FRPT - NASDAQ

Greetings. Welcome to Freshpet's Fourth Quarter and Fiscal Year 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. At this time, I'll now turn the conference over to Rachel Ulsh, Vice President of Investor Relations. Ms. Ulsh, you may now begin your presentation.

Thank you. Good morning, and welcome to Freshpet's fourth quarter and fiscal year 2023 earnings call and webcast. On today's call are Billy Cyr, Chief Executive Officer, and Todd Cunfer, 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 Private Securities Litigation Reform Act of 1995. These include statements related to our long-term strategy, focus, 2027 goals, pace in achieving these goals, prospects for growth, and new technologies and 2024 guidance. Words such as believe, could, estimate, expect, guidance, intend, may, project, will or similar conditional expressions are intended to identify forward-looking statements. 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, including those associated with such statements and accuracies in third-party data. Please refer to the company's annual 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. Please note on today's call, management will refer to certain non-GAAP financial measures, such as EBITDA and adjusted EBITDA, among others. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of the information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for how management defines such non-GAAP measures, why management believes such non-GAAP measures are useful, a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP and limitations associated with such non-GAAP measures. Finally, the company has produced a presentation that contains many of the key metrics that will be discussed on this call. That presentation can be found on the company's investor website. Management's commentary will not specifically walk through the presentation on the call, rather, it is a summary of the results and guidance they will discuss today. With that, I would like to turn the call over to Bill Cyr, Chief Executive Officer.

Thank you, Rachel, and good morning, everyone. The message I would like you to take away from today's call is that we believe Freshpet has reached an inflection point on its journey towards becoming not only a sizable, but profitable business in the emerging fresh/frozen segment of the pet food market. We delivered the strong growth you've come to expect from us, but also turned a corner on our profitability and are on our way towards delivering the kind of profitability and cash flow one would expect of a market leader. In 2023, we made significant progress on nearly all the metrics we set out to deliver. And if we continue to execute as we did in 2023, we will prove that with increased scale comes increased profitability and in turn, shareholder value. Our Feed the Growth strategy, which we implemented in 2017, was driven by our dual beliefs that fresh pet food is a scale-driven business, and that it was also important to maximize our first-mover advantage before competitors entered the fresh pet food market. Our transition to a fresh future plan last year reflected our belief that we are at the point where we have achieved sufficient scale and first-mover advantage such that we can begin to pivot to delivering the profitability that should come with that scale. Our 2023 results show the initial indications of our ability to drive that profitability, and we believe there is a significant opportunity to drive further profit improvement going forward. Now, let me walk you through some highlights for the fourth quarter and full year. First, we ended the year with very strong net sales growth and exceeded our expectations with fourth quarter net sales of $215.4 million, up 30% year-over-year, driven primarily by volume growth of 25% and 5% price mix. This strong growth is compared to a very strong quarter last year when we had significant trade inventory refill. The growth was supported by a strong advertising presence and household penetration gains that accelerated throughout the quarter. Second, we continue to see the strong operational improvements our fresh future plans were designed to drive, including sequential improvement in adjusted gross margin, logistics costs and adjusted EBITDA. Fourth quarter adjusted gross margin was 41.1% compared to 40.2% in the third quarter and 33% in the prior year period. Logistics costs came in at 6.3% of net sales, down from 9.4% in the prior year period, and 6.8% in the third quarter. Fourth quarter adjusted EBITDA was $31.3 million compared to $23.2 million in the third quarter and up 67% year-over-year. Fiscal year 2023 was our sixth consecutive year with greater than 25% sales growth with net sales of $766.9 million, up 29% year-over-year, on the high end of our targeted range and above our expectations. Full year adjusted EBITDA was $66.6 million, more than three times what we delivered in the previous year. These financial results demonstrate real momentum, the potency of our plans and the capability of our team. I'm incredibly proud of what you've been able to accomplish. In addition to those financial highlights, we delivered the significant increase in retail presence our retail partners sought as they became increasingly confident in our ability to supply them. Specifically, a record of 5,251 fridge placements in 2023, including new stores, upgrades and second or third fridges, bringing us to a total of 34,274 fridges at retail or more than 1.7 million cubic feet of retail space. As of December 31, 2023, Freshpet could be found in 26,777 stores, more than 22% of which now have multiple fridges in the US. These fridge placements and store growth were supported by continued strong fill rates that ended the quarter in the high 90s. In addition to our strong retail business, we have also built a very strong digital business. Digital orders, which I previously referred to as e-commerce, we define as any time you order on a phone or a desktop, so this includes anything from buy online, pick up in store, to Instacart, Chewy and Amazon. In 2023, our digital sales increased 58% year-over-year, and at this point, we are projecting digital orders to be over $100 million of net sales in 2024. The vast majority of our digital orders today are pickup or click and collect, which leverages our existing fridge network in retail. According to NielsenIQ, pickup is also the fastest-growing segment of online e-commerce in dog and cat food. During our ICR Conference presentation in January, you may recall hearing us talk about the mainstream main meal, more profitable plans, which I'll simply refer to as main and more. We're making the Freshpet brand more mainstream and getting people to use it as a main meal component, and this creates intensity and concentration of the business that we believe will allow us to be more profitable. Diving a little deeper into the idea of mainstream, according to Nielsen Omnichannel data, which includes e-commerce and direct-to-consumer, as of December 30, 2023, total pet food is a $52 billion category. Within that is the $36 billion dog food category, which the majority of our business is today, and we have only a 3% market share, which leaves a vast runway for growth. At the same time, we have created a new segment within pet food, fresh/frozen pet food, that has gained scale and is growing quickly. Within the fresh/frozen subcategory in measured channels, Freshpet has a 96% market share. Our goal is to make fresh even more mainstream since our products appeal to a wide range of income groups, we have products for each stage of a pet's life and are growing our portfolio to better meet the needs of larger dogs. Our household penetration at year-end was 11.555 million households, up 19% year-over-year and accelerating towards our target of over 20% household penetration growth. Our high-profit pet-owning households or HIPPOHs for short, grew even faster, up 28% versus a year ago. Household penetration has grown fastest with younger Gen

