like to now turn the call over to Jason, who will walk you through our second quarter financials.

Thank you, Russell, and good afternoon, everyone. It's great to be speaking with you on our first earnings call as a public company. We're very pleased with our second quarter financial results and what we believe are significant opportunities for growth ahead. We've made meaningful investments to build a growing trusted business as we increase penetration in the retail channel. Net revenue in the quarter was $59.3 million, up 84% compared to the second quarter last year. Our strong quarter gives us confidence in our expectation to exceed total net revenue of $205 million for the full year of 2020, representing a growth rate in excess of 45% compared to 2019. Growth in net revenue for the second quarter of 2020 was driven primarily by an increase in gross egg and butter sales, which were mainly because of volume increases to distributors and a high turnover rate of sales to retail customers, some of which resulted from stay-at-home trends associated with COVID-19. The increase in net revenue was partially offset by sales incentives offered to customers in connection with egg and butter sales. Gross profit was $22.7 million or 38% of net revenue for the second quarter of 2020 compared to $11 million or 34% of net revenue for the second quarter last year. The $11.7 million increase in gross profit and the more than 400 basis points of gross margin increase was primarily due to the increase in net revenue with a portion of the increase in gross margin, attributable to lower costs associated with warehousing and transportation of shell egg inventory. Total income from operations was $9.1 million in the quarter compared to $3.9 million in the second quarter last year. The $5.2 million year-over-year increase was primarily due to the increase in net revenue and expanded gross margin. Net income was $5.9 million or $0.16 per diluted share compared to $2.8 million or $0.08 per diluted share in the second quarter of 2019. Total operating expenses were $13.4 million or 23% of net revenue compared to $7.1 million or 22% of net revenue in Q2 last year. This primarily includes SG&A expenses of $10 million, a $5.2 million increase compared to Q2 of last year, and shipping and distribution expenses of $3.4 million, an increase of $1.3 million year-over-year. The increase in SG&A was primarily due to an increase in employee related costs due to increased overall head count to support our growth, increased spending on marketing programs and an increase in corporate development expenses associated with our IPO. The increase in shipping and distribution expenses was primarily due to an increase in sales volume, which resulted in increased costs related to third-party freight associated with distribution of our products. Our adjusted EBITDA was $9.3 million for the second quarter of 2020 compared to $4.4 million in the second quarter of 2019, which represents an 111% increase. The improvement in adjusted EBITDA was primarily due to expanded gross margin as well as leverage over our fixed operating costs. Looking ahead, we expect adjusted EBITDA to be in the range of $14 million to $16 million for the full year of 2020. Now shifting to our capital structure. Subsequent to the end of the second quarter on August 4, 2020, we completed our initial public offerings in which we issued and sold 5,040,323 shares of common stock and certain selling stockholders offered and sold 5,659,250 shares of common stock at a public offering price of $22 per share. This resulted in net proceeds to us of approximately $99.5 million after deducting underwriting discounts, commissions and offering expenses. We did not receive any proceeds from the sale of shares by the selling stockholders. Total outstanding debt as of June 28, 2020 was $9.8 million. Of note, the company's $17.1 million cash balance as of June 28, 2020 does not include the proceeds from our IPO or reflect our payment in full of $1.9 million in outstanding borrowings under our equipment loan with PNC Bank. Capital expenditures totaled $4.7 million for the second quarter of 2020. We plan to use the proceeds from our IPO for general corporate purposes, including working capital, operating expenses and capital expenditures, including to further fund our expansion of Egg Central Station or shell egg processing facility in Springfield, Missouri, to increase our capacity for the distribution of pasture-raised shell eggs. As of September 4, 2020, there were 39,432,161 shares of common stock outstanding. As we look ahead at the robust market for food produced from humanely raised animals, we believe we have a unique opportunity at Vital Farms to achieve strong growth today, and for many years to come. With that, now I'll turn the call back over to Russell.

