Greetings. Welcome to The Simply Good Foods Company third quarter 2018 earnings call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Mark Pogharian, Vice President of Investor Relations for Simply Good Foods. Thank you. You may begin.
Thank you, Melissa. Good morning. I am pleased to welcome you to The Simply Good Foods Company earnings call for the fiscal third quarter ended May 26th, 2018. Joe Scalzo, President and CEO, and Todd Cunfer, CFO, will provide you with an overview of the results, which will then be followed by a Q&A session for the questions the sell-side analysts may have. The company issued an earnings release this morning at approximately 7:00 A.M. Eastern Time. A copy of the release and the accompanying presentation are available under the investors section of the company's website at www.thesimplygoodfoodcompany.com. This call is being webcast live on the website. An archive of today's remarks will also be available for 30 days. During the course of today's call, management will make forward-looking statements that are subject to various risks and uncertainties that may cause actual results to differ materially.
The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release in the company's SEC filings. In addition, management will make references to adjusted EBITDA, a non-GAAP financial measure that it believes provides investors with useful information with which to evaluate the company's operating performance. Today's earnings release includes a reconciliation of the most directly comparable GAAP financial measures to non-GAAP measures. Finally, the company has included in today's earnings release and presentation unaudited financial information for the 13 weeks and 39 weeks ended May 26th, 2018, and unaudited pro forma financial information for the 13 weeks and 39 weeks ended May 27th, 2017.
The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of its business combination transactions on the historical information of our predecessor and successor entities, as applicable. The pro forma financial statements provide results as if the business combination transactions have been completed as of the beginning of fiscal 2017. All financial measures related to fiscal 2017 discussed today will be on a pro forma basis. With that, it is now my pleasure to turn the call over to Joe Scalzo, President and Chief Executive Officer.
Thank you, Mark Pogharian. Good morning, and thank you, everyone, for joining us. Today, I'll recap our third quarter highlights and provide an update on our business. Todd Cunfer will discuss a summary of our third quarter and our year-to-date financial results. After that, we'll open the call to your questions. Before we get into it, on behalf of myself and the board of directors, I want to say thank you to all of our employees and our business partners, whose efforts and hard work have resulted in the strong marketplace and financial results that we'll be discussing today. Our third quarter continued the strong business momentum we experienced in the first half of the year. For the third quarter, organic net sales grew 11.1% year-over-year, with adjusted EBITDA up 21.4%.
Our top-line growth continues to underscore the strength of our brand and the powerful nutritious snacking macro tailwinds of convenience, meal replacement, and low-carb, low-sugar, protein-rich products. Volume was the biggest contributor to growth in Q3, about 6.5 percentage points. Additionally, lower direct trade was a 4.6 percentage point contributor to sales growth. The increase in adjusted EBITDA is a direct result of the sales growth and favorable trade. These gains were partially offset by slightly higher distribution costs and the incremental expenses in the business that we mentioned earlier in the year, such as public company costs, marketing investments, and investments to enhance organizational capabilities and key functions, including preparation for future compliance requirements. Given the investments we've made across the business, combined with on-air advertising and in-store programming, we're seeing solid sales growth across all channels.
Our e-commerce business continued to do well, up about 70% year-to-date. We anticipate that as a percent of our total sales, e-commerce will increase at least one point in the fiscal year to 4% of our total sales. For the year-to-date 39-week period ended May 27th, 2018, measured channel U.S. POS growth per IRI was up 6.9%. Growth is driven by our strategic marketing initiatives addressing low-carb-seeking lifestyle consumers. An opportunity is four times greater than our original programmatic weight loss target. Our measured channel POS growth in Q3 was strong, up 9.8%. This excludes our e-commerce business, which continues to be robust. The initial first wave of consumer response to Rob Lowe in hidden sugars advertising is having a positive impact on our growth. Over the remainder of the year, we expect our POS strength to continue.
The most encouraging part of our strong retail performance is that it's coming entirely from base velocity growth, partially offset by slight volume declines in distribution as well as declines in feature and display activity. Strong base velocities are driven by the strategic initiatives we outlined earlier this year. Specifically, our new marketing campaign is resonating with and bringing consumers to our franchise. Our clean label initiative delivers on consumer preferences for fewer recognizable ingredients. The packaging refresh has improved shelf presence and aisle shopability. Several of our recent new product introductions are among some of our highest velocity items already. Our strong results give us the financial flexibility to invest in the business.