Thank you, Billy, and good morning, everyone. As Billy mentioned, we had an excellent fourth quarter and a very strong year. Now, I'll give you some more color on our financials and guidance for the year. Fourth quarter net sales were $215.4 million, up 30% year-over-year. Nielsen measured dollar growth was 28% versus prior year period with broad-based consumption growth across channels. We saw a 15% growth in pet specialty, 30% in xAOC, and over 100% growth in the unmeasured channels. Fiscal 2023 net sales were $766.9 million, up 29% year-over-year. Nielsen measured dollar growth was 27% versus prior year, again, with broad-based consumption growth across all channels, with 18% growth in Pet Specialty, 29% in xAOC, and approximately 85% growth in the unmeasured channels. Fourth quarter adjusted gross margin was 41.1%, up 810 basis points year-over-year. This was driven by leverage on plant costs as well as improvements across our key focus areas, including quality costs. Fiscal 2023 adjusted gross margin was up 400 basis points year-over-year to 40.0% driven by progress on our operational improvement plan. Fourth quarter adjusted SG&A was 26.6% of net sales compared to 22.4% in the prior year period. We spent 6.3% of net sales on media in the quarter, up approximately $10 million from Q4 last year to help us get off to a fast start in 2024. We saw continued improvement in logistics costs, down to 6.3% of net sales, a decrease of 310 basis points compared to the prior year period. Fiscal 2023 adjusted SG&A was 31.3% of net sales, down from 32.9% in the prior year period. Media spend for the year was 11.1% of net sales, up slightly from 10.5% from the prior year. Logistics costs were down to 7.5% of net sales, a 320 basis point improvement over the prior year. Fourth quarter adjusted EBITDA was $31.3 million or 14.5% of net sales compared to $18.7 million or 11.3% of net sales in the prior year period. This improvement exceeded our expectations and guidance and was driven by better-than-expected net sales and strong operating performance and cost of goods sold and logistics. Fiscal 2023 adjusted EBITDA more than tripled year-over-year to $66.6 million or 8.7% of net sales. Capital spending for fiscal 2023 was $239.1 million, in line with our expectations. Operating cash flow was $76 million, and we had cash on hand of $297 million at the end of the year. We continue to believe that we have adequate cash to fully fund our growth through 2024, and we will be free cash flow positive in 2026. We also believe that we will have access to traditional non-dilutive forms of capital to bridge a gap in 2025 if it occurs. Now, turning to guidance for 2024. We expect net sales of at least $950 million driven by volume, and adjusted EBITDA to be in the range of $100 million to $110 million. We expect capital expenditures of approximately $210 million to support the installation of capacity to meet demand in 2025, further fridge placements and ordinary maintenance. It is important to understand that our growth rate directly impacts the capital we need to spend to build capacity. We are closely managing our cash balance, being very disciplined in our media spend and carefully managing sales growth while expanding capacity and increasing profitability. We exceeded our expectations for 2023, which is why the net sales growth rate of at least 24% is slightly below our long-term target of 25%. We do not want to get ahead of the capacity build that we are putting in place. In terms of cadence, we expect a fast start to the year based on strong momentum from 2023, with Q1 being the highest percentage net sales growth rate year-over-year. We expect to see sequentially lower net sales growth rates as we progress throughout the year as we manage our growth to deliver the right balance between growth and capital investment as we talked about earlier. This should not be construed to imply that the business is slowing, quite the opposite. We are rigorously managing the timing and pace of our advertising investments to regulate the growth so that we can live within our capacity plans and carefully manage the cash required to build capacity. We want to deliver as close to our long-term target of 25% net sales growth over time so that we don't get too far ahead of our capacity expansion. We expect an adjusted gross margin expansion of at least 100 basis points, and the absolute gross margin percentage to be slightly higher in the second half of the year versus first half. We will have some start-up costs on the third line in Ennis in Q1, and additional start-up costs on the fourth line in Ennis in Q4. At this point, we have about 70% of our commodity costs locked in for the year and currently expect modest deflation in 2024. We anticipate media to grow in line with sales, and we will pull back as necessary to control sales growth. Lastly, we expect sequential quarterly improvement in adjusted EBITDA. Overall, we are proud of our 2023 results and believe we are in a strong position to deliver on our guidance with our momentum so far in 2024. With the actions we've taken and continued strong demand for our products, we remain confident in our ability to deliver on our fresh future plan and 2027 goals. We believe that when we look back a year or two from now, it will be apparent that 2023 was truly an inflection point for Freshpet in the fresh frozen category, and that Freshpet will be on its way to having a leading share in that segment and delivering the kinds of profits one would expect from the market leader in an emerging high-growth market. That concludes our overview. We will now be glad to answer your questions. As a reminder, we ask that you please focus your questions on the quarter, the guidance and the company's operations. Operator?

[Operator Instructions] Our first question today is coming from the line of Rupesh Parikh with Oppenheimer. Please proceed with your question.

Good morning. Thanks for taking my question, and also congrats on a strong quarter. So maybe to start out, just on the gross margin line, very strong performance in Q4, and it sounds like you guys are guiding for at least a 100 basis point improvement this year. So maybe, Todd, if you can just walk through the puts and takes that you see on the gross margin line for the year?

Are you talking about '24?

Yes, correct. Yeah.

Yeah. So as I mentioned in the opening remarks, we are going to see a little bit of deflation, that's our expectation right now in commodities. Well, obviously, we’ll have some inflation on our labor and overhead. But we're fortunate enough to lock in a fair amount of our commodities at really nice rates right now. So we will see a reduction in our input costs. We anticipate quality costs, which we've made great progress on in '23. We will continue to see some improvements in '24, they're kind of the fixed cost, labor and overhead because we're still building out a couple of new lines in Ennis, we're not going to see any progress for '24 there, that's probably more of a '25, '26, what’s really going to become lower input costs and improved quality are the main drivers.

Great. Thank you. And then maybe just one follow-up question. So it sounds like you guys are going to manage to your longer-term algorithm for the top line. Is there a way to help frame what your capacity is today and where you expect to end by the end of the year?

Yeah, Rupesh. The way to think about this is that we have to be mindful, not just of overall capacity, but we also would be mindful of capacity by form. And so in this case, what we're really managing to is the Ennis Phase 2 first line is a roll line. So we'll be tight on capacity until that line comes up on the roll segment of the business. We're doing really well on the bag side, and so we're really trying to guide ourselves so we don't end up short shipping anything on the roll side prior to that line coming up and being able to find us the capacity. Once that's in place, we have a pretty good runway until sometime in '25, when the -- it will flip around and the tightness will come on the bag side and we're working very diligently to make sure that we have enough capacity to drive to accommodate the growth that we've got. But we're literally managing ourselves between each of these projects, rolls and bags, rolls and bags, so we can sustain the growth rate that we've got, but we don't want to get too far ahead of ourselves.

Yeah. So right now, we have about $1 billion of total capacity. But as Billy mentioned, there's a little bit of a mismatch. We've got more in the bag on the bag side versus the rolls. And then obviously, we need to get well above $1 billion as we get into '25. So it's really the bag -- the rolls right now, it's causing us a little bit of an issue.

