Once Upon A Farm Pbc (OFRM) Q3 2026 Earnings Call Transcript

Operator: Greetings, and welcome to Once Upon a Farm's Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brian Holland. Please go ahead.

Brian Holland: Thank you, and welcome to the Once Upon a Farm's Third Quarter 2026 Earnings Conference Call. With us on the call today are John Foraker, Chief Executive Officer and Co-Founder; and Larry Waldman, President and Chief Financial Officer. By now, everyone should have access to the earnings press release that was issued earlier this afternoon and is available on the Investor Relations section of Once Upon a Farm's website at www.onceuponafarmorganics.com. This call is also being webcast, and a replay will be available shortly after the call concludes. Before we begin, please note certain comments made on this call include forward-looking statements, including, but not limited to, statements regarding our expected future results for 2026 and our 2027 framework, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release 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. We do not undertake any obligation to update any forward-looking statements to reflect events or circumstances after the date of this call, except as required by law. During the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filings as well as the earnings press release provide reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures. And now I will turn the call over to John to begin.

John Foraker: Thanks, Brian. Good afternoon, everyone, and thank you for joining us today. This is an important moment for Once Upon a Farm. Over the past 2 weeks, I've been incredibly proud to see our team live up to the commitments that have defined this company since day 1, putting food safety and quality first and supporting the parents and families who trust our brand. We took decisive action to address a potential safety concern on the Tractor Wheels product lines, and our teams, working closely with the FDA and our retail and distribution partners moved quickly to remove products from shelves, provide families with the information they need and issue refunds as quickly and simply as possible. Across the organization, we are aligned to treat this moment as an opportunity to directly communicate with existing and future [ Ofarm ] consumers about our brand mission and to raise the standards for quality and safety for both our brand and the categories in which we compete. Tractor Wheels are an important part of our business, but when it comes to consumer safety, our priorities are clear. I sincerely believe that we will emerge as a stronger company and a stronger brand. On today's call, I will start by providing a brief summary of our third quarter results and the continued strength we're seeing across the business. I'll then spend some time on Tractor Wheels and the work underway since we announced the voluntary recall 2 weeks ago. Larry will follow up with additional detail on Q3, the anticipated financial impact of the recall and an update on fiscal '26 guidance as well as our initial planning framework for fiscal '27 before turning it over to Q&A. In the third quarter, net sales increased 34.9% to $89.1 million, led by volume growth of 32%. This was in line with our internal plan. Channel-wide consumption increased 32% in Q3, consistent with year-to-date growth. As expected, the delta between shipments and consumption narrowed from last quarter when we benefited from favorable cooler slotting. Year-to-date, Tractor Wheels accounted for 18% of net sales and was a meaningful contributor to growth. Excluding Tractor Wheels, the rest of our business has also grown above our long-term algorithm throughout the year. Our reach is expanding across retail, including the addition of 1,100 high-quality baby coolers. We are also seeing higher velocities, thanks to improved assortments such as line extensions as well as the introduction of new functional benefits and flavors that have been well received by consumers. Adjusted EBITDA loss was $1 million, ahead of plan despite continued investment behind our brand, our people and capabilities as well as an incremental $2.6 million in year-over-year investment in coolers, which we expect will deliver strong returns over time. Prior to the Tractor Wheels recall, we were on track to deliver growth over 1,000 basis points above the