As we discussed last quarter, in the second half of fiscal 2018, we are making incremental strategic investments in marketing, supporting both our brick-and-mortar and e-commerce businesses, as well as in brand-building initiatives that should drive further top-line growth and enable us to carry our momentum into the next year. Additionally, we are enhancing our organizational capabilities and key functions, including preparation for future compliance requirements. As we entered the fourth quarter, we kicked off a strategic sourcing initiative that we believe will result in significant supply chain improvements that will enable us to maintain our strong gross margin. As such, we have engaged with an industry specialist to assist us in the implementation. The program will be focused on procurement, co-manufacturer supply processes, and logistics. We will incur implementation costs associated with this program in the fourth quarter, as well as in the first half of the next fiscal year.
We anticipate achieving savings from the program in the second half of next year. With this overview, I would like now to turn the call over to Todd Cunfer, who will provide you with some additional financial details. Todd?
Thank you, Joe, and good morning, everyone. Let me start with two points as it relates to the numbers you see on the slides that follow. First, for comparative purposes, we will review unaudited financial statements for the quarter and year-to-date ended May 26th, 2018, and pro forma financial statements for the quarter and year-to-date ended May 27th, 2017, which presents our results as if the business combination had occurred as of August 20th, 2016, including amortization expense based on the fair value of assets after the purchase and interest expense based on the new capital structure. We believe this discussion provides helpful information on the performance of the business during this period, and all financial measures discussed today will be on a pro forma combined basis. Second, we also evaluate our performance on an adjusted EBITDA basis based on our asset-light strong cash flow model.
We have included a detailed reconciliation from GAAP net income to adjusted EBITDA in today's press release. We believe this measure is a key indicator of the true underlying performance of the business. The third quarter results are as follows. Net sales were up 11.1% to $107.2 million and adjusted EBITDA increased 21.4% to $17.9 million. The net sales increase was driven by organic core volume growth of 6.5 percentage points. Direct trade was a 4.6 percentage point benefit due to lower promotional activity versus the year ago period as we focused on higher ROI programs. Gross profit increased 17.7% to $51.3 million with gross margin up 270 basis points to 47.8%, driven primarily by lower direct trade expense.
The increase in gross profit was partially offset by other expenses, including slightly higher distribution expense, a 13.4% increase in selling and marketing spend, which includes a portion of the incremental investment we discussed last quarter, and a 14.7% increase in G&A due to the previously discussed public company costs and accelerated capability expenses. Due to the Tax Reform Act, our effective tax rate in the third quarter was 28.5% versus an assumed pro forma rate of about 40% in the year-ago period. We continue to anticipate that the full-year tax rate will be around 28%. As a result, net income increased 31.9% to $7.1 million. Year-to-date results are as follows. Net sales were up 8.2% to $323.2 million and adjusted EBITDA increased 9.7% to $60.5 million. The year-to-date net sales increase was driven by organic core volume growth of 6.3 percentage points.
The acquisition of SimplyProtein was a 1.3 percentage point benefit and favorable direct trade a 0.6 percentage point contribution to growth. Year-to-date, gross profit increased 11.1% to $154.3 million with gross margin up 120 basis points to 47.7% due to lower direct trade and favorable product mix. This was partially offset by other expenses including higher distribution costs, $1.9 million of previously discussed transaction costs, a 7.6% increase in selling and marketing expense, and a 12.2% increase in G&A as a result of Wellness Foods, public company costs, and accelerated capability expenses. Recall our second quarter disclosure of a $29 million gain from deferred tax liability remeasurement and the $4.7 million gain on the TRA. As a result, net income increased $37.8 million to $58.7 million.
The company continues to benefit from very attractive cash flow characteristics underpinned by our asset-light model, which enables strong cash flow generation. Capital expenditures for the first nine months of 2018 were approximately $1.3 million, driven primarily by investment in our new website and digital media application. We estimate full-year CapEx to be slightly less than $2 million. Before I move on to the balance sheet, please note that we tracked the acquisition of Wellness Foods' SimplyProtein brand in the second quarter. The fourth quarter of fiscal 2017 includes a catch-up for four months of Wellness Foods net sales. We do not expect that the third quarter favorable direct trade will repeat in the fourth quarter of 2018. Moving on to the balance sheet and cash flows. The company's solid balance sheet and cash flow provides us with financial flexibility to support future growth.
