Thank you. Good morning. Welcome to Vital Farms Third Quarter 2023 Earnings Conference Call and Webcast. I'm joined on today's call by Russell Diez-Canseco, President and Chief Executive Officer, Thilo Wrede, Chief Financial Officer, and Pete Pappas, Chief Sales Officer.

By now, everyone should have access to the company's third quarter 2023 earnings press release issued this morning. This is available on the Investor Relations section of Vital Farms website, investors.vitalfarms.com. Through 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 result to differ materially from those described in these forward-looking statements.

Please refer to today's press release into the company's quarterly report on Form 10-Q for the fiscal quarter ended September 24, 2023 filed with the SEC today, 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 and adjusted EBITDA margin, which are non-GAAP financial measures.

While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Please refer to our earnings release for reconciliation of adjusted EBITDA and adjusted EBITDA margin to their respective most comparable measures prepared in accordance with GAAP. And now I would like to turn the call over to Russell Diez-Canseco, President and Chief Executive Officer of Vital Farms..

Thanks, Matt. Good morning, and thanks everyone for your time today. I'll start by sharing updates on how we delivered on our commitments to our stakeholders during the third quarter. Pete will then provide some insight into how we are benefiting from being a trusted partner at retail with a strong brand.

Finally, Thilo will provide more in-depth information on our quarterly results and our annual guidance before we take your questions. This was another great quarter at Vital Farms. We achieved $110.4 million in net revenue, which represents a 20% increase from the prior year period.

The growth was driven by volume growth of 13% and price mix of about 7%. Our gross margin expanded by over 100 basis points year-over-year to 33.2%. And we posted another impressive quarter of adjusted EBITDA performance at over $9 million achieving an adjusted EBITDA margin of 8.4%.

Our year-to-date adjusted EBITDA is $34.5 million, which is up over 250% versus the $9.4 million produced during the first three quarters of last year. As we've discussed in recent quarters, the industry has gone through a dynamic period over the past 12 months.

The same can be said about the broader food segment and consumer staples stocks in general. The continuous change across the food industry is unlikely to cease in the near term. For example, you've likely heard about GLP-1 medications and the potential impact on both the future eating and spending habits of consumers.

We believe Vital Farms is well positioned as a healthy protein and at the core of a healthy diet. Moving more specifically to the egg category, as you'll recall, our operating plan anticipated what ended up occurring in the industry over the past year.

We saw supply shortages impact the price of conventional eggs, and as supply of them has returned to the market and things have gotten back to normal, we're now in a period of price compression.

Looking specifically at the data in the track channels, during the 13 weeks ended September 24, 2023, the egg category experienced a retail dollar decline of over 20%. Additionally, the category saw unit volumes compressed by 1% during that same timeframe.

When compared to the same industry data during the same period, Vital Farms grew retail dollar sales by over 21% and our unit volumes expanded by about 5%. Our dollar share is now well over 8% of the total egg category.

We believe our performance offers evidence that our brand resonates with consumers irrespective of what might be happening across the category at any given time. We sold more units than we did at the same point last year, which has not been the case for the egg category across retail overall.

Our brand commands premium pricing, which allows us to maintain healthy margins with less variability than some others in the industry.

Our supply chain saw minimal disruption in the face of avian influenza while others ran into challenges, which is a result of thoughtful planning, a diversified supply base, our incredible crew members, and the strong relationships we've built with our farmers over several years.

While at present, the industry appears to have largely recovered from the latest bout of avian influenza, there are issues that are likely to persist. The cost to produce eggs is higher than it was just a few years ago and our operating plan assumes this will remain the case in the near term.

There may be a return of avian influenza which we have proven we can navigate. We believe we're well positioned to effectively manage through any future changes in the operating environment and have solid plans in place to propel our continued rapid growth, which we have fully incorporated in the guidance we're providing today.

Let me conclude by reiterating that we remain focused on driving long term, positive outcomes for each of our stakeholders including our stockholders. This has been the goal of our business from the start, and we have been intentional about the choices we have made over the past several years to drive towards this goal.

We believe the decisions we make every day fully consider each of our stakeholders which contributes to our enduring success and provides a competitive advantage. As we outlined at our recent analyst day, we have great confidence in the trajectory of our business.

This includes our forecast to achieve $1 billion in net revenue by 2027 while producing a gross margin of at least 35% and adjusted EBITDA margin between 12% and 14% over that same timeframe. We have demonstrated the ability to reach or exceed both our financial forecasts and external expectations in our 3 plus years as a public company.