initial fiscal '26 guidance we set earlier this year and expected to reaffirm both the higher revised fiscal '26 net sales and adjusted EBITDA guidance we provided last quarter, despite well-understood rising inflationary pressures impacting freight, packaging and ingredients. Incorporating the anticipated recall-related impact from Tractor Wheels, we are now guiding fiscal '26 net sales to a range of $290 million to $300 million and adjusted EBITDA loss in the range of $4.5 million to $7 million. Larry will provide more details. We are encouraged by the consumption trends we have observed across our broader portfolio in the days immediately following the recall. Initial data from a meaningful group of retailers across multiple channels shows our portfolio is performing slightly above its normal everyday pace, excluding Tractor Wheels. We believe this speaks to the strength and equity of the Once Upon a Farm brand earned over the past 10 years through an unwavering commitment to our mission, to drive systemic improvements in childhood nutrition for a happier, healthier and more equitable world. We will continue monitoring these trends very closely. Bigger picture, our marketing as well as our broadening distribution footprint have generated greater awareness and visibility, driving increased trial and adoption, fueling strong loyalty and more consumption. Unaided brand awareness has more than doubled over the past year, and our analysis shows we are turning that awareness into consideration faster than any of our competitors. Per numerator, household penetration grew to 6.5% at the end of September compared to 5.4% a year ago, the fastest rate of adoption growth among established baby or kid brands. We are now the third largest organic brand across all of baby and kids. Meanwhile, our repeat rate among households with kids remains very healthy at 52.1%, up from this time a year ago as higher trip frequency supports continued buy rate growth and new families are repeating at even higher rates, over 60%. Once Upon a Farm is a major driver of the overall baby aisle. According to MULO tracked channels within dry baby snacking, we have become the #2 brand overall and the #1 organic brand within 3 years of entering the market, despite competing in just half of the available category dollars today. In bars alone, we have amassed a 40% share and are driving 100% of the dollar growth in that subcategory of dry baby snacking. In addition, we have 5 of the top 8 and 13 of the top 25 best-performing organic items across dry baby snacking. In fact, strawberry banana puffs is actually our top-selling single item within the category. We see minimal cross-shop between Tractor Wheels and the rest of our dry baby snacking line, which speaks to the differentiation we are bringing to market. And those products so far are growing at or above their usual year-over-year pace in the initial days since the Tractor Wheels' voluntary recall. [ Ofarm ] buyers are highly desirable to retailers with contribution across our portfolio. We are adding households at a much faster rate than any of the established competitors we track across infant and toddler, and those families are spending 3x as much on the category as the average shopper. More broadly, our households boast the highest average basket size of any infant or toddler brand, nearly 40% higher than the #1 legacy brand in the aisle. What gives us confidence in the durability of our growth is that the key elements of our business model are increasingly reinforcing one another. Greater brand awareness is attracting new households, strong consumer loyalty is supporting retail velocities, and those velocities are creating opportunities for expanded distribution and innovation. We're seeing this play out in real time across our business, and it gives us confidence in our ability to continue delivering attractive growth at increasing scale. To that end, our 2027 commercial plans outside of Tractor Wheels remain on track. They include continued assortment improvements across the portfolio, broader distribution of recent innovation, continued cooler expansion and new product and category launches. Within these, we also have some exciting new partnerships in the works and look forward to sharing more details in the near future. We continue to have strong conviction in the opportunity in front of us, and I want to emphasize