Great, thank you. I’ll pass it along.

Thanks, Rupesh.

Our next question is from the line of Brian Holland with D.A. Davidson. Please proceed with your questions.

Thanks, good morning. Quickly on media. Number came in higher than I was projecting in Q4, so I'm assuming that maybe it was a little bit higher than what you had communicated and maybe planned for prior to the quarter. So just curious if there's anything there that you can speak to with respect to an opportunity that you saw? Or just any logic behind to the extent that you increased that number in Q4? And then also, just want to understand the variability of the media spend as we look out to fiscal '24, with what sort of time horizon can you pull back on that spend if needed?

So I'll start off and I'll let Scott answer. So the media, we internally kind of planned that number for a while. We kind of hedged our bets a little bit. We weren't sure where the costs would come for the year. So we kind of kept some back, some dry powder back. But as we saw, the gross margins and the sales really do very, very well in Q4. We kind of released all that money. So internally, we planned that amount. But externally, we hedged our bets a little bit.

But it's unusual that we spend that much in Q4, that this is a year where we actually had capacity, so we ended up spending a little bit more in Q4 than we have historically. That gave us good momentum into Q1. We're seeing that come through both in consumer penetration and also in overall top line growth, especially in units and pounds. And then your -- second part of your question was on how far out or how can we manage media. We can make, I would say, small adjustments within 30 days. We can make more significant changes and modifications, kind of 90 days out, is typically how we think about it.

Thanks. And then just a follow-up on that. I guess the reason for the question is a lot of people asking about your ability to sort of run counter to the trends in premium pet food that we've been seeing for quite a while now. And what might be behind that? Is there a lag effect? Does it ultimately catch up to you? So you're going to be at, I guess, north of or around about $100 million of media spend. I believe another big visible competitor in the space, the fresh frozen space is spending roughly the same, if not more. And I'm just curious if there's anything anecdotal that you are seeing or any data points you can refer to that might sort of crystallize whether we're at -- and you talked about 2023 being an inflection point for the business. And I'm wondering if it's been an inflection point for this subsegment of fresh/frozen in food as sort of redefining premiums. So I'm just curious what you've seen or what you can speak to that end.

Well, let me answer them, kind of the -- in two sections. The first one, there has been, like I would say, a change in overall the category. We have not seen any impact like others have seen impact in the category with consumers changing their buying behavior. It's been really extraordinary. We're not seeing consumers trade down. We're seeing consumers come in very consistently. And you see that on the penetration growth, you see it on the growth around HIPPOHs, and we're also seeing it in our media productivity. Like one of the first signs you start to see is slowing penetration and your media not be as productive. So we're not seeing any of those changes that I think has affected the rest of the category. And I don't anticipate them having any significant impact in this year, quite honestly. I mean, I think we're through the worst of those that impact over '23, I think you're going to see less than most of that over the course of '24. The second part of your question is, are we an inflection point from a consumer standpoint? And this is one of these things where we're moving something that's been set -- a category that's been set for many, many years around dry and wet food and what people believe in the forms they feed and how they think about it. And what we've tried to tap into for a decade is that people know that they should be eating a fresher, healthier and less processed diet. I mean, you hear more and more about process foods. Now, whether they do it for themselves or not, that's one thing. Now, will they do it for their kids and "their pets," right? And we are seeing people become more and more aware of that and be willing to make the change. And everything that we're doing from a strategic standpoint, you're hearing us talk about turning this into more of a mainstream concept. So we talked about Rogers diffusion innovation curve over time and how we think about pressing through that. We're starting to get into that early majority, but we're still kind of half -- not even halfway through that early majority group. So we do believe that there is a change going on in pet food. We do look at where when we used to be the small fridge, at the end of the aisle was for kind of the people that were like really kind of dog nuts in a way, now there's multiple fridges in an aisle. And I think it starts to make a statement. That's us making a statement in retail. Our availability being more broad, it makes a statement. And I think the way we're talking about it to the consumer from our advertising and communications makes a statement that this is a mainstream idea. So we do believe it's an inflection point, and it's been happening for many, many years.

Thank you. Our next question is from the line of Ken Goldman with JPMorgan. Please proceed with your question.

Hi, good morning and thank you. I just wanted to get a little bit better sense of how to think of capacity -- or sorry, CapEx between now and sort of your target year, I guess, longer term of 2027? I think previously, you'd sort of guided to maybe $250 million a year in '25 and '26. I don't know if you've officially kind of addressed or updated those numbers since maybe CAGNY of '23, if I have -- or if you have, I missed it. I'm just trying to get a better sense as you kind of think of the rollout of certain plants and demand and some efficiencies you've created, whether those are kind of rough numbers to factor in, in light of the $210 million this year so.

Yeah. So the numbers continue to be fluid. Look, we try to optimize consistently how we're spending and the timing of it all and where we're putting the investment. I think right now, we have not given updates officially. I think the way I think of it is it's going to be over the next several years. Somewhere in that $200 million to $240 million range per year. Still too early to talk about what -- exactly what the '25 number is. We're still making some final decisions there. But I think that $200 million to $240 million is probably a pretty good estimate at this point.

All right. Thank you for that. And then just a follow-up. I think it was Brian's question on media spend. Forgive me if it wasn't. But I wanted to get a better sense of the maximum flexibility you had this year, right? And sort of that balance you have between the desire to building the brand over the long term and also not getting ahead of yourself on capacity -- organizational capacity and your capacity to actually produce products. Is there kind of a minimum media number you'd want to spend for the year in terms of dollars? Or is that not really the right way to think about it?

Yeah, Ken, so we typically guided to increasing our media in line with sales. Our long-term target is to be ultimately at 9% of sales. So as we see situations where our growth is running a little hot and we need to manage within capacity, we would meter ourselves back, heading towards that 9% to see how quickly we can get to that 9% level. I don't foresee a circumstance in this year or next year where we would drop below 9%. I don't see that being the case. But that's really the guidepost, it's sort of the 9% to 11% range is sort of where we're trading in.

Great. Thanks so much.

Our next question is from the line of Peter Benedict with Baird. Please proceed with your questions.

Hi, guys. Thanks for taking the question. Maybe, Scott, back to you on the consumer behavior. Now, you said you hadn't seen much change at all. But maybe tilt back a little bit, within your portfolio of products that you have, maybe how consumers are responding to the innovation, to the additional SKUs that you guys alluded to per store. Just kind of curious on that and how pricing -- next year's growth is going to be mainly volume. But how do you think about pricing and more about mix as you think about 2024? That's my first question.