Thanks, Jason. Reflecting on the Vital Farms story that we just shared with you, this company more so than any have been a part of, does a fantastic job of living its values every day. The multi-stakeholder model forms the framework within which we make our strategic decisions, and it is no coincidence that our commitment to the values of conscious capitalism and of meeting the needs of all of our stakeholders has resulted in profitable growth. Thank you for joining the call today and for your interest in Vital Farms.

[Operator Instructions] And our first question comes from the line of Rob Dickerson with Jefferies.

Great. Thank you. So welcome. First off, done a great job. I guess this is kind of my first question, to keep it short, is just on household penetration. We're seeing obviously a lift across the board for a lot of food companies. You spoke to the 2.7% in total penetration, which is a nice step up from where you are just earlier this year. So maybe just some kind of brief commentary on kind of probability of retaining as much of that step up and kind of tracing as you can, and maybe, kind of, if there are any shifts or pivots kind of around the strategy of the near-term to maybe not only retain it, but to maybe accelerate your goals in a longer term basis now given a high trial repeat.

Thanks, Rob, and thanks for the warm welcome and thanks for being here. So a few thoughts. First is, we do have -- we get the question a lot internally and externally. Are we going to be able to hold on to the games? And we do have some early signs that I referenced in the call about our ability to convert trial into repeat, which is an early stage of the loyalty we hope to have over time. So we've got some percentage of people who bought us for the first time in the peak pantry loading period of COVID have come back and bought us a second time in the subsequent 8-week period. And some portion of those shoppers have bought us more than once. And we had the specifics in the intro. So it's early days, but there is some evidence that some new shoppers kept buying us even when maybe their usual brand showed back up on the shelves, right? We were already focused on the entire shopper journey from awareness all the way through loyalty. And so, we certainly recognize that we've had an uptick or an acceleration of new trial. And so we're absolutely maintaining our strong commitment to the loyalty part of that. And that includes the community management in our social media platforms, for example, in the way that we interact with our rating fans [ph] and other -- looking at other ways in which people interact with our brand beyond simply receiving a broadcast message from us. So that's definitely top of mind for us. The good news is we did not make an aggressive assumption about the retention of this new trial in order to deliver on the guidance for the year. And so, if you -- and it's too early for us to predict the extent to which we'll retain that business, but we are making a relatively, I think conservative assumption, both in terms of how much longer the COVID related list remains and in terms of how much of the new trial we retain. So there may be an upside opportunity there beyond our expectations as we continue to see how consumers behave in the coming months.

All right. Great. And then just -- I guess, kind of follow-up to what you just said, just in terms of that, the implied back half revenue guidance, right, and it looks like it's about 30% to 35% year-over-year. Obviously, did better than that in Q2 for all the obvious reasons, you're now kind of two thirds of the way through Q3. And also there might not be as much visibility, right, as you get into Q4. So I guess just kind of, as you kind of speak, I don't want to say, too conservative guide, but just in terms of kind of how you get to that guide is that we have decent visibility and we kind of have a field where Q3 might come in and then we’re just doing our best to essentially kind of guess at what Q4 is, or given the 700 new doors coming through the quarter. And what have you feel like your visibility is actually pretty good for the second half? That's it. Thanks a lot.

Yes. Thanks, Rob. So, I'll let me chime in at a macro level and then Jason may want to chime in as well. We are absolutely humble about the fact that we -- there's a lot of macro uncertainty in the future, right? That -- what the economy, what the election brings unemployment rates, the February -- the potential for a fall of resurgence, et cetera. And the countervailing forces of -- on the one hand, more eating at home, 10, create a tailwind for our product portfolio and channel portfolio, because it's primarily at retail. And at the same time, the potential headwind of maybe higher unemployment, lower incomes, et cetera. So we're not, I think we are comfortable with our annual guidance in light of that uncertainty in the fourth quarter would be kind of where I think that.

Okay, great.