there has been no change to our long-term strategy or objectives. We have considerable distribution white space. Compared to the largest legacy baby and kid brands, we currently sell in anywhere from 1/2 to 1/3 the number of stores. As we expand our reach, we have added approximately 197,000 total distribution points across our portfolio over the past year, including approximately 43,000 in the third quarter alone. We are not just finding new consumers. We're making it easier for our existing households by meeting them where they are, which is translating to the buy rate growth I referenced earlier. Our innovation pipeline is strong. We are optimizing our core by introducing new functional benefits and flavors as well as growing existing categories through line extensions. For instance, our recently launched protein and probiotic smoothies are generating the highest velocities we've seen on a new pouch item introduction since Immunity Blends back in 2021. Further leveraging our success in functional pouches, last month, we introduced our newest blends, organic electrolytes using real food to support hydration and nutrition through ingredients that naturally provide electrolytes such as juicy fruits, veggies, coconut water and sea salt. And in January, we will repackage and reposition our fruit and veggie blends as superfood blends, which we expect will drive higher consumer resonance and velocity, just as we've done successfully most recently with our dairy-free smoothies line. Finally, we are also bringing clean options to new categories and consumers. Our next breakthrough innovation is on track for a first half 2027 launch, and we have clear indications of retailer enthusiasm for this next category entry. We look forward to talking in more detail about this innovation when it hits the market at retail. Turning to Tractor Wheels. It has been 2 weeks since we announced the voluntary recall. While there is still a lot of work to be done to get the product back to market, I want to provide an update on where we are today with the path forward. First, as we previously communicated, we took swift voluntary action to initiate the recall within 24 hours of receiving 3 reports of a potential choking hazard from the FDA, incidents we take very seriously. Turning to our immediate focus. We are reviewing Tractor Wheels, evaluating the information we received from the consumer reports to identify potential root cause or contributory factors, and as appropriate, potential corrective actions to safely bring the product back to market, including product reformulation and design changes. We engaged independent product safety experts who have already begun conducting a comprehensive assessment. We expect this process to take 8 to 10 weeks. In parallel, we are also conducting consumer research, engaging existing Tractor Wheels purchasers as well as current non-purchasers to clearly understand sentiment and intent across a number of variables. We're also getting prepared with our co-manufacturer to immediately conduct test runs when we are ready to do so. We are working with urgency to return Tractor Wheels to shelves, though I want to assure you that we will take the time necessary to complete the appropriate assessment, testing and independent validation. We look forward to bringing these beloved products back to consumers quickly, but safety and quality will be the top priorities. We are committed to getting this right. Watching our team over the past 2 weeks has reinforced my conviction in Once Upon a Farm's ability to lead across our categories. We remain confident in the enduring strength of our portfolio and in the significant long-term opportunity ahead of us. Finally, before turning it over to Larry, I want to call attention to the recent appointment of Scott Morris to our Board of Directors. Scott brings over 3 decades of CPG experience and expertise, including building and scaling a fresh refrigerated food brand over the past 2 decades. As Co-Founder of Freshpet, he disrupted a large stagnant category, resulting in a company today generating over $1 billion in net sales. Scott's contrarian vision, commitment to nurturing brands while preserving their purpose and focus on the future are invaluable traits that will benefit our company in the years to come. Welcome, Scott. We look forward to working with you. With that, I'll hand it over to Larry.