We will continue to focus on doing what we say we are going to do. We plan to achieve these goals by gaining new retail partners and expanding the depth of distribution at our current retail partners.

We plan to further increase our household penetration through strategic marketing spent gaining new customers and driving higher spend by the households who are Vital Farms customers. Finally, we plan to support this higher demand by strengthening our supply chain through attracting new farmers while enhancing our packaging and processing capability.

And now, I'm happy to hand the call over to our Chief Sales Officer, Pete Pappas, who'll provide some context around the relationship-based focus of our sales team here at Vital Farms..

Thank you, Russell, and good morning, everyone. Our brand is an extension of Vital Farms' purpose and our consumers, food service and retail partners choose us because they know we are committed to improving the lives of people, animals, and the planet through food.

I want to talk a bit about what makes Vital Farms different from others in the industry. We have built a premium brand that is based on trust, which also applies to our retail partners. Through long-term deliberate efforts, we have built strong relationships with our retail partners.

This strategy which focuses on collaboration and transparency has helped us differentiate our offering, gain shelf space in recent years, and has laid the groundwork for future gains, which we illustrated in our recent Analyst Day. One of the ways we partner with retailers is by applying a category-first approach.

This is prevalent in other parts of the store and across retail, but it's new for the egg set. And it's one example of our differentiated approach to building strong customer relationships.

Category-first means we work directly with our retail partners to provide solutions on how they can increases the sales and margin performance across the entire egg category. Alignment on making decisions that drive category growth is not a strategy shared by everyone in the industry.

In time, as we've re-demonstrated our willingness to look at the business from a macro as well as micro perspective, we gain trust. We also consistently prove that our products outperform many in the set and as a result, we gain additional distribution. It all goes back to the long-term approach you've heard Russell discuss over the past few years.

We want to provide the best outcomes for all our stakeholders, which will directly benefit our company over time. Our success in building and maintaining strong relationships with our retail partners has been a cornerstone of our growth. We recognize that retailers are a crucial stakeholder, both in our journey and in our mission.

Therefore, we continue to invest in these relationships through collaboration, a customer-first mindset and tailored support. We've been able to understand and address the unique challenges faced by retailers, provide exceptional service and go above and beyond expectations.

Our navigation of the recent volatility across the industry, which Russell touched on earlier, is a great example of what makes us different from others in the category. Retailers know we have built a resilient supply chain and that we're able to garner a premium price for our products based on the brand we have built.

We're also consistently priced and our strategy is not one that fluctuates with changes in industry supply. As a result of this operating model, and the trust we have built with consumers, we believe retailers can count on Vital Farms to provide industry-leading margins. Thank you for your continued confidence in Vital Farms and for your time today.

With that, I'll pass it over to Thilo..

Thank you, Pete. Hello, everyone and thank you for joining us today. I will review our financial results for the third quarter ended September 24, 2023. I will then provide more details about our updated guidance for fiscal year 2023.

As Russell mentioned earlier, we had another strong quarter with net revenue of $110.4 million, an increase of 20% compared to the prior year period. This was driven by shipment volume growth of 13% and price mix of about 7%. The shipment volume growth was primarily driven by increases with both new and existing retail partners.

Let me briefly provide some context for the 13% shipment volume growth as there are a few puts and takes within this number compared to what you see in track channel data. One, we saw another strong performance from our food service business, which grew over 100% in the quarter, adding some volume that will not show up within track channel data.

Additionally, we had a greater number of offsized eggs than usual which we ended up selling wholesale. This is also another data point one would find within the track channel data and it contributed about 700 basis points to our shipment volume growth.

Excluding these 2 factors, our shipment volume grew in the mid-single digit range during Q3, which was in line with our expectations. Gross profit for the third quarter of 2023 was $36.7 million, or 33.2% of net revenue compared to $29.5 million or 32% of net revenue for the third quarter of 2022.

Gross profit dollars benefited primarily from higher sales and 100 basis point gross margin expansion was a result of increased pricing across our portfolio more than offsetting higher input costs and higher packaging costs.

SG&A expenses for the third quarter of 2023 were $25.1 million, or 22.7% of net revenue compared to $20.6 million or 22.3% of net revenue in the third quarter last year. The increase in SG&A was driven by higher marketing expenses.