As of May 26th, 2018, the company had cash of $88.4 million and a $199 million remaining on the outstanding term loan, resulting in a pro forma net debt to adjusted EBITDA ratio of about 1.4 times. The company also has a $75 million revolving line of credit available with no borrowings outstanding as of May 26th, 2018. In late May, Standard & Poor's and Moody's reaffirmed the company's debt rating. That concludes my financial overview. I would like to now turn it back to Joe for a few brief closing remarks.
Thank you, Todd. In summary, we remain confident in the growth opportunities for our business moving forward and confident in our ability to execute in the marketplace to deliver on our strategic initiatives. The incremental investments that we made in the business in the third quarter delivered strong sales and POS growth. POS in June remained strong. We expect the full year 2018 net sales growth rate to be similar to the year-to-date growth rate. Including the previously discussed investments in the business, we anticipate adjusted EBITDA growth will be slightly lower than net sales growth. Lastly, we feel very good about our long-term target of generating annual net sales growth of 4%-6% and adjusted EBITDA growth greater than that. We believe our algorithm is realistic, we believe it is achievable, and it will result in value creation for our shareholders.
We appreciate everyone's interest in the company. With that, Todd and I are now available to take your questions.
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Jason English with Goldman Sachs. Please proceed with your question.
Hey, good morning, folks.
Morning, Jason.
Jason.
Thank you for letting me ask a question. I've got a couple. First one on the trade spend. The ability to pull out trade spend stands in pretty stark contrast with the industry overall, which seems to be putting more and more money above the line. Can you talk about the dynamics there? What's driving it, and is there anything transitory, timing related to this benefit that we should be cognizant of as we think about the forward?
Yeah. Jason, it's Todd. It was really more due to the amount of activity we had last year. Our POS lulled a little bit in Q2 and the beginning of Q3. We decided to spend some more money in the marketplace. We got some return for it, not as much as we'd like. As we lap that coming into this year, we decided with just the strength of the core business, not to repeat that activity. We're really doing a great job managing our trade, but that big decline was majority of just the amount that we put in last year.
Okay, that's helpful. The new initiative, the strategic sourcing initiative. Was the catalyst for this, did it have anything to do with the fact that so much of your supply is coming out of Canada? Is there risk to contemplate there? Sorry, this is a little bit long-winded. Building on that, I think it was you, Joe, who mentioned that the initiative is designed to sustain strong gross margins, not expand gross margins. Again, I guess it raises the question of whether or not this is in response to some headwinds that you see on the come.
They're actually not in response to headwinds. In our algorithm, we do have gross margin improvement of 10 to 20 basis points a year. This is just another arrow that we can use in our quiver to find efficiency in our business. How it will play out vis-a-vis inflation in the future, your guess is as good as mine. We would say right now, our basket of goods and services as we look into next year, again, a little early for us to be providing a point of view, feels relatively benign. I mean, it's a very dynamic environment given what's going on with dueling tariffs. At this point, we don't anticipate any significant step up in inflation.
Your implicit guidance for the fourth quarter on EBITDA suggests that EBITDA will be flat to maybe down mid-singles, depending on how you interpret the slightly below sales. Is the bulk of that related to the implementation costs that you mentioned that sound like they'll spill into next year? Or do you plan on treating those implementation costs as one-time in nature?
No, they're embedded in the EBITDA calculation. There's really three drivers to that implicit EBITDA Q4 that you mentioned. It is those implementation costs. It is a continued step up in our marketing investment, just with the recent really over-delivering POS and increase in our very strong third quarter, we take our incentive comp up a bit. That's sitting in Q4 as well.
That's a high-quality problem. Thanks, guys. I'll pass it on.
Yeah, thank you.
Thank you. Our next question comes from the line of Matthew Smith with Stifel. Please proceed with your question.
Hi, good morning.
Morning.
We saw a net gross margin benefited from a trade promotion efficiency. Did strong volume growth also benefit the gross margin, or are the volume benefits limited by the co-packing agreements?
Yeah.
Go ahead.