Lawrence Waldman: Thank you, John, and good afternoon, everyone. Third quarter net sales increased 34.9% to $89.1 million compared with $66 million in the prior year period. Volume increased approximately 32% and drove most of the growth with favorable mix contributing to the balance. Gross margin was 36.1% down 600 basis points year-over-year, but in line with our expectations. The decline primarily reflected trade investment supporting the national club program, product mix and cooler placement costs associated with over 550 installations. These pressures were partially offset by pricing and favorable customer mix. SG&A expenses increased by $8 million to $36.8 million, reflecting continued investment in marketing, people and public company capabilities. Despite these investments, SG&A as a percent of net sales declined approximately 230 basis points to 41.3%, reflecting the leverage from our revenue growth. Net loss improved to $3.8 million from $11.3 million in the prior year period, primarily reflecting the absence of the prior year non-cash change in fair value of a derivative liability. Adjusted EBITDA loss was $1 million compared with a positive adjusted EBITDA of $0.9 million in the prior year period. The year-over-year decline primarily reflected lower gross margin, partially offset by SG&A leverage, which came in better than our expectations. On the whole, third quarter results were ahead of our internal plan. The Tractor Wheels recall was initiated after the quarter ended and thus had no effect on our Q3 results. We have incorporated its expected impact in our updated Q4 and fiscal 2026 outlook, which I'll address in just a moment. Turning to the balance sheet. We believe our financial position gives us the flexibility to manage through this period. We finished Q3 with $106.4 million in cash and no debt. In addition, we have up to $95 million in additional borrowing capacity through our existing credit facilities, subject to their terms. We currently expect to incur up to $30 million of costs related to the Tractor Wheels recall in fiscal 2026, including customer returns, retailer chargebacks, legal and other recall-related expenses and costs related to work in process inventory at our co-manufacturers. We are pursuing potential insurance recoveries but cannot yet predict their timing or amount. In Q4, we plan to begin executing the previously discussed supply chain productivity and automation projects unrelated to Tractor Wheels. These projects are intended to expand capacity, improve service and structurally lower production costs across our highest volume platforms. As we previously stated, we expect to see initial benefits in fiscal 2027 with a more substantial contribution beginning in fiscal 2028. We expect to fund these projects from existing cash while maintaining substantial liquidity. Separately, as we assess the recall's impact, we are evaluating whether adjustments are needed to the timing or scope of any Tractor Wheels-related projects, and we will keep you apprised of any changes to those plans. As John indicated, we are updating our fiscal 2026 outlook to reflect the impact of the Tractor Wheels recall in Q4. We now expect net sales of $290 million to $300 million and an adjusted EBITDA loss of $4.5 million to $7 million. The net sales range reflects no Tractor Wheels sales after the recall date as well as our current estimates for customer returns and chargebacks. We have also stripped out planned Q4 Tractor Wheels shipments to support new distribution and Q1 2027 promotions. And while early signs are encouraging, less than 2 weeks since the recall, we believe it is prudent to assume some drag on base velocities across the rest of the portfolio. The adjusted EBITDA outlook reflects these revenue impacts and expected recall-related costs. We are providing an initial planning framework for our business in fiscal 2027. Based on our current assumptions, we expect net sales of at least $330 million and adjusted EBITDA of at least breakeven. Compared with fiscal 2026 on a like-for-like basis, excluding Tractor Wheels, we anticipate net sales growth to exceed our stated long-term algorithm of 20%, supported by innovation and distribution gains. This framework takes into account a range of potential outcomes, both in the timing of Tractor Wheels' potential return and the recall's possible effect on velocities across the broader portfolio. We also consider the impact of lapping significant gains in awareness and household penetration following our IPO as well as 2 national club programs now in our base, including one for Tractor Wheels. We expect to provide formal guidance with our Q4 results in March when we anticipate greater visibility into Tractor Wheels' potential return to market timing and broader effects. Aside from the recall impact, our current market-based assumption indicate low single-digit inflation across our core refrigerated pouch platform with packaging representing the largest variable. We are also seeing cost and availability pressure across certain organic fruit and vegetable inputs, grain-based and other dry ingredients and imported agricultural commodities. In addition, fuel and other transportation costs, material contract resets and regulatory packaging fees are expected to remain elevated. These assumptions reflect our existing contracted positions, current market quotes and expected contract resets with visibility varying by input and by period. As we exit fiscal 2027, we fully expect total company net sales growth at or above our long-term algorithm, assuming Tractor Wheels is back on the shelves. We fully expect margins to remain on the trajectory outlined at our IPO as recall-related impacts moderate and the benefits of scale, trade, productivity and supply chain efficiencies flow through. We will continue investing in consumer safety, service and the capabilities that help us reach more families while managing costs with discipline. This concludes our prepared remarks. Operator, please open the call for questions.