Yeah. So, Peter, it has been a very interesting period in the industry where I think more people have quoted impacts around changes in the portfolio and people trading down, people moving to some private label products. And there has been a little bit of a shift in the category overall. We really have not seen that at all. We haven't seen any significant effect in our business whatsoever around that. So I mean, I know that it's been very topical. But I would say, everything that we've kind of set out and planned, it's -- we are amazingly in line and consistent with our plans and how the overall model is performing. We just have not seen those mix changes. On the new product front, we have products on both end of the spectrum from a new product standpoint. And what I mean by that is we have things on the highest end of our kind of cost to feed per day, and some things that are more cost effective to feed per day, both of them are performing and growing quite well. Some of them are performing better in different formats than others. Like in mass, we're seeing a little bit more growth on some of the more cost-effective products. And again, that are margin neutral for us internally. And -- but we're also seeing good growth on some of the products that are on the very high end. So I think it's super encouraging that, that's what we're seeing, and that's dynamic and the behavior that we're seeing from consumers at this point.

No, for sure. That's good color. And then just a question on the broader category. I mean, you guys are 96% of the measured category. But maybe give us a sense of where you guys think the broader fresh/frozen category may be today? What kind of growth you would expect out of that -- of the category over the next few years? And just the competitive dynamics, there's a lot of folks that have been coming in and then they start to cycle out, we've seen various levels of success. So just kind of curious your broad view of the category. Thank you.

Look, I think that we set out to do this a long time ago over -- well over a decade ago, we set out to really build Freshpet food. I think that there have been a lot of people that are kind of coming in behind us. I think we're very fortunate in the way we've constructed our business to still have around 96% of the total fresh/frozen that's sold in Brick-and-Mortar. Obviously, we know that there's a nice piece of direct-to-consumer business. It's a very, very different model and a different offering. And I think they've done a really nice job building those pieces, but it has not inhibited our ability to grow. And we think that when we look at our model and how it's constructed and where the opportunity is, we continue to think that -- we talked about a TAM of 43 million households. We're currently at almost 11.7 million, 11.8 million households. We know that there is a long, long way to go and a lot of opportunity. That's on the penetration piece. On the buy rate, I think as we've covered before, we think there's an opportunity to literally, over a long period of time, over -- probably double our buy rate, and that's over a long period of time. Within 2027, I think we had $127 kind of buy rate, it's the one we have penciled in. So that's kind of been our plan. Today, we're at $96, and we're going towards like that $127 type number. I think what you're starting to see is we talked a lot about the super heavy heavies or the HIPPOH consumers that are coming into our business, and that's been our focus. We think there is the opportunity to really continue to improve buyer rate over time. So I think on both pieces, on both fronts, I think there's a lot of opportunity. The category is changing. It's been a fascinating time, and I think it will be a really interesting next couple of years to see how it plays out.

Thanks so much.

The next question is from the line of Mark Astrachan with Stifel. Please proceed with your question.

Hey, good morning, guys. Hope all is well. I guess, firstly, on HIPPOH growth. It's exceeded household penetration now, I guess, the last couple of years, especially in '23, if my math is right, nearly 30% versus overall household penetration just under 20%. I guess, maybe talk about the life cycle and conversion of those HIPPOH consumers from first consumption of the category or from the brand into a HIPPOH, and kind of how do you think about the opportunity of those that are casually using today? Can you accelerate that adoption? Do you need to bring in more consumers to the category? Sort of what do you see around those that really become HIPPOHs and those that drop off? That's the first question.

Yeah. So it's -- thank you for -- thanks for that question. If you look at our total increase of consumers last year, it was about 1.8 million households that we added. On the HIPPOHs, we grew that group by not over 900,000. So when you're growing your best consumer by like a significant amount, you quoted the number of 29% or 30% versus prior year, so great growth rate there. But it's becoming a huge piece of the developing business. And I think, literally, Mark, just by getting our fundamentals correct, being in stock consistently, which we've had trouble over the last couple of years, but we do not anymore, being in stock consistently and having incredible quality, great consumer experiences, continuing to bring innovation in the category, broader availability and also being available from -- on a kind of an online or e-commerce type perspective, where people can literally go on their phone or computer and order us, making it easier and more accessible for consumers, those are all ways to really make it easier and facilitate HIPPOHs. Now, we see them come from two parts. One of them is some -- there's groups of consumers that literally come in and they immediately become HIPPOHs within three to six months. They've just changed and that's their dog food. The other group that we see come in and become HIPPOHs are people that use it as a topper and mix, and mix more, and mix more, and mix more, and literally start moving down the dry and up the fresh. And it's a different mindset because those people are replacing fresh with what was a wet behavior in the category, where a lot of people use wet food don't feed it exclusively, they mix it on top of dry. Well, with fresh, you can use it as your core and main meal. So we see that, the HIPPOHs coming from two different groups. And I believe that explaining it to people, seeding the thought and just having our fundamentals correct is what will kind of help that over time.

Got it. That's helpful. And then -- going back to, I think it was Ken's question, Todd, for yield. I guess, I was surprised at the CapEx guidance sort of remaining the same and maybe it's sort of the leading mix of the question. But you talked a lot about maximizing the output of existing lines, adding capacity to the existing site, the Bethlehem example, I don't think one was previously planned a few years ago, and now you have a new line. You're also developing new, more efficient technologies. So all of that being said, why are you still spending the same on CapEx? And I guess maybe the answer is that you're going to have more output than you originally expected? Or is it less costly? I mean, I guess, kind of bridge that for me, please?

Yeah, Mark, this is Billy. So first of all, there's a little bit of a timing difference here. So the capital spending that we're doing between '25, '26, '27 really has impact on the sales levels that we'll have in '26, '27 and '28. So there's a little bit of a timing lag here. Second is the technology that we alluded to, we are very bullish on it, but we have not assumed any benefit from that in our long-term plan. So we have the spending there for it, but we don’t necessarily have the guarantee that we're going to get the higher level of throughput and efficiency we get. If we do, it's gravy to us. It's improvement in the economics. And the same could be said of the improved operating effectiveness. We're very bullish on the work that's been done. And if we do get the benefits that we're talking about, then we are going to be -- we're going to have enough capacity to ramp the growth better or push more CapEx out. But at the same time, we just did not want to make the assumption that those benefits were going to come through. If they do, that's a net benefit to us. We're just being very cautious about planning capacity going forward.

Got it. That’s helpful. Thank you.