Yes, the only thing I'd add is to your point, Rob, I think if we see things continue, the reason why we have a range of guidance would be that -- would pull you towards the higher end of that guidance, I think. So if we see kind of what we've seen continue, not the peaks of the COVID, but what we're kind of seeing day in and day out, continue -- we would end up towards higher into the range.

Thank you. And our next question comes from the line of Pamela Kaufman with Morgan Stanley.

Hi. Congratulations on the IPO. I wanted to ask about your outlook for the promotional environment for the back half of the year. I think initially you had talked about potentially stepping up promotions and reinvesting some of the strength from this quarter. So just was curious to get an update on your plans there.

Thanks, Pamela and thanks for -- sorry. So I appreciate you being here and I appreciate that question. So, yes, our approach in the first half of the year before we -- with so much of the year being remaining uncertain was, hey, in the pantry loading weeks of late Feb through, let's call it mid April, the retailers and we agreed that it wouldn't make sense to do a lot of promotional activity at a time when we were all just trying to stay afloat and keep shelf stock. We did plan to go back to a more typical promotional cadence and depth in the back half of the year, recognizing that if we saw a resumption of strong demand and the challenge of staying in stock, we might agree with retailers to pull this back as well. Because we're continuing to see a lift above kind of pre-COVID levels, we are trying to be pretty judicious and purposeful with investments and promotion. We want to be great partners to retailers, but we're not relying on extensive promotional plans at this point to deliver the year. We don't -- at least at this point, the trend seems to be not requiring that.

Okay. That makes sense. Thanks. And then just if you can provide some more color on Egg Bites and how its initial performance has been just in terms of the reception with retailers and consumers and your outlook for further distribution growth for that product.

Thanks. Yes. So it's still really early days. I mean, we just hit -- started hitting shelves, a few weeks ago. We had relatively modest expectations for this year for Egg Bites, as we were just kind of getting that up and running and things are working out about as well as we expected them to. So, we'll have lots more insights into that in our next release, but today it's pretty early.

Okay. Thank you.

Thank you.

Thank you. And our next question comes from the line of Chris Growe with Stifel.

Hi, good afternoon. I'll add my congratulations as well. Yes, good quarter and congrats on the IPO. I just had a question, if I could, first on the -- on just the gross margin, which was obviously a very strong performance in the quarter and obviously not looking for quarterly guidance here, but just to understand the factors we should consider on the second half of the year. You have obviously some great fixed cost leverage coming through. I guess I'd be curious as well to what degree or kind of where your capacity utilization stands today, maybe your peak, you were, I'm sure, running kind of full out. What sort of level are you down to and maybe give some ideas around the fixed cost leveraging of the business.

I think that's going to be for Jason.

Yes. So thanks, Chris. Yes, I think first to just kind of point out the -- your point about the gross margin beat in Q2. So I think definitely the peaks of COVID of what we saw in there, I think you could probably attribute about 280 basis points related to kind of that peak of where we were at. I think, some of that's broken down between what we just talked about with Pam in terms of just trade and promotional footprint and not doing much about in the quarter. And then just we were selling every single egg we had because the retailers were really trying to get any product they could. Relative to where we are versus the peak, we're down from that, but I think we're still getting leveraged as we look forward. And I think the guidance that we're giving for the year and the adjusted EBITDA range assumes a slightly higher margin than what we had originally kind of modeled out for you guys in the back half of the year. And so, I think it's less about a leverage play there and more just about things starting to line up relative to the warehousing and transportation costs that was mentioned in a part of the Q2 that will continue, those were things that we planned on doing and actually put in place and will continue as we close the back half of this year.

Any comments Jason about capacity utilization, just rough levels, or just give a sense of kind of where you are today and how you can accommodate this elevated demand?

Yes. So, I mean, we're probably at somewhere range between 50% and 60% utilization. So we have plenty of capacity at ECS today. And again, we continue to stay diligent on the expansion process and expect that to be up and running in the second quarter of '22 and we're able to support our growth plans.