Operator: [Operator Instructions] And our first question will come from Leah Jordan with Goldman Sachs.

Leah Jordan: A key part of your growth story has been on growing household penetration. So can you talk about how you think about retaining customers amid the recall? And then how you think about winning them back after this period of, you have to go through the reformulation and the unknown time line?

John Foraker: Yes, sure. So we have 6.5% household penetration as of the end of the quarter. And we've grown our households over time by communicating the message around the brand, broadening our distribution, getting these great products out into many millions of households. We would expect that we'll continue to grow household penetration in the same way. We'll be bringing new innovation into new categories, as we've said before, every 12 to 18 months, the first of those big new innovation platforms. We didn't have one this year, it's coming in the first half of '27. So we'll be doing that. And what I can say, Leah, is like we've talked to thousands and thousands of consumers over the last couple of weeks as part of the recall. We talked to all of our customers, obviously, many times and worked diligently with them through execution of the recall. Talking to them about where we are with the brand. And I'll make 2 points. One is on the retailer side, retailers have been exceptionally supportive and think that we did the right thing for consumers. They respect that, and they're ready to do business with us and want us to continue growing, including no change in any of the plans they have on existing products that we're bringing to market. We're bringing some new dry baby items and new subcategories into market in the first quarter, for example. So they're just -- they're ready to move forward with us and let's go. And then the sentiment from consumers overall, obviously, some consumers are calling in and they're concerned about what they've heard. The overall sentiment that we're getting from consumers is, they really appreciate what we did. They recognized it was a significant move and that we were doing it because we're prioritizing their and their children's safety. And this generated a lot of love for the brand, including a lot of comments from consumers about wanting the Tractor Wheels platform to come back as soon as possible. So obviously, we'll monitor sentiment very closely. And we think that over time, we'll win back many of those consumers who would have been impacted by this recall. And we just got to keep doing what we've always been doing, which is bringing great quality products and making their lives easier by doing that. So that's our approach. As I said in the prepared remarks, we've seen no negative impact on the rest of our portfolio in the couple of weeks post the recall versus the couple of weeks -- days prior to the recall, which is very encouraging on everything outside of Tractor Wheels. And so I think we're well positioned. We now have to just do it, right? We have to execute while make sure that those products come back the right way. And then we just got to keep talking to consumers about it. And we'll be elevating our messaging around what we're doing and how we're trying to elevate the entire category with respect to safety as well, which will be part of it.

Leah Jordan: That's great color. And you kind of touched on the retailer relationship piece, but I wanted to dig into that a little bit more. Part of the growth story ex-Tractor Wheels is around; one, the cooler expansion in baby pouches; and then two, it's the SKU expansion in broader snacking. So just what is your visibility today on the continued growth of those 2 products? What are you looking for in spring resets? Where do you actually have commitments? And just kind of help on that growth path as we look forward to '27?

John Foraker: Yes. So on the baby cooler side, we expect continued very strong growth in our cooler assortment, and also placements over the next year. We're not guiding specifically to that today, but I can tell you the momentum we have with retailers on coolers remains very strong and is unaffected by any of this recall noise. And so we expect that, that will continue to grow. The coolers are performing really well. They're highly incremental. The repeat rates coming out of the coolers are very high. That story remains completely unchanged. So we're going to continue to do that. And then, we have new innovation coming, as I mentioned, in dry baby snacking. We have changes -- positive changes that we made in packaging and other things coming. We've got some new relationships that we'll be announcing soon. So there's just a lot of momentum in the business on the TDP side, and we have pretty strong visibility around that into next year. It's right now the middle of November basically and we know what the resets look like for the first quarter, and those are locked down and even out in the second quarter. So pretty strong visibility. And we will -- when we report our Q4 earnings, which would be at some point in March, we'll obviously set more specific guidance for the full year, but you should expect that there will be really strong growth in both of those areas that we'll be signaling based on what we know right now.

Operator: And our next question will come from Jon Andersen with William Blair.

Jon Andersen: You kind of hit on this, but I do want to just put a fine point on it. Has the developments of the past couple of weeks, have they affected your commercial or operational plans in any way for 2027 on the commercial side, innovation, distribution expansion, et cetera. On the operational side, some of what Larry spoke to, productivity programs, supply chain enhancements designed to deliver margin expansion in '27, more so in '28?

John Foraker: Yes. On the Tractor Wheels platform, obviously, that's been impacted. But the feedback that we've gotten from all of our retailers, and we announced this recall on a Friday night, and by 6:00 a.m. that next morning, I was on the phone and our sales team was on the phone with retailers all over the country, and I talked to most of our top retailers. Once we got through the specifics of organizing around the recall, they affirm their support for the brand and the business and what we're doing. So there are no changes as we made a comment in the script on our '27 commercial plans. And we've got new innovation coming. We've got a lot of distribution expansion. Our core dry baby items outside of Tractor Wheels are continuing to perform well. We have distribution opportunities there, too. So we're in a good spot. Larry mentioned in the prepared remarks that obviously, the capital projects around -- that are related to machinery and investments around Tractor Wheels, we have to reevaluate the timing of those and the scale and all that stuff, and we'll be reporting out once we come to a conclusion. That will be very much linked to what we ultimately decide to do in terms of returning Tractor Wheels to market. Our retailers want us to do that. The vast majority of the consumers we talk to want us to do that. We'll do it the right way. Obviously, we'll do it when we're comfortable that we've addressed any of the safety concerns in the manner that we talked about in our prepared remarks. So that's it. It's really a lot more to be learned in that regard over the next few weeks and months, and then we'll be back to update everybody with more information as soon as we have it.