I'm sorry. As you mentioned, the fact that we're outsourced, there's limited leverage from volume. We do get a little bit of leverage in the fact that the more volume going through our co-mans, we tend to get some higher rebates and lower costs, but not your typical in-house manufacturing where you're really leveraging those fixed assets.
Given the strong volume performance on a year-to-date basis and what you expect in the fourth quarter, could you see that benefit accelerate going forward or is it too small to really matter?
It's not a major impact.
All right, great. Thank you.
Thank you. Our next question comes from the line of Brian Holland with Consumer Edge Research. Please proceed with your question.
Thanks. Good morning, everyone. First question, I guess, can you help us reconcile an implied something in the range of 8% top line growth. I understand some of the Canada offset, but that doesn't seem to be too material in the grand scheme of things. Scanner data out this morning for you guys, you're now growing about 16%. Obviously, a tremendous performance there. Just trying to understand maybe the delta between what's implied by your Q4 top-line guidance and what we're seeing in scanner. Any other offsets we should just be mindful of at this point?
As I mentioned in the call, we do have some headwinds with lapping four months of the Wellness Foods business. That's about 1%. As we've been discussing, we've been having a restructuring in our international business, that will be declining in Q4, that is also an impact. As you said, we've got off to a great June in the scanner data. It's difficult sometimes at year-end because there's lots of things on the bubble between year-end and beginning of next year on promotional shipments, there's new shelf resets, there's always some noise around there. We feel good about the guidance that we've given, I'll leave it at that.
Okay, fair enough. If I could just ask about, I know that you talked about the top line growth being velocity driven, I'm curious if we can kind of peel back a little bit to the extent that you guys are tracking metrics such as household penetration, servings per buyers, things that you've talked about before. Can you provide any sense of maybe year to date, how that's performing? Maybe the balance of this growth. Is it all new households coming in and trialing? Is it a balance of households coming in and servings per household going up? I know we have data that suggests it's a healthy mix of both, I trust you guys are looking at that pretty closely. Just curious what that underlying consumer behavior looks like.
Yeah, we have both, as you mentioned, more buyers buying than the same year to date period prior year, buy rate is healthy. We're getting a combination of both of those things, which is encouraging for our business. Just to remind folks, the core to our strategy is we were targeting programmatic weight loss consumers. There are about 80 million of those. We had about a 40 share. We're now going after the 31 million lifestyle, low carb, low sugar, protein-rich consumers. We're seeing as we targeted them with Rob Lowe and hidden sugars, we're seeing a nice uptick in the consumer fundamentals of our business, which is leading to improving POS results.
I guess last one from me. You've talked before, I think you talked last quarter, about sort of shifting towards the higher end of maybe a 9%-10% marketing spend as percent of sales. You're a little bit above that 10%. Given the more focused approach and the returns that you're seeing, should we continue to sort of think about maybe the high end of that 9%-10% range or maybe even a little bit above that as you guys kind of continue to move on this momentum?
Yeah. As I mentioned
Marketing in the fourth quarter. Yeah, I think you can expect us to be at the high end for the year, and we will continue. Our goal is to grow with net sales, with marketing, at least in the future. I think you should, in your models, continue to think of it in that way.
Appreciate it. Best of luck.
Thank you. Our next question comes from the line of Rob Dickerson with Deutsche Bank. Please proceed with your question.
Hey, good morning. It's Matt on for Rob. Thanks for the question. I have two quick ones. Do you have any timeline updates or early successes you're able to share on the protein launch?
A little too early to talk about that, Matt. We're just starting to sell into customers. When we get some POS results that we can talk about and give you some insight into, we'll be more than happy to do that.
Okay, perfect. Just on the M&A environment from a hypothetical acquisition target perspective, why join Simply Good Foods over continuing to run a business independently or selling to a larger food company with more resources, history, portfolio diversity, et cetera?
I'm not sure I understand your question, Matt. Why would somebody sell to us versus be independent or sell to somebody bigger?
Right. Obviously, the M&A environment, I'm sure it's pretty competitive in your space given the growth that you guys are seeing. What is attractive about Simply Good Foods as a potential parent company perspective relative to selling to a larger CPG company?
