Bill Chappell: Just wanted to follow up in particular, on the quarterly kind of what you’re talking about of the change in promotion and just trying to understand the timing of that. I mean, I would — I guess, several questions. I guess, one, I would think you would have had a pretty good analysis of profitability kind of when you put the promotion and plan several quarters before. And then, so I’m just trying to understand why all of a sudden, it changed intra-quarter. And then when this actually happened just because obviously, you last reported in November, and there wasn’t really much comment about anything like this. So I’m just trying to understand the timing of this, why you didn’t catch it sooner and why the metrics would have changed so quickly.
Bryan Freeman: What I would say is we had an opportunity to pull back on the promotion intra-quarter, and we took it. And we did it because of our discipline. We are focused on improving our margins and being profitable and not growing just for growth’s sake. And as a team, when we came together, we said, look, we can’t check the three aforementioned boxes, and so we’re going to make this move. The same is true on the logistics side. We took a look at our current matrix, and we know that our job to deliver at least 8% logistics cost in 2023. And in order to deliver that, we knew we had to do a significant change to our matrix, and it cost us close to $1 million to do it. But now we’re set up for 2023 to deliver on the results that we all expect to achieve in ’23. So the way I would think about it is you’ve got a management team here who’s serious about becoming profitable and not growing for growth’s sake.
Bill Chappell: No, and I understand that, not see anything wrong with the decision. I guess I would have thought that right now, if you have a promotion set for June, you have a pretty good idea or estimate or forecast what the sales, the profitability of that promotion would be. So I’m just trying to understand, some of it was $13 million of sales, that seems like a pretty meaningful, some of it was already in place months in advance. So I’m just trying to understand what changed intra-quarter to then pull the plug?
Bryan Freeman: I think it was really about our philosophy on how we’re going to drive this business.
Akshay Jagdale: Yes. If I can add, Bill, I’d just say this should tell you that we’re even more focused on margins than we ever were before. So if you look at what we’ve seen in the market, we’re not getting credit for any of the sales growth or sales we’re putting up anyway. We’ve been focused on improving our profitability since we IPO-ed, we brought our profitability forward by over a year since what we’d said at the IPO. And this is just another step towards that journey. We’re all about profitable growth. And if there’s tough decisions we made even if they’re intra-quarter, we’re committed to making those.
Bill Chappell: Okay. I’ll follow up on that. And then on the transition costs of the distributor, was any of that one-time, I’m just trying to understand, were you taking back inventory from the former distributor? Was it just kind of termination fees or was it all this just all start-up costs, that incremental kind of cost in the fourth quarter just for going to the new distributor?
Bryan Freeman: Yes, it’s one-time. And what you’re really doing is moving a lot of your finished goods a second time because we needed to simplify where the inventory is stored, and you end up taking a hit in the quarter. So it’s a one-time cost associated with simplifying our matrix and moving it all into the new supplier. And so that’s a great setup for 2023.
Bill Chappell: Perfect. Thanks so much.
Operator: Our next question is from Rob Dickerson with Jefferies. Please proceed with your question.
Rob Dickerson: Great. Thanks so much. I have a couple. First one, I guess, just to touch on gross margin. Clearly, it came in a little bit better in Q4. And then for the year came in, let’s say, around 20%, 21%. The guidance is still at least 24%. It sounds like you have made maybe some incremental improvements through Q4. And I think if I heard you correctly, even if I just take the low end of what input cost tailwind could be, assuming you locked it in now, that could change, but let’s just take the low end and then take the low end of what op leverage would be, I mean — and I’m excluding any mix shift in the factory line benefits, I get to like an 800 basis point tailwind, right? But let’s say, even if you did 20% ’22, it’s not 24. And maybe if you could just provide some clarity as to kind of what clearly could be maybe some upside in that gross margin in ’23. I’ll start with that.
Akshay Jagdale: Yes. Thanks for the question. This is Akshay. I’ll take that one. So it’s a great question, we have a long way to go in the year. Our commodity costs and commodity basket is not necessarily hedgeable, as you know, right on chicken and some other commodities. So things can move around, especially quarter-to-quarter. And so there’s an appropriate amount of conservatism built into our guidance. And given our history also, we wanted to make sure we put up the numbers before we adjust our guidance in either direction. So it’s very early in the year. But what you’re seeing is exactly fact-based. And certainly, there’s a significant tailwind on commodities that if it continues the way it is, certainly could lead to some upside for 2023.