Jon Andersen: That's helpful. I was encouraged to hear that the consumption data so far ex-Tractor Wheels, you've seen hold up across the portfolio. But then I think you've assumed or mentioned that you thought it was prudent to assume some impact more broadly or halo effect on the base business and velocities. How do we square those 2 things? And to the extent that you think it is prudent to assume a bit of a slowdown in the base for a period of time, to what extent should we be thinking about that as we look to kind of update our view of 2027?

John Foraker: Okay. Yes. both those things are true. We thought it was prudent to like assume some impact there. What we're also saying at the same time is, based on a couple of weeks of data, we don't see it. But we're still early in this thing, and we want to make sure that we're guiding appropriately for the rest of this quarter. There's going to be a lot of noise in the fourth quarter. We want to make sure that we're setting expectations the right way. But we don't see any negative impact on the rest of the portfolio right now. And in fact, on a year-over-year basis, there's been some acceleration in it post the recall, more about just comping better versus last year than an acceleration in the business, but the business is flat to up a couple of weeks before versus a couple of weeks after. So all that looks good, but it's early. So we just want to be pragmatic about it.

Operator: We'll go next to Rupesh Parikh with Oppenheimer.

Luke Notaro: This is Luke Notaro on for Rupesh. We were wondering if you could provide an update on what you're seeing on the competitive front. Have there been any notable shifts, especially since the recall of Tractor Wheels?

John Foraker: Yes. There's been no notable shifts since the recall of Tractor Wheels. That's been over the last couple of weeks. There's no significant changes in the overall competitive situation. We've been competing broadly against a lot of other brands over the last year that have tried to come into our spaces or that were already were in our spaces, and we're performing really well, including against private label. So we have a very strong brand. We have high velocities. We expect where we face additional competition, whether it's in a cooler or in a dairy set or in the dry baby snacking aisle that we'll continue to be in the top third of velocities and perform exceptionally well. So there's no real change to report there.

Operator: Moving next to Robert Moskow with TD Cowen.

Robert Moskow: I was hoping to get a little more of a breakdown on the fourth quarter components that are negatively impacting the sales, Larry. So like how much of this is the cost of the recall? And how much of it -- of the call down is like base velocity assumption being weaker?

Lawrence Waldman: So the majority of the impact is related to the recall, either through the customer turns, anticipated chargebacks and also taking Tractor Wheel, the remaining of the quarter's Tractor Wheels sales out of the forecast for Q4. We did take some velocity down. It was more of holding it flat to bringing it down to kind of offsetting some of the growth that we built into the fourth quarter. But the majority of it was strictly recall related.

John Foraker: Yes, significant majority of it is what I would emphasize.

Robert Moskow: Okay. But like it's 18% of your sales, is the cost on top of that like just to execute the recall? Like another 5% or 10%? Or is there a way to isolate just the cost of doing this?

Lawrence Waldman: Well, the cost is really the write-off of inventory in all of our retailers that are holding the Tractor Wheels. We have over 20,000 doors where Tractor Wheels are sold. And so pulling all that off the shelf, disposing of that product is the majority of the cost that's hitting net sales. We also, as I said, we're not anticipating to be back in the market until sometime in '27. So all the sales that we have built into the forecast, in fact, we had purchase orders in Q4 for Tractor Wheels shipments that was taken out also. So if you think about the 20,000 doors that we're retailing it and the amount of product that's coming back. We also have customer refunds that we're providing customers who have product in their pantries. And so -- but that's a fairly small amount compared to the write-off of inventory.