Yeah, that's an interesting question. Besides value, we'll set value aside for a second, the synergy and all those things. I think the hardest thing to do in running a business is to maintain a balance of speed and smart strategic thinking and marketing ideas, right? I think that we've shown as a management team that we're pretty good at mining consumer ideas, turning them to initiatives in the marketplace, and moving quickly to capture those. Best example I can give you is the identification of the self-directed low carbers, the ability to get a celebrity like Rob Lowe, the concept around hidden sugars as a proxy for eating too many carbs, and to execute that in the marketplace in relatively quick order to get good business results, see those results, and then be willing to invest, lean in, and invest forward.
A company that's looking to be able to sell and drive growth, we've shown to be entrepreneurial and quick moving in our ability to capture opportunities in the marketplace. That's not a negative comment on larger companies. It's a positive comment about our organization, what we've been able to do. I think that is attractive, especially if you talk to founders looking to want to sell their business, but continue to know that it's going to be in good hands and people are going to nurture it and grow it. We've shown the ability to do that.
Perfect. Yeah. Thanks. Very interesting.
Thank you. Ladies and gentlemen, if you'd like to join the question queue, please press star one at this time. Our next question comes from the line of Bill Chappell with SunTrust Robinson Humphrey. Please proceed with your question.
Thanks. Good morning.
Morning, Bill.
Hey, just back on the sourcing initiative, is there a timeline of how quick that will pay back itself? I know you'll get the benefits in 2019, but didn't know if it's a pretty quick payback or if this is a multi-year type project.
Yeah, I don't want to get into all the specificity on the amount of money we're spending and the amount that we'll save. As we mentioned, Q4 this year, first half of next year is when the expense will be incurred. We will start to get savings from that in the second half. We anticipate a pretty fast payback on our investment. I would say the total, it'll take us at least 24 months to get the full impact of all the different initiatives that we're going to be working on. We feel really good about the project. We're not patient people.
I won't argue with you with that. The second, in terms of, I think you alluded to shelf space resets in the fall, which I guess is more normal for your category. I understand you have a high level of ACV and certainly a high share within your categories. Is it possible you get some meaningful gains in the fall and into next year with the scanner data's running, with the Rob Lowe expansion? Do you see new customers or new shelf space popping up?
Yeah. First I'd say it's hard to predict going forward, right? That's playing out as we speak. Even to the fall, we haven't heard what the answers to those things are. I like the metrics that we're seeing right now. First and foremost, our base velocity. Like items in the store are up in the 20% range. That is normally a pretty good indicator around the productivity of your shelf and your ability then to get incremental space on the shelf. Second, I like the lineup of products that we've got, that we've offered to customers, to put into the set starting in the fall. I think the combination of those two things make us optimistic we could actually make. Frankly, the results that we're getting make us confident that even in flat distribution world, that our business results are going to be strong. Right?
What we believe is happening right now is more people are coming to the shelf and buying more product. Now, I'd like to believe that we could put a few new interesting products in front of them, and those can perform incrementally better than we would without them. We feel good about just our core business right now. We feel good about the trajectory of the business, and we like the new products we're putting into the marketplace right now. Be able to probably tell you a little bit more about the progress there in the next quarterly earnings.
Great. Then last one for me, just trying to understand, as you kind of look to Rob Lowe and look to where you're expanding into the new market, is there more you need to do? I guess, going back, there had been a talk that clean label was kind of the key, and new packaging was the key to really reach this expanded demographic. Is that still the case, and kind of where do we stand on that whole move?
I love the question. As a CEO, there's always more to do. I would tell you the core of what we've been doing has been around talking to the self-directed low carbers and helping make them smarter about nutrition. That's the core of what we've been doing. The package refresh, the cleaner label just lowers the barriers to entry into the brand for people. The core of it is, what we believe has been driving our business is we're giving people better information about how to feed their bodies. There's always more that they can learn, and there's always more that we can teach. That's kind of the path that we think we're going down, that you can rely on Atkins to provide you good education around what you're putting in your bodies and what you should be putting in your bodies.
That's kind of the path I think you'll see us continue to press. The encouraging part of it is it appears to be equally compelling to programmatic weight loss folks as it is to self-directed low carbers. There's an efficiency in that that we really like.
Got it. Thanks so much.
Thank you.
Thank you. Our next question is a follow-up from the line of Jason English with Goldman Sachs. Please proceed with your question.