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

Hey, good morning, everybody. Thanks. Quick question on the sales outlook for 2024. We talked about 24% growth, largely volume-driven. Should we -- how should we think about the mix a couple of different ways? You haven't really referenced your expectations for fridge placement growth or store growth, at least if you did, I apologize if I missed it. If you could talk a little bit about your expectations there for distribution growth through additional fridge placements. And then from a channel perspective, non-measured grew substantially faster than measured in '23. Is that a dynamic that you would expect to persist in 2024 as well, and why?

Yes. Let me touch on this, I'm sure Billy might add to it. But I look at this a lot, and I think it's interesting. And I'll try and be brief, but just from a perspective standpoint. Today, let me talk about grocery for a second first. So in grocery, we're 72% ACV, and we're by far the number one brand. All the other number one brands are in the 90s from an ACV standpoint, right? And that -- and that's typically in 4 feet. So across grocery, we have 2,000 coolers, 2,000 double coolers, 2,000 stores with double coolers. So you start thinking about that, like there's upside in ACV, but think about the upside on the double cooler standpoint, especially because we are the leading brand in total, right, in total dollar sales we're the leading brand in grocery, and we only have 4 feet in most stores. That -- I mean that's pretty extraordinary opportunity sitting in front of us. And when we do add that, that gives us opportunity to add a wider variety of SKUs, have increased presence in aisle. So it's pretty amazing. Like now, switch to mass for a second. In total mass, we have 200 double coolers that's across Walmart and Target. So the opportunity there is pretty amazing, too. So we have around 80% distribution in mass. But we have very few double coolers. So we think that the opportunity is not only on the ACV side, but on the double cooler side, that gives us broader visibility in aisle. It gives us more TDPs, more of variety of products. And the other thing that's importantly in a lot of these stores, more holding power because over the course of a weekend, especially on some of our key SKUs, they're constantly out of stock. And if we can add a second fridge, it allows us to have more holding power on some of those. So add all that with developing online, which we touched on a few minutes ago, Canada being years behind, the UK opportunity, et cetera, it's pretty -- we feel terrific about the opportunity from an ACV standpoint. Now all that being said, the majority of our model is driven by same-store sales. We typically see high teens and up to low 20% same-store sales growth with like existing stores, existing coolers. So that's the core of it. It's driven by the advertising, but there's so much upside from an ACV and a growth from a cooler standpoint.

Scott, you talked about...

Jon, just one other thing on the unmeasured versus measured. We are expecting to have unmeasured growth that would add about 3 points to our growth in 2024, I call it at least 3 points. It was heavier than that in the fourth quarter, as you can obviously see. We're in an awful lot of Costcos at this point. We'll continue to see the benefit of that, particularly in the first half. It won't be quite as strong in the second half of the year as we lack the performance we had in the second half of '23.

Okay, great. That’s helpful. I’ll leave it there. Thanks.

The next question is from the line of Bryan Spillane with Bank of America. Please proceed with your question.

Hey, good morning guys.

Good morning.

Hey, so just wanted to follow up on one quick point. I think you just mentioned it in response to the last question, in terms of just out of stocks on key SKUs. Can you just update us now on sort of where you stand on in-stock levels on a regular basis? And I guess, what I'm really trying to drive at is, are out-of-stocks still impacting sales growth, right? Meaning, are you still leaving some on the table because you're out of stock in key periods on key SKUs?

Yeah. Bryan, if there are out of stocks at retail, it's a function of the high velocity in that store and the store's inability to keep the fridge stocked at an adequate level. Our actual shipments to our customers, we've been running in the 98%, 99% fill rates very consistently since the beginning of this year, actually, even in the last back part of the fourth quarter of last year. And so there's not an issue with our shipments or supplying to the customers. It's really a matter of how well the stores execute on the replenishment of the fridges.

Thank you.

Our next question is from the line of Bill Chappell with Truist Securities. Please proceed with your questions.

Thanks, good morning. Thanks for taking my question. Billy, Scott, just kind of asking it a different way, why isn't CapEx going to be greater over the next year or two? I mean, I guess going back to the original IPO, the thought was, we're going to build out Bethlehem, and then we're going to add one in the Midwest, and then maybe we'll add another facility on the West Coast as more and more demand gets there. And you just talked about this year being an inflection point, how you're kind of going mainstream, how you could be 40 million households even before we get to UK and Canada. Why aren't we talking about another facility or somebody on the West Coast or stepping things up? And I understand things and you've been more conservative on the existing, but if we're now at an inflection point, why aren't we talking about the future?

Bill, it's a good question. First of all, as we described in the prepared comments, the three things that we're doing to maximize the throughput on our existing footprint. So first is on the existing lines, drive up the OEs. The second part is on each of our sites, find ways to get more lines in them so we avoid having to construct all the infrastructure. Think of that as wastewater treatment facility, central utilities, loading docks and whatnot. And the third part is investing in new technologies. Our assessment based on what we know today is that, that infrastructure that we've got within the normal technologies we have planned can allow us to meet our growth goals all the way out until almost 2029 at this point if we maintain our growth at, call it, the 25% rate. The question then could be why wouldn't you want to go faster? And our comment on that has been, we have found, we execute very well at around the 25% growth rate level, meaning engineering, staffing, organizational capability, design, construct and start of facilities, the ability to hire and train people. And if we were to push ahead and grow at an even faster rate, we think we might get ourselves in a little bit of executional trouble. And so we prefer to stay at that rate. And so if we stay at that rate, our existing footprint will meet our needs, we believe, until about 2029, at which point we would need to look at another site if some -- if we haven't had another -- some other technology change or any other form of intervention.

Got it. And I guess kind of related, does that kind of put international somewhat on the backburner for the foreseeable future? Because I know, you feel like there's still opportunity in Canada and the UK and other places in Europe. But you're going to be capacity constrained just to meet your existing needs in the US. So is that kind of the way I should be looking at it? Or would there be some additional CapEx if you saw the international starting to tip?

Yeah. Bill, I should have put an asterisk behind that. All that was very focused on the North American business. We've concluded over the last couple of years that our European business is very robust and it's a very good opportunity. But supplying the business from the US was not the most reliable. It wasn't really a cost issue. It's more of a reliability issue. So we are in development on alternatives that would give us a more reliable source of supply coming out of Europe. But we have been very clear that if we were to do that, it would not be a greenfield operation on our own part. We would find a partner to do that with. And so we don't want to get any further than saying that. But suffice it to say, if we were to go down that path, it would be much, much lighter on the capital than what we are doing to build out greenfield operations in the US.

Got it. Thanks for the color.

Our next question is from the line of Michael Lavery with Piper Sandler. Please proceed with your question.