As we outlined at our recent Analyst Day, we are continuing to focus strategic marketing spend on growing our brand awareness and household penetration and service of our goal of adding 20 million new households by year end 2027. We also experienced some increased employee-related costs as we grew headcount to support our continued growth.

Excluding marketing expenses, our SG&A declined year-over-year as a percentage of net revenue. Shipping and distribution expenses in the third quarter were $6.4 million, or 5.8% of net revenue relative to $6.9 million or 7.5% of net revenue in the third quarter of 2022.

The decrease in shipping and distribution expenses was driven by a decline in linehaul rates and better truckload utilization as we continue to grow our shipment volume. Adjusted EBITDA for the third quarter of 2023 was $9.3 million, or 8.4% of net revenue compared to $5.2 million, or 5.7% of net revenue for the third quarter of 2022.

And lastly, an update on our capital structure. Until September 24, 2023, we had total cash, cash equivalents and marketable securities of $96.1 million. We had no debt outstanding and year-to-date in 2023, we have generated $18 million of free cash flow.

Before concluding the call, I want to update you on our higher Fiscal Year 2023 adjusted EBITDA guidance. We still expect net revenue of more than $465 million which includes our expectation as the highest single net revenue period in our company history in the fourth quarter.

We now expect the adjusted EBITDA of more than $40 million up from our prior expectation of more than $35 million.

We continue to expect the gross margin and the second half of the year will be below but we have felt it in the first half of the year, merely due to the previously discussed return of a more normal promotional cadence in the back half of 2023.

In SG&A, we continue to anticipate higher marketing spending in the second half of the year compared to the first half. And lastly, we now expect Fiscal Year 2023 capital expenditures in the range of $11 million to $16 million. Before we open the line for questions, I would like to reiterate a few points.

One, we have successfully navigated several anticipated challenging dynamics across the egg category. We'll continue to grow our volume well ahead of the category. Two, we are well positioned as consumer brand that is a part of a healthy diet and in turn, a healthy lifestyle.

Three, we take pride in the trajectory of our business and are confident in our ability to grow to a billion-dollar brand. Thank you for your time and interest in Vital Farms today and for the confidence that you've placed in us with your investment. With that, we will now be happy to take your questions..

[Operator Instructions] And our first caller today is Pamela Kaufman with Morgan Stanley..

I was hoping you could discuss the implied Q4 EBITDA margins. The guidance implies margins of about 4%, but that's less than half of the EBITDA margin year-to-date.

So just curious what's embedded into this outlook, how much of it is a reflection of conservatism versus your plans to step up investment and promotion as you mentioned?.

Pam, it's a great question. Look, we've -- what we've done all year is to make sure that we can deliver what we promised to deliver, so that certainly plays into that. We're also looking at fourth quarter where the commodity environment is folded in volatile territory. We're looking at a promotional environment going into the holidays.

We're looking at marketing spend in the fourth quarter. So all of those pieces play together into our EBITDA margin assumption. And I wouldn't say there's one factor that's bigger than the others. It's really the mix of these different puts and takes that are at play there..

And then can you just explain the volume dynamics a bit more that you mentioned that impacted Q3? What was the context of the off priced eggs and how should we think about volumes going forward?.

Yes, so we have -- in the third quarter, we had a few puts and takes when it came to volume, depending on the eggs or flocks that we have, depending on the season that we are in, there are times in the year when we have -- not times in the year, there are times of the cycle of the flock where we have more off-sized eggs than eggs at other times.

The majority of what we sell at retail are large eggs and if we have eggs that are different sizes, then we need to find different places to sell them. And so what came together in the third quarter was a bit of weather impacted our flock rotation, but we just had more off-sized eggs than we usually do. So those went to the wholesale channel.

That's something that you just don't see in track data and it's a channel where we don't get the same revenue per egg that we do in the retail channel. So that was worth about mid-single digit -- mid-to high single digit volume growth, quarter-over-quarter.

We have some other puts and takes and so on a like for like basis, the -- our volume growth was high single digit, somewhere around there. This off-sized egg phenomenon that we have in the third quarter, it's not something that we expect to repeat in the fourth quarter.

Quarter-to-date we actually see that these off-sized eggs year-over-year are -- that they haven't grown. And so with these puts and takes that we had in the third quarter, we don't expect them to repeat in the fourth quarter..

And our next question comes from Adam Samuelson with Goldman Sachs..