Robert Moskow: Okay. A follow-up. The shelf space that you lost, let's say, we wanted to start trying to model it back in at some point. Like do you have -- is it hard to get that shelf space back? Do you have to pay slotting fees to get it back? How will that proceed?

John Foraker: Yes, it will depend. It will depend as we get to the point where we launch Tractor Wheels again, how we do it. Do we hold the same SKU? Do we introduce a new SKU? So there's some technical stuff like that. The core reason that we would bring Tractor Wheels back and that retailers would want to bring it back, Rob, is because they're just extremely high velocity products, like we said in our prepared remarks, driving 40% share in the category and all the category growth. We can see from what's happening in the category with Tractor Wheels coming off the market that, that volume is leaving the category, most of it. Some of it is shifting to some other competitors, small amounts of it, but most of it is leaving the category. So we know that -- and that shouldn't be surprising, by the way, because we've said all along that our brand is significantly incremental in this category. So we'll talk to our retailers about it when we're ready to bring the product back. We've gotten strong buying signals, if you will, from all of our key retail partners that they want it back as soon as possible. And so we'll work through the specifics of that once we know what that timing is. We do -- when we launch Tractor Wheels again, and we do assume that we will get it back in market. When we do it, we are very confident that we'll get a significant majority of the distribution back. Now we won't get all of it right away, right? It might take a few review cycles to come back to that level or to something higher. But the retailer intent is there. The productivity of these items is extremely high, and we have a lot of consumers that want them, too. So that's what's going to get the products back on shelf is the fact that they're such high performers. And when we're ready to do it, I know all our retailers are going to work to do that with us as fast as they possibly can.

Operator: And our next question will come from Steve Powers with Deutsche Bank. Hearing no response from Steve, we'll go next to David Palmer with Evercore ISI.

David Palmer: Sorry, all of this has happened, and I think you guys are doing a lot of the right steps. I wanted to ask you about what the goal is with Tractor Wheels even as you test and reformulate? I don't know if it was really firmly established that Tractor Wheels were really unsafe as much as they got a little scary for people. So that's sort of a vague thing to fight against, if you will, when you're doing this, what you're going to try to do, which is get these relaunched with all the positive attributes that you had before with Tractor Wheels that made them loved, but at the same time, avoids even the perception that they could be a choking hazard. I wanted to get your thoughts on that. And how does that make you feel about the time line that you can get something like that achieved?

John Foraker: Yes. Well, that's a good question. We go with the information that we got in the complaints directly from the FDA and are looking at the description of events, et cetera. And then now as we've engaged outside third-party experts, multiple of them to help us work through an assessment of the core formulations and the products and all of our retained samples and just all the things that you do, we're going to be looking for opportunities to isolate what we think the issue may have been and look at the options we identified in the prepared remarks around reformulation and communication on package about these products. It's a little early for us, obviously, to say how long that that's going to take. I can tell you, and I think you've got probably from the remarks, that we are very confident that if we can figure that out and do the work required to make sure that we live up to our standards around safety, we'll absolutely bring these products back, and we think we can execute that very well once we decide to do it. We just need to go through the next few weeks here and isolate and really develop that final plan. But we are preparing for multiple different contingencies around it based on what we learn in the research. So we want to balance the speed of it with the excellence of it and make sure that it's excellent, and then we'll do that as fast as we can. And that's what we have to say right now. We will absolutely -- once we have something more significant to say about that and the timing, we'll absolutely look at how we could communicate that out to investors so they can understand what that looks like as it relates to our plans for 2027.

David Palmer: And is there anything that you are thinking about with your pipeline and your marketing plans, things in promotion plans thinking differently since this is happening? It sounds like you have a major launch you're still planning in the first half of '27, but I would -- I wonder how you think about doing something in, for example, dry baby snacks, for example, versus moving far away from this category for now and then coming back to it because of the fact that you want to have this whole thing behind you before you put as much energy in a like category? And I'll pass it on.