Thank you. Good morning.

Good morning.

You've touched on some of the ways you're looking at better technology for efficiency and adding stuffing lines anywhere you can in the place that you have. But can you give us a sense of how much opportunity there could be from longer run times and just having a way to reduce changeovers? Is that something that could also have an impact? And if so, how achievable or how within reach could that be?

Yeah. Michael, it's a really interesting point because we started up in Ennis, the second bag line in the fourth quarter of last year, and it's now running at a -- not full time, but it's running at a pretty good rate. And we're starting to see some of the benefit that you're describing because now that we don't have to produce the entire product lineup of bags on a single line, which forces you do lots and lots of changeovers, that second line is much, much more productive. We're expecting to see a similar benefit when we start up the second rolls line in Ennis, and we already get that benefit in Pennsylvania because we have six lines in Pennsylvania, and we use them very judiciously, the high-speed lines run long and deep runs, and the smaller lines run lots of changeovers. And so our belief is that as we build out the Ennis site and we get enough lines so we could be more and more specialized, we think we're going to see a very significant benefit from that. It is not modeled into our forecast going forward, but we are already seeing early indications of that based on the start-up of the second bag line in Ennis.

Yeah. So Michael, just to follow up on that. Today, we have 12 lines in operations, six in Bethlehem, three in Ennis, three in our Kitchen South facility. Fast forward a couple of years, we'll have over 20 lines. So to Billy's point, you can imagine there'll be certain lines that will be just dedicated to just one or two SKUs literally. And then the efficiency that we will get off of that, we believe there's a tremendous amount of upside. And we're constantly looking at the SKU mix to make sure they're optimizing the portfolio as well to not put under burden the facilities. But we're seeing some early signs of the benefit of having that extra capacity, and we think there's more to come.

And that is a benefit that you said you haven't modeled in, in terms of how you've given any of your targets or as going forward?

No. Not yet.

And then just to follow up on the Complete Nutrition launch. Can you just give us essence of how that's going? And is it playing a role that you had hoped and expected? And just an update on kind of how that's progressing.

Yeah, it's actually done a little bit better than we anticipated actually. So something we put in last year to make the portfolio a little bit more accessible, little bit more affordable to consumers. We wanted to react to what was going on in the market. And again, I want to say that, that is margin neutral for us. But we were able to do some work around formulation in order to provide a great product that we're incredibly proud of. In fact, I fed my dog that last night. And it's done quite well. It's been exactly what it was designed to do, bring in new consumers into the franchise. We're seeing nice sales on it, and we're seeing -- we've also been able to see really nice amount of new consumers coming in, and we know that they're trying that product. So it's done what we've designed it to do, and it's performing well to the point where we're even -- we'll continue to consider is there anything else around the portfolio we might do on that over time. But actually, to the last question that was asked, we are -- as we're adding things, we are decreasing our number of SKUs over the kind of the next 12 to 18 months. We're actually going to bring down the end of our tail and clean it up so we can be more efficient in our production.

Okay, great. Thanks so much.

Thank you. Our next question is from the line of Robert Moskow with TD Cowen. Please proceed with your questions.

Hi, thanks for the question. Two quick things. You mentioned that your buy rate is now at $96 a year and you're bumping up against your household penetration target, you're at 19% and the target's 20%. And I think you've answered this in different ways, but doesn't that really mean that the buying rate this year will have to increase pretty substantially assuming -- if 20% is the number. Is this the year where buying rate really needs to increase? And do you have like a number internally as to where it needs to go? And then I have a quick follow-up.

Yeah. We've always said, Rob, that sort of the long-term algorithm here is that you have penetration growth rates in the 20%, 21%, 22% range, and then buy rate be up in the, call it, 5%, 6% range, and that collectively gets you to the growth rate. So you're right, we do need to see that grow. Going back to the Scott's comments earlier, a big part of that is from the increase in number of HIPPOHs because that obviously pulled the whole portfolio up. They're obviously a smaller share of the total business, but they do pull the portfolio up. And so as we increase the number of HIPPOHs, the buy rate will go up in addition to the consumers who are in the franchise. But you're right, we do need to see the buy rate growing in the, call it, mid-single-digit range.

Okay. And then the follow-up is, I didn't hear any mention of repeat data today. I'm sure it looks great. But this is a year where there was a lot of trial. You're advertising a lot. One of your competitors was advertising a lot. What data do you look at internally to make sure that the people who are trying this for the first time are repeating it at the rate that you would hope that they would?

Yeah. Rob, part of the reason we haven't talked a lot about lately was there has been a data source change on that, it's kind of confusing to look at the two different data sources. Suffice it to say, in either data source, the repeat rates are continuing to be strong and growing. It's just there's a different metric, and we just need to get ourselves comfortable that the new metric that's available to us is consistent and predictable. But we are -- no matter which sources we're looking at, we're seeing that the repeat rates are in line with where they've been in the past, maybe a smidge higher.

And if it was -- if they weren't strong, you would definitely see that. You wouldn't see the HIPPOHs growing like they are.

Thanks, guys. Thank you.

Thank you. Our next question is from the line of Kaumil Gajrawala with Jefferies. Please proceed with your question.

Hey, guys. Good morning. Lots of conversation on managing growth to that 25% number. Can you maybe just talk about how you do that practically? Obviously, one thing that's been asked a few times is around media spend. But how do you do that in practical terms, given where it seems like demand -- seems like demand is? Is it -- how are you dealing with your retailers, what the commitments are. Just generally sort of the nuts and bolts of pulling that -- managing that figure?

Yeah. By far, the single biggest driver of our growth rate and the thing that we have to do to manage the growth rate is to control the media spend. And so we're looking out across the year, but literally looking at it on a month-by-month basis and quarter-by-quarter basis because we know that when we spend money like we did in the fourth quarter, while we saw some benefit of that in the fourth quarter, particularly on household penetration growth, the real impact of that is felt in the first quarter of this year because they're sort of a, acquire a consumer and let the consumer start down the purchase journey that they go through. So as we think about trying to manage our capacity, for example, before our rolls line in Ennis gets up the new rolls line in Phase 2, we have to really manage the media spending that we're going to have in Q1, Q2 and Q3 in order to make sure that we don't get ourselves in a position to do short shipping. And we literally look at it on a monthly basis and on a quarterly basis. That's really the biggest driver. We don't really regulate what we do with our customers because those plans take a long time to put in place on both their part and our part. And so we really rather do is manage the demand with our media investments.

Okay, got it. Thank you.

Thank you. Our next question is from the line of Tom Palmer with Citi. Please proceed with your question.