Okay. And then just another quick question around -- we kind of discussed this a bit earlier in an earlier question, but around basically the stickiness of some of these new sales and just to understand like how many new doors are getting -- we obviously have a household penetration figure that was up a lot, that was great. But just to understand, in terms of like new distribution or new shelf -- kind of new shelf space, to what degree you're seeing more doors, more shelf space accrued to the company here?

Yes. Thanks Chris. It's Russell. So, yes, the household penetration had a nice lift. And we're certainly seeing, especially in the natural channel, strong increase in velocities. I think we -- as we mentioned in the prepared remarks, we had about 700 new doors added during Q2. So we continue to be effective I think in engaging with retail partners, both existing and new. We continue -- retailers are continuing to do category reviews and be open to their traditional reset approach. And so, we continue to kind of work that process as we always have, and we're not seeing any substantial changes from our plan and our strategy on that note.

Okay. Thank you for your time today.

Thank you.

Thanks.

Thank you. And our next question comes from the line of Adam Samuelson with Goldman Sachs.

Yes. Thanks. Good afternoon, everyone.

Hey, Adam.

Hey, Adam.

Hi. So maybe following up on the earlier question on capacity utilization from a different angle. Just, Jason, Russell, any comments you could have on the live supply chain? And obviously, having sales up 80% in the second quarter, a little bit north of that and talking about a 30% plus increase in the back half, thinking about how far ahead you've got to play in your flocks that are on the ground with your grower network, just how tight is the live inventory there. And are you seeing any issues in terms of fill rate, as you’ve seen this big stock up with COVID and you think it helped?

Great. Thanks, Adam. Yes, I think -- again, the guidance that we gave, we're well within the supply to kind of generate that range of what we're talking about. But again, as we kind of told all you guys and what you're referencing in terms of our lead time to put down new farms, there's not a lot of room to hit the gas far beyond kind of that range. And so one of the things to your point of the uptick we saw in Q2, and it continued kind of stickiness we see as we continue to go through the rest of the year, we're actively planning and making decisions into '21 and being very thoughtful about how we put down the right supply to make sure we continue to kind of grow into this. We're in a really great spot right now, where we're -- have a nice supply and demand balance. And so we want to make sure that we don't get too crazy and put down a bunch of farms in there to where we actually create an imbalance. And so, we're being thoughtful about that, and we'll be adding farms in '21 to certainly support our growth.

Right. That's really helpful color. And then the follow-up is thinking about distribution from a SKU count perspective and kind of the number of items per door. And just wondering how COVID has impacted, or maybe benefited you from any category reviews that your retailer customers, particularly in the conventional kind of mainstream channel has done, as you think about kind of points of distribution, that you might have a number of items on the shelf in '21 to convert some of those new households into more recurring buyers.

Appreciate that, Adam. I -- so I don't have a -- an updated statistic on average items per door in front of me. Anecdotally, the vast majority of retailer conversations and category reviews of which I'm aware have been somewhere between status quo and adding items. There are very few examples where we actually lost items, or for some other reason there was a material impact to the downside on our business. So I think my belief and my interpretation is that there's some trepidation on the part of retailers about what it felt like to be scrambling for supply in the spring. And they want to make sure that they've got a diversity of suppliers and that they're taking care of the vendors that they feel confident can deliver in good times and in bad. And I think we distinguished ourselves as being great partners in March and April when it counted. And so I think one of the benefits of that is as we head into the fall, I think generally retailers want to maintain a strong partnership with us.

Okay. I really appreciate the color. I'll pass it on. Thanks very much.

Thank you.

Thank you. Your next question comes from the line of Robert Moskow with Credit Suisse.

Hi. Thank you. I wanted to maybe learn a little bit more about what's happened with the contracts that you're negotiating with your farmers. I think you’ve taken steps to reduce the risk premium that you typically pay for eggs, which I think makes sense now that you're -- you have more scale. Have you converted more of your farms to these new contracts recently and how are those discussions going.