So maybe just sort of keying up that last question on the volumes in the quarter, thinking about how that tracks as we move into next year, I know a big part of the volume growth, near and longer term is around distribution expansion in terms of new units, but also expanding kind of the number of SKUs you have in each of your retailers.

As you look line of sight today over the next 6 to 9 months, Russell, how would you frame kind of TDP growth and that being TDP versus velocity as we think about the driver of volume growth going into the first half of next year, self-reset start to come into effect, help us think about the pipeline of new distribution, both new retailers and new shelf space that you've got that you can see to?.

Adam, good to hear from you. As you know, every year, as we think about the potential drivers of growth, there are new doors to be had. There are additional items in existing doors to be had. Occasionally, there's even innovation to add on top of that. I think it's pretty premature for us to guide toward the mix for next year.

But I think every year, as Pete and Kathryn and our entire commercial team build their plans, they really do them from a bottoms-up perspective, customer by customer and opportunity by opportunity.

And you can count on us to continue to work with retailers to be a great partner to them and to help build their business at the same time we're building ours..

That's helpful. And then on the margins for the fourth quarter, I appreciate that there's potentially some conservatism embedded in there, but just as we look at the commodity input costs within gross margins, I mean that I would think starts to become a bigger tailwind as you go into fourth quarter and into first quarter.

So is there actually -- it doesn't seem like that's embedded in the fourth quarter -- fully embedded in the fourth quarter EBITDA margin, but maybe just clarify between the commodity cost side versus the step-up in marketing that seems also to be in there. Just any quantification would be helpful..

Look, before Thilo answers, I will say that, Adam, anytime you mentioned commodity costs, I'm always listening more closely because I think you've got a great track record of helping us understand how those markets will play out over time.

And so we're certainly watching as everyone else is to see what happens with the various inputs that we have, although I think you've probably got a better crystal ball on that than I do. Thilo, maybe you can speak a bit more about things..

Yes. Adam, on the commodity costs, there isn't any particular foresight that we have that nobody else has. It was more a reflection that we are in a volatile environment. We just added another conflict that can impact to tell how global markets operate with the Middle East. And so with that, we just remain cautious on the outlook there.

The majority of the margin impact, if you want, in the fourth quarter, it's going to come below the gross profit line, simply in the marketing spend and its investments in the business..

And our next question is from Matt Smith with Stifel..

I wanted to ask about the health of the various household groups that you're targeting with your media. I believe you're still targeting a higher income group, the avian ape household versus a more everyday type of household with the [Bridget and Ben] household that you've referred to them in the past.

Are you seeing a difference in consumer behavior in this environment? Are you seeing more incremental consumers from the higher income households or are both groups still holding up well in this environment?.

I think that's a great question. It's interesting.

We certainly, as you correctly pointed out, have expanded the breadth of the target market that we address over time as we gain more insights, both about the behaviors of different demographic groups and psychographic groups, but also who is buying our eggs, whether we've specifically targeted them or not.

I believe as many as half of the people that buy our products are not necessarily people that we specifically targeted, which I think actually is a positive indicator that the market is even bigger than we typically think it is for our products.

At the same time, what we're finding is that we are seeing, I think, similar levels of health, at least in terms of consumption of our products across the different groups that do buy them, but interestingly, we're starting to see some self-selection in terms of both channel and product.

So for example, we've seen a really strong uptick in buy rates for our larger pack sizes. Those are more of a value offering for arguably our heaviest using households. So for example, we have our core items, our 12 count or dozen sized cartons of eggs, but we also have seen remarkable growth in our 18 count or value pack size across channels.

And so that's been an indicator for us that even our highest income households are still looking for great values. They may not compromise on the quality of their product, but they'll potentially vote for a better value, and we appreciate the chance to serve them in that way.

On the other hand, we're seeing some really strong growth in more of the mass channel with some new products we've brought to market that are some of those off-sized eggs that Thilo mentioned earlier. We have a medium organic SKU at Walmart, for example, that's performing remarkably well.

And that's a great way for us to bring the unique value to shoppers at that store who may not have had the opportunity to find us somewhere else or may not find that our more traditional items are compelling value for them. So we appreciate the chance to find the right answer for many households in this country..

And if I could just ask a follow-up question on input costs and the cost environment overall, there was a comment early in the prepared remarks about higher costs are expected to, I believe, remain a part of the cost structure going forward. But at the same time, you had pricing that offset input costs and packaging in the quarter.