Good morning. Thanks for the question. Wanted to ask on the logistics side, it's been running lower than your long-term outlook assumed. I know last quarter, you mentioned favorability. But as we roll into 2024, I guess, how do we think about this progressing? And is 2024 kind of embedded in guidance more of a reversion to kind of the long-term target?

No. We’ll -- year-over-year, we will have a decline in the cost structure of our logistics. So we're benefiting, obviously, from less miles, opening that second DC, and Texas is paying huge benefits. Billy mentioned our fill rates, our trucks are full, which obviously makes us more efficient as well. I mean, everyone is benefiting obviously from lower diesel and lower lane rates, and that's always a wildcard what that looks like in the future. But with the steady market rates, we think there's still some favorability to go. So whether there will be some inflationary impacts down the road, I'm sure those rates will move around a little bit. But at this point, long term, the 7.5%, we're very, very confident that we can do better than that going forward.

Okay. Thank you. And then I just wanted to follow up on volume growth. Maybe asking it a bit of a different way, right? You are ramping capacity to your progression. So I would assume the absolute level of sales increases sequentially over the course of the year. Is there a point just given capacity rolling on that we might see a bigger step-up just from a sequential standpoint in one quarter versus another?

I mean the capacity -- so we've guided our capacity to match up with what the normal sales patterns are. And if I understand the question correctly, the real focus here is that we're managing our rolls capacity. Our business grows quite evenly across the whole portfolio. And so as you think about the cadence for the year, I think the cadence is a very normal cadence. It's just -- the one difference this year is that we're going to start hot, but we're going to start very hot in the first quarter because of the media we spent in the fourth quarter. And we have to pull that down a little bit as the year unfolds to live within the capacity limit we have on that rolls line. I think that's the question you're asking, is sort of the cadence. Is that where you're going?

Yes. Yes. Thank you. That's helpful.

Yeah. sequentially, every quarter, the dollar amount, the way we see it right now, it will be higher. The growth rates will differ. And we believe right now, just based on capacity, the growth rates will slow as the quarters go on. But sequentially, the absolute dollars will increase.

Okay. Thank you.

Our next question is from the line of Connor Rattigan with Consumer Edge Research. Please proceed with your question.

Hey guys. Good morning. Thanks for the question. So you've mentioned, one, to increase household penetration, convert users to HIPPOHs and then convert toppers to main meal users. So I guess just stepping back and thinking about consumer LTV, could you maybe help us just understand where you see the greatest opportunity? So I know you'd love to say all of the above, but I guess, if you were forced to pick or rank where you see the greatest opportunity, what would you rather see? Would it be adding an incremental user? Converting a user to a HIPPOH? Or converting a topper to a main meal user?

Yeah, Connor. So the way I think about this is that when you're in the early innings of developing a category as we believe we still are, then you really is going to be focused on adding households, adding as many households as you can, and that's really the focus of the bulk of our media. As you get further into it, you will turn and focus your time and attention on increasing the buying rate within those households. And that is naturally happening based on the product assortments that we've got, the presence of second fridges and whatnot. But the biggest driver for us right now is to get as many households into the fresh business. And then over time, we'll migrate that more toward buying rate. But today, at the early stages of this category development, we believe household penetration still is the number one most important driver.

Got it. Makes sense. And then I wanted to touch on the commentary on digital orders as well. So, Billly, I think you noted and expected about $100 million in 2024 sales online. So I'm not sure if I missed it, but did you quantify the current size of your digital sales? And also, too, I'm just wondering, I guess, right, is the expectation that the continued growth in digital orders is just representative of adding incremental consumers who are, I guess, digital-only consumers? Or is there some expected cannibalization or, I guess, migration from brick-and-mortar to online? Thanks.

So I think the main -- the main way to think about that is that we want to be as available to how -- as available as possible to however consumers want to buy our products. And when you make it easier and you make it kind of less friction, you're going to increase overall penetration, but you're also going to increase everyday usage. So as we add basically more and more sales around digital, what we're seeing is that we're just making it easy to shop how consumers are shopping. And we're kind of following what we -- the biggest piece of that is definitely when people are ordering whether fresh and fresh/frozen food from their local stores, when they're making those orders and buying overall, like for their grocery trip, we're getting included in that. And as that opens up and more consumers are shopping that way, that's really the opportunity for us. So it basically makes it a little bit more convenient for consumers to basically shop around for us. So I think it's both on the -- this goes back to we're helping the mainstream and it also turns it into more of a main meal. I think digital piece is a real opportunity.

Thank you. Our next question is from the line of Jim Salera with Stephens. Please proceed with your question.

Hi, good morning guys. Thanks for getting us in. Maybe to start off, a combo question for Billy and Scott. In the presentation, you guys highlighted, I think it's 22% of stores have second or third fridges. Do you have a sense for how big that percentage could get to as you continue to ramp the second and third fridge offerings? And then I think, Billy, in your script, you mentioned SKU count was up to around 18% from 16% a year ago. Can you give us some detail on what those two incremental SKUs typically are and maybe what you think that SKU number could be, again, as you continue to increase the second and third fridges?

Every year, when we look at this, we feel like there is a greater and greater opportunity to have second fridges, and quite honestly, most stores. So we were talking earlier, we're an average of 64% ACV or 72%, I'll pick on grocery for a second, 72% in grocery ACV. And I think I mentioned that we have 2,000 double fridges in grocery. There's no reason why we couldn't be into the 80s, in grocery, 85%, maybe 90% ACV in total. And over some period of time, there is no reason why we couldn't have second fridges in most stores because you look -- and what the way we think about this is, this is a new category or a new segment. And every -- if you look at dry or wet, it's basically in every single store and then it has a fair amount of space. I mean, you typically -- even a tight wet section is 8 or 12 feet. So why wouldn't there be that in fresh over time? So that's kind of like our longer-term vision. Exactly how it plays out and when, I mean, we have lots of projections and lots of ideas around it. And we do believe that we will get there over time. But I want to go back to that's a great opportunity. The single biggest opportunity that we have is using our media to educate people, creating awareness, driving penetration, driving more consumer. And I think I mentioned a number earlier, but same-store sales growth is always in the mid to high teens and that's tremendous. And it definitely can touch into the 20s. So that's really where the core of our growth comes from. And when you add those second coolers, it creates that visibility, it creates additional holding power, and it does create additional SKUs. We don't want to over SKU. We want to make sure we have the right SKUs to basically have, I guess, a portfolio of products that consumers really appreciate. So we don't want to over SKU. So I would see even in the double fridges, I would see no more than kind of 25 SKUs in the average store to make sure we have enough holding power.