Rob Dickerson: Got it. Great. Good enough. And then, I guess, just coming back to the line of questioning around the shift in Q4 and focus on margin. I was out in California a few weeks ago at a lot of people go to. So it’s a lot of smaller companies, and the feel was clearly like everyone is trying to get to be EBITDA positive and cash flow positive. That clearly matters, especially in this environment, not just from a perspective, let’s say, of the market, but maybe a perspective of like survivorship, number one. And then kind of my question though is, is that kind of a point of discussion that’s increasingly come up with the retailers? And I ask this because not every company your size on a sales basis is clearly putting up the gross margin you just put up in Q4.
So then you say, okay, well, we’re at 70,000 distribution points, I think, is what you said, and you secured 50,000 new. I mean, that’s a big step, 70% increase, velocities are strong. I’m just curious when you speak with your retailers is kind of pointing to this profitability maybe vis-a-vis some other smaller companies helping you actually really secure that new distribution on top of the velocity that you’re able to show with the new products?
Bryan Freeman: Rob, we’re at approximately 170 points in distribution with 50,000 points confirmed. The conversation with retailers is all about, are we helping them grow the category? In other words, is our revenue incremental, our bringing new users into the category, that’s number one. Number two, how are the velocities of your items performing compared to the rest of the category? You can check those two boxes, that typically means you’ll get expanded distribution and growth for the business. And I can tell you that our products perform the top quartile of other products in the door. And in some cases, like in the case of breaded poultry, we’re in the top 10%, 12% of all products in the frozen meat section. And we’re obviously driving new users because of our brand attributes and our digital community.
So because of that, that’s why we have permission to grow, why they’re giving us expanded distribution and frankly, why new temperature states are being presented — opportunities that new temperature states are being presented to us. It’s not lost on me that it’s a big move going into the refrigerated section. We built that plant capability. It’s being in the — having the opportunity to go to the perimeter of the store is a big deal. And our first product out is a big success. So I just love the set up for 2023. And that’s why you hear us with such conviction around our guidance for the year.
RobDickerson: All right. Great. And then maybe just one quick one, just kind of what you’re speaking to on the refrigerated side, maybe if you could just quickly refresh my memory, apologies on kind of what that one new item is in refrigerated. I know you called out the protein-based burrito, but then there is some commentary around entering kind of protein-based entrees. So anything you have, I guess, one on the refrigerated side then two, kind of are there other incremental SKUs in the pipeline on protein-based entrees that are kind of within the guide and the new distribution in the back half of this year. That’s it.
Bryan Freeman: You bet. So we launched with flautas. We’ve got burritos coming alongside of it. You’ll see our burrito show up in April. There is nothing in the guide with regard to protein-based meal solutions. But now that we have that capability, the team has developed those items. They’re commercial ready. They’re not in the guide. We’re not going to put them in the guide for ’23. But nonetheless, I’m very excited about it. We see a big opportunity over there.
Operator: Our next question is from George Kelly with ROTH MKM. Please proceed with your question.
George Kelly: Hi, everybody. Thanks for taking my question. First one for you, just on your full year revenue guide. You said in the prepared remarks just how back half-loaded it would be. So just hoping if you can quantify that at all. I mean, is like a 60-40 split reasonable or any other way that you can help us understand how that growth will ramp throughout the year.
Bryan Freeman: I think that’s directionally accurate. When you consider the reset timing of the category, George, I think that’s directionally right. What’s also exciting is, when you look at that, think about what our run rate will be as we exit 2023 and what that means. I know it’s still early to talk about ’24. But think about how that will look as we exit ’23, it’s pretty exciting for the company.
George Kelly: Absolutely. Yes. Thanks. And then, second question for me. On your balance sheet, what is the current rate on your debt? And to get to that I’m assuming that your model calls for solid kind of operating cash flow profitability in the back half. But to get there, how much more do you expect to tap into your revolver? And that’s all I had. Thank you.
Bryan Freeman: You bet. Akshay, would you mind taking that?