John Foraker: Yes. So as I mentioned earlier, we have some new subcategory innovation coming into dry baby snacking imminently. And you'll be seeing it on the shelf in big national retailers early in the first quarter. So obviously, we're going to execute that hopefully brilliantly like we usually do when we roll out new innovation. The products are great. They should sell at very high velocities. Our retailers are very excited about that. So that, again, just builds into our platform. We've talked about Tractor Wheels being obviously a very important business for us, but that the rest of the dry baby snacking business is an excellent business too, and is growing very fast. This new subcategory coming in will really help build that, and we'll be competing in some spaces that we're not in right now. And so that's great. But we also have been working on this innovation that we'll be launching in the first half of the year in a new category that will be, by definition, 100% incremental to us. We've been working on it for a very, very long time. We have excellent plans. We think we have excellent products. The response has been great. So we're going to go big on that. So our plans really haven't changed. We're just going to execute them really well. And we've got to make sure that we also put the right resources to execute the Tractor Wheels plans, too. And that is all laid out, and we've got it resourced correctly to be able to do that all really well once we know what the exact plan is going to be there.

Operator: We'll go next to Andrew Lazar with Barclays.

Andrew Lazar: In thinking about your '27 framework that you laid out, Larry, prior to the recall, I think consensus estimates were looking for a fairly substantial step-up in EBITDA, right, from -- between '26 and '27. I'm curious if we were to sort of take the Tractor Wheels piece out of it, was that magnitude of a step-up in EBITDA going into next year still reasonable given -- I think you mentioned a number of things like, obviously, rising costs, freight, logistics, some ingredient cost increases and things like that? Or do you think there might have been some pressure on EBITDA even outside of sort of the Tractor Wheels piece?

Lawrence Waldman: So we said on our call that we're looking at, for '27 as a minimum of a breakeven EBITDA for next year. But we still are looking at a step-up. So we're looking at from where we're projecting for '26 to be able to step up to breakeven, if not above, partially driven by scale, partially driven by mix because we're looking at a favorable mix into next year. It's also partially with some of the projects and new categories and additional sales that we're bringing in. And then -- but we are looking at -- as we get to the end of '27, we are looking to get back to where we were before, driving towards that long-term algorithm of 15% to high teen EBITDA. We had some deleveraging that will happen with the recall into '27. But we believe that we'll be back on track starting in '28 as we get back into Tractor Wheels and plus the additional categories that we've had built in. So yes, we've had a step backwards, but we're expecting that by the end of '27, we'll be back on to the same track that we would have been even without the recall.

Andrew Lazar: And one last one. I think the expectation that gross margins would rebound after the last 2 quarters in 4Q '26 and maybe end the year around 40% or so. Is there an updated expectation about what gross margins could look like for the year, this year and '26 now with the recall?

Lawrence Waldman: Yes. Removing the recall costs associated with -- that are in Q4, we are expecting to be at or above what we were projecting to come in on Q4. And we were looking at for the full year ex recall costs to be in line with what we had talked about last quarter coming in. So excluding recall, we are looking to be in line with everything that we were guiding as of the end of last quarter.

Operator: And moving on to Yasmine Deswandhy with Bank of America.

Yasmine Deswandhy: I just had a quick question. Often when these types of events occur, there's usually other incremental costs outside of the upfront cost that you'll see in Q4, such as quality assurance, new safety protocols, more headcount. I guess how should we think about this? And then a follow-up to that, too. How have your co-manufacturers responded to this event? And does it make you consider having to in-source the product versus using co-mans going forward?

Lawrence Waldman: So on the first one, we are looking at all our costs going into '27. We know we're quantifying all the costs associated with the recall and then the costs that are coming out of it. We are not anticipating additional headcount requirements as part of the recall. But what we are doing is, we are reallocating some of the plant's headcount into areas that -- to be able to add more strength into quality and co-pack management going forward. We are looking at -- so our co-manufacturer that we are working with on this, we are very much partnering with them on the work