So could you talk about your view of your price structure today relative to cost structure? Do you have the pricing you need in place today? Or would you expect additional pricing actions based on that comment about higher cost persisting longer?.

Yes. That's a great question. It goes back to that crystal ball a little bit, I think. You may recall that prior to sort of the inflation that we saw starting at the beginning of '21, we hadn't taken price in a -- across the range since about 2016. And typically, we were able to fund that through our own scale economies and efficiencies.

So even as we might have seen input cost inflation in line with overall inflation, we were able to more than offset it with our own operational improvements. Our preference is not to vary price a whole lot or very frequently, which I think is more typical of the commodity egg market.

Nothing -- it's important to us as we continue to add households over time that we do everything we can to help those new households build a habit, and that includes not changing very many things at once, whether it's price or package design or location in the store, et cetera. We try to make it easy to find us and easy to repurchase us.

When I think about input costs, it's one thing to see that they've come down substantially from a year ago. But when we go back to 2019 to a pre-pandemic pre-inflation period, what we find is that our main input costs, including corn and soy, are substantially higher than they were at that time.

And so while these decreases that we're currently seeing seem substantial across a broader period of time, they're still actually relatively small. So we believe we're well positioned to have taken enough price to cover the input cost inflation we've seen and potentially we'll see in the short to midterm.

And that gives us more flexibility, for example, to invest if we -- if gross margins are expanding because input costs are accelerating downward, we can make investments in anything from promotion to marketing spend as we see fit. It just gives us more room to adjust as we need to..

And our next question comes from Robert Moskow with TD Cowen..

I guess a question for Thilo. In the release, it does say commodity costs higher. But corn and soy are a lot lower than they were a year ago.

So are there just other costs that are higher that are offsetting the lower grain costs? And then secondly, given just the comparisons, if you look at like, say, first half of '24, let's just take corn and soy stay where they are today, I know no one knows what they're going to do.

But if they did, would you have a continued benefit in the first half of '24 as well?.

So on the first part of your question, the commodity cost that flow through for us with the lag, given that we are adjusting prices that we pay to farmers on a lag. So it's not a direct correlation to what you see for the total commodity costs, plus then we have organic feed, which doesn't really trade publicly.

Those swings, they just show up in the feed sills that our farmers have. So there's a component on why our commodity costs and the commentary that we have on commodity cost doesn't necessarily track what you see on the Chicago Board on a day-by-day basis. On the outlook for next year, let's talk about that when we get there.

We haven't provided '24 guidance yet. And so, as we're building our plans for the year, once we have them, we'll talk about that..

I understand the lag commentary, but I guess there was a lag last year too. Maybe I'll take this offline but anyway, I would have thought that the lag that you still would have had lower year-over-year costs even with the lag impact, but I can take that offline, if you like..

So Rob, just to clarify, there's a lag impact, but then there's also the cost of the inventory that we have. If you look at our balance sheet, you see that we have an inventory position in eggs. And we are working through eggs that were laid with a bigger time difference than in previous quarters.

And so with that, this lag is just -- it's very much a moving target..

Our next question comes from Robert Dickerson with Jefferies..

I have 2 easy questions. I guess the first one just on LTOs. I saw in press release you're doing some stake LTO Breakfast Burrito, with 2 other players.

And clearly, I heard you say kind of in the quarter 2, like decent shipments to food service and core part of business is not necessarily food service, but as we kind of just think forward, should the expectation be, broadly speaking, that maybe activity can increase on the LTO side and food service, which would, therefore, I guess, extend kind of brand recognition, first question..

Yes, thanks very much for the question. This is Pete. We continue to look for ways to add value to our stakeholder partners. And in food service, this is one way that we are able to do that rather uniquely.

One of the benefits that we have by the farms is the strength of our brand and the strength of our brand lends itself to these types of unique partnership opportunities that we can offer to some of our operators as well as some of our retail partners.

So we're going to continue to look at different ways to engage consumers, engage our operators in a unique way. And we do think that, that expands relevance, expands awareness, expands households and puts us in a little bit of a different playing field than our competitive set..

All right. Super. And then kind of a technical question, balance sheet, cash flow related. So right now, on the balance sheet, you have approximately $57 million in cash, which is great, very positive free cash flow continues, and its cash balance is a very nice uptick relative to where you finished the end of last year.