Well, hello again, guys. Thank you for allowing me to ask a follow-up. I thought your answer to the question on why you may be the preferred strategic suitor was interesting. You focused a lot on culture and capabilities, which I respect and appreciate. One area you didn't touch on was the ability, given your size, to facilitate a tax-advantaged deal structure. Something like an RMT. It was part of the conversation early on. I guess my question is why wasn't it part of your answer there? Is that something that you see a lower likelihood of? If so, why? Has tax policy changed it? Any color you can add there? While we're on the topic, if you could give us an update on where your appetite stands for further acquisitions and what the pipeline may look like.
Yeah. I think that if I could paraphrase, your question is where are we fishing from a deals standpoint? As we progress throughout the year, I think we've pretty consistently said we like the nutritious snacking space. It's core to our capability. It's core to who we are and is a preponderance of the assets that we're looking at. Just because we believe we add a significant amount of value there, it's where we're doing most of our fishing. If a larger asset, tax advantage, larger asset in center of store or other snacking became available, we would absolutely consider it, but it's not where we're mostly looking. We would consider it based upon a few simple criteria. Do we like the category? Do we like the brand and the brand position in that category?
Because it would probably be a significant asset, does it have capability in the management team, or do we believe that we could recruit capability in the management team? The subtext of that is in its current owner, it's probably being underappreciated, and we believe we could over appreciate it. Did I answer your question?
Yeah, you answered a part of my question. The other part of my question is why aren't you talking more about the tax advantage structure you can offer? Maybe embedded within your prior answer was the answer to that, and that nutritious snacking assets are more likely to be standalone businesses where you're just buying them outright rather than carve-outs where an RMT would make sense. Is that a fair interpretation?
Yeah. By definition, the larger carve-outs are more opportunistic, right? You don't fish for those as much as they show up at your boat, and you then start talking to them, right? Where we're looking tend to be more growthy, nutritious snacking assets, and that's where we're actively looking at things. I suspect that a larger, maybe less growthy RMT spin-out of a larger food company is going to be more opportunistic in nature. It's not something you can go out and hunt for. They'll show up when they show up. I think even in the conversations early on in this process, if you listen to Dave and to Brian from our board, they said the same thing, right? It's very When they want to divest those assets, they know that we're interested.
If those things show up, we'll consider those based on the criteria I talked about before.
Understood. Really helpful, guys. Thank you.
Okay.
Thank you. Our next question is another follow-up from the line of Brian Holland with Consumer Edge Research. Please proceed with your question.
Yeah, thank you. Just a question about the competitive landscape. Obviously, if you're taking share, somebody's losing share. I don't expect you to comment specifically on a competitor, but generally speaking, can you give us some color behind the type? Is it broad-based, you're taking share from everyone? Is it the larger, more stale brands that maybe have been less active than you certainly have been within the past 12 months or so? Maybe it is some of these other brands that have been aggressive in spending. I know you've talked recently in the public forum about being able to be a little bit more rational if your plan is just to basically sell yourself so competitive on price, promotion, et cetera.
Just given how fragmented that space is, just curious if you could give us some insight on maybe is there a commonality with who you're taking share from?
Yeah. The first observation I'd make is the category has accelerated as we've accelerated. The broad nutritious snacking category, that broad competitive set, is seeing really good growth. If you're a competitor and you're losing share and you're losing volume, that's a concerning thing for you. Basically what's happening is pretty much all the boats are floating with the growth of the category. I think it's driven by the fact that we're a category that people are coming to. There's more households, penetration is increasing, retailers are dedicating more space to the category. I think it's more a win-win situation than it is we're taking share and people are losing. Now, there are some people growing faster than others, and I think those are pretty obvious if you see the data. There's a few people that are kind of lagging right now.
They're pretty obvious. They're growing, they're not growing anywhere near the rate that some other folks are. The other observation I'd make is there's a lot of small brands in this category. I think we counted over 400 of them, those ebb and flow pretty volatilely throughout the year. When I say right now, there's not a whole lot of people losing. I think there's people winning better than others. If that helps.
Got it. Fair enough. Appreciate the color.
Thank you. Mr. Scalzo, there are no further questions at this time. I'll turn the floor back to you for any final comments.
Thanks again for your participation on the call today. We look forward to updating you on our third quarter results in November. We hope you have a good day and the rest of the week.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.