Okay. Great. And then, Todd, if I could sneak in a question for you. On the margin front, you guys have made a ton of progress, did a really good job this year. But if we think about 2027, kind of 18% EBITDA margin target compared to the implied margin for 2024 at the midpoint I think is 11%, still a lot of wood to chop between those two numbers. As we think about the annual cadence of getting to that 18% goal, when should we expect to see margins inflect more significantly compared to where we are now?

Yeah. I mean, look, if you just do the math, we need another 10 points. So about 5 in gross margin and 5 below based on the guidance we've given, we'll get at least 100 up top and then 100 or so below the line as well. So we're going to pick up a couple of 100 basis points and getting double digits for the first time, which is exciting for us. Don't -- look, I'm not smart enough, to be honest, to know exactly what that cadence is going to be. If we pick up 200 basis points or so over the next several years, we'll get there. And as I've kind of said before, if we're at 18% or a 45% in 2027 from a gross margin or an EBITDA margin line, obviously it'll be a little bit disappointing because I do think there's upside. Not that we're promising more than that at this point, but I think there is potential upside to those numbers. But if we can pick up a couple of hundred basis points or 2% to 2.50% every year of EBITDA margin, we hit that target. And there's the potential -- if some of the efficiency work that we're doing pays off, we can do a little bit better.

Great. Thanks guys. I’ll hop back in queue.

Our next question comes from the line of John Lawrence with Benchmark Company. Please proceed with your question.

Great. Good morning, guys. Thanks for squeezing me in. Just quickly, we talk about retailer growth at mass and grocery. Can you speak to -- at this point, as you continue to market to those retail partners, what continues to be their objection? I mean, obviously, you proved the model out, it works, a lot of same-store sales. What would be -- would be old facilities? Does -- when Walmart expands and build new units, are you part of that? Or what determines whether they go or not go?

John, yeah, thank you for the question on that, too. It's interesting because I talk to the sales team. I meet with retailers very often, I talk to the sales team a lot. And when you're rejected for a long, long period of time, in 2006, 2008, 2010, and then the amount of love we get today, it all makes it worthwhile. And I'm being serious. And I would say the partnerships that we're building, how we're constructing this segment, how we're working with our retailers in order to make sure that this is a important category for them, but also a productive category for them, I think, is really, really appreciated. And I actually get that feedback pretty often. So I would say that there's very few objections. And I think it's just -- everyone has a different pace they're going at it. So when do they set -- when do they do a major category reset? We're not like pulling an item in or a couple of items in and out. That's easy. You just fly it off shelf. There's a lot involved in putting a fridge in. And in one store, it's not that complicated. In hundreds or thousands of stores, it gets really complicated. So they typically want to do it when they're doing major category changes resets because if we're going in, other things have to go, and they just want to do those things gradually. There are times when you've seen it, where they're literally moving around the whole store. And what they don't want to do is drop a fridge and drop an electrical line in and then six months or a year later, go ahead and move around the store and have to do the same thing again. So I think it's just a nice steady stream and a good cadence that we're continuing to roll out with retailers. I -- we really don't hear objections for the most part. I mean, we heard them for a very long time, but there's very, very few today.

Great. Thanks guys. Good luck.

Thank you.

Thank you. Our final question is from the line of Marc Torrente with Wells Fargo. Please proceed with your question.

Hey, good morning. Thank you for the question. Just real quick. Building on the media discussion, maybe talk about some of the media efficiencies and effectiveness, what's working best here and strategy plan throughout the year? And then you saw good operating cash flow progress in '23. How are you thinking about this growth through '24 leverage levels and progress towards the longer-term free cash flow targets? Thanks

So it's really -- it is interesting. And we've cycled through lots and lots of different media that we do. And the thing that we consistently find to be the most effective and productive is a lot of -- I won't call it mass media, but we obviously do and try and do a lot of targeting to different consumer groups. So literally, probably about 18 to 24 months ago, we started expanding our conservative target because into kind of a male demographic and also a younger male demographic. And what you started to see probably is you start to see a show up on football, for example. We had not done it in the past because it not only, a, was it expensive, but b, it was not the original target we were focused on, which was kind of was women for the most part. Now again, women watch football, obviously. But we continue to expand. And what we did, when we expanded into football, we were able to see really good productivity, and we are reaching new types of consumers and different consumer groups. I got a -- literally, I got a text message the other day from someone said, "Hey, I saw one of your commercials", we were on a golf -- some type of golf. And they said, "Oh, I had seen this commercial." The commercial has been running for eight months, and they hadn't seen it, but it was new to them, which means that we're continually hitting some of these new people. So we use a lot of mass TV, it's been our number one most productive piece. We have an incredible partnership with the -- internally, but also an external team that does our media buying. And we hold a very, very high standard. And I would say the level of analytics that we do behind it is second to no one in CPG, quite honestly. We do also work with OTT and connected TV. We also do a lot in digital. We're expanding more and more. We do definitely social. We're expanding into social. And you're going to see us do more and more PR over the next kind of 12 to 18 months, too. So we're definitely pushing into those areas. And our goal is to be anywhere between 6 to 12 months forward in what we're going to be executing. And what I mean by that is, literally, at the end of this year, I know the types of media and how we're going to test it, the messages we're going to be delivering, and we want to test it before we get there, so we know we're being -- we're able to deliver on the productivity that the organization needs to continue to grow. So we try and be, like, really, really kind of thoughtful and very, very professional and planned out around what we're doing from a media and media investment and spending standpoint.

Yeah. From a cash flow perspective, look, we are beyond thrilled about how strong operating cash flow was in 2023 up to $76 million. Obviously, some of that was the EBITDA, but also the working capital back in line. We had some issues in 2022 when we went live with ERP. We had a little bit higher working capital than we would normally have, we got that benefit back in '23, that was kind of a onetime gain there. I think from an operating cash flow going into this year, probably around $90 million because again, we're not going to have that benefit from working capital. And as I said, we're going to spend about $210 million in CapEx. That implies the cash balance of almost $300 million we have, end of the year will be around $180-ish million is where we'll end cash for the year. So it puts us in a great position for '25 and beyond.

Thank you. At this time, we've reached the end of the question-and-answer session. I now turn the call over to Bill Cyr for closing remarks.

Great. Everyone, thank you very much for your interest. I'll leave you with this thought. This is from Helen Thompson. A well-trained dog will make no attempt to share your lunch. It will just make you feel so guilty that you cannot enjoy it. To which I would add, feed your dog Freshpet, and all your guilt will disappear as fast as the Freshpet. Thank you very much.