At the same time, they have the investment security piece, available for sale has come down quite a bit. And I'm just not sure kind of how I should read that, like not even sure what the mechanics are of that? Like what -- why has that come down? Where is that cash going? And clearly, you're sitting on more cash.

So I'm just not sure if there's been kind of a transfer of securities into a cash balance because maybe there is a potential need to allocate more cash going forward?.

Yes, Rob, I think you just answered your own question. Actually, we are moving from investment securities into cash equivalents, i.e., we're holding it in money market funds. It's actually working to our advantage right now from [indiscernible] perspective since money market plans are yielding really well right now.

And we are shifting this in anticipation of spending that is coming up with a new facility. We have talked about that before that we need to build another egg processing facility. We'll pay that out of operating cash and out of existing cash balances.

And as we are preparing for that, we are just letting investment securities mature and once they mature, we then reinvest them in the money market..

And our next question comes from Matt McGinley with Needham..

So based on the cadence of when you took price increases last year, I think the gross pricing benefit would have been a low double-digit for overall benefit to sales, but your overall pricing impact that you reported is around 7% on higher planned promotion.

I think the gross impact in the fourth quarter is about the same, but the fourth quarter is typically a little bit more promotional.

So can you give some color on the promotional impact on sales in the fourth quarter and how we should view that relative to what we saw this quarter?.

If I follow your math correctly, I agree with it. The reason why the pricing benefit that you saw in our P&L wasn't as high as you thought was that we started spending on promotions again in the third quarter plus this higher sales volume than normal to the wholesale channel. That's just a lower revenue break.

And so that's a reduction of the overall pricing benefit that we have for the year. Fourth quarter, yes, there are -- it's a promotional environment. We participate in promotions to the degree that we want to create new consumers from our brand. We are not participating with the intention of renting market share, if you want.

It's all about consumer acquisition rather than participating in price moves up and down by commodity producers. We have a strong brand. That's a game that we decided not to participate in..

Got it. And on the shipping and distribution, you noted that much of the benefit there as you said, a gain in rate, much of that was driven by a decline in linehaul rates. But I mean, you had really impressive volume gains. So I assume that there was some operating efficiency or volume leverage there that you got from that.

So I guess, can you talk about what that volume or operating efficiency leverage was? And do you think there's more benefit to come over the next few quarters from cheaper transport costs or do you think you're nearing the end of that kind of linehaul benefit?.

Yes. I'm not going to speculate on how linehaul rates are going to move going forward. But what we have had for this quarter, as I said, it was a balance of better haul rates and better capacity utilization. As the business continues to grow, in general, we're able to put more pallets on outbound trucks.

And that reduces the cost -- the shipping cost per pallet. The linehaul rate reduction that we saw in the third quarter was about 15% decline year-over-year. That obviously plays into that as well..

And our final question comes from Ryan Meyers with Lake Street Capital Markets..

First one for me.

How has the risk of trade downs impacted how you guys think about launching new product SKUs or how are you viewing potential new categories?.

I think it's a great question. I appreciate it. We've got Pete here, and so he might add some more detailed context. But it's interesting, our most recent product expansions and where we're seeing some of the fastest year-on-year growth in percentage terms are in some of our highest priced SKUs.

So we're expanding distribution of a specialty egg, which is our blue egg. We're expanding distribution and seeing velocity gains in those higher egg count, 18 count because we're a value proposition SKUs. And so what we're actually seeing is a mix shift toward higher price point items.

In that context, I don't see the risk of trade down as affecting our ability to introduce innovation that continues to be a strong value for consumers even at a relatively high price point.

Pete, do you have anything to add or did I get it?.

You got it..

Okay. Sounds like I got it..

Got it. No, that's helpful.

And then how should we think about marketing spend in 2024, both kind of on a full year basis? And then from a seasonality perspective as we progress throughout the year?.

Yes. I would assume that our marketing spend in dollars, it grows as the business grows. We're not going to provide guidance right now for spending and that includes -- and thinking about how it moves quarter-by-quarter, we adjust those plans as we go throughout the year.

Obviously, we go into the year with a plan and then we adjust the events over the year unfold, but we'll talk about that once we're done with 2023..

And that does conclude the question-and-answer session. I would now like to turn it back to Matt Siler for closing remarks..

Thanks, everybody, for your interest today. Have a good one..

This does conclude the program. You may now disconnect..