Jason, you want to pick that?

Yes. Hey, Rob. Yes, so we're not actively adding supply right now today. We don't have any, I think since the last time we talked to you guys, we haven't had -- added any new actual contracts down. So to that point, we're not actively converting people over. As the contracts expire in the next year and as we look to put down new supply, they will come on the new form in the contracts.

Okay.

But maybe I can add just a little bit more color, Rob. So we are adding supply regularly throughout the year and to support our continued growth. I think the distinction is that we haven't recently signed new contracts. You can imagine there's a lead time to sign a contract, and then that supply comes online, some number of months later. So there's a distinction. I didn't want to leave you with the impression that we aren't adding any supply.

Okay. In that case, ask you try to expand gross margin over the next two years. What do you think are the biggest drivers of that gross margin? Is it still the contract changes, or are there other factors that you might want to call out here that could boost your margins, gross margins higher?

Yes, I think we're still got the same playbook we talked about, right? Like as we continue to look out in the further years, and we're not getting guidance right now, obviously beyond the end of this year, but we continue to kind of have those same kind of long-term growth target pillars, and yes, as we continue to work through and evolve and get more people on the larger supply contracts that we have out there with farmers and get new ones put into the queue, that will accrete to our margin.

Okay. All right. Well, thank you.

You bet.

Thanks, Rob.

Thank you. And our next question comes from the line of Ken Zaslow with Bank of Montreal.

Hi. Good afternoon, everyone.

Hello.

Hi, Ken.

Just two questions. One is on the medium size eggs, have you guys found your strategy there to stick? How do you think about that? And I know you guys have been working on it, making sure those eggs have gone into the market. Do you feel like there's more permanency to them? And I have a follow-up question.

Great. Thanks for that, Ken. And you're right. That's certainly something that is an area of focus for us. There are two ways to think about medium eggs. One is to be able to sell them at retail as a shell egg. The other is to use them as an ingredient by converting them into liquid eggs. So for example, those mediums can be used to make our new Egg Bites. Those mediums are also used to make hard boiled eggs. And you could imagine if and when we bring to market a pasture-raised liquid whole egg for the food service channel in bulk, we could use those medium eggs there as well. We do not currently sell all of those medium eggs at retail. We are actively presenting that opportunity to retailers and there is some interest, again, in part it may be influenced by a desire to make sure there is a diverse supply base as we head into the fall season when often there is seasonal demand and often retailers are experiencing some shortages of supply. But I can't say that we solve for the entire projected supply next year. That continues to be an area that we're focused on solving.

My second question is, how much shelf space did you actually gain or expect to gain in the reset? And how do you kind of forecast that? And if you could help us out with that?

Well, each retailer is different. Generally, we try to create proposals and strategies that are great for the retailer and us and those tend to be very retailer specific. In some retailers, especially those where we're seeing high velocities, but we have maybe just one or two eggs SKUs, for example, we might go in and propose several more items. And there's always an element of a negotiation and an element of the retailer deciding what makes the most sense for them. So I don't -- I probably don't have a great sort of offhand answer for the market as a whole, but I think in the -- in kind of the -- in the road show process, we have statistic that while at whole foods we've got 14 SKUs on the shelf out of our portfolio of 20, our average in Mulo is three and change. It's between three and four. And so, we certainly believe that the fifth and -- the fourth, fifth and sixth SKU can still be very productive and a meaningful addition to the category and to retailers category performance.

Great. Really appreciate it. Thanks, guys.

Thank you, Ken.

Thank you.

Thank you. I'll now turn the conference back over to Russell Diez-Canseco for closing remarks.

Thank you. Hey, thanks everybody for being here and for your great questions and engagement. It's -- this is new for us, and we're really excited to engage with you all at stakeholders in what we're doing. Thanks again. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may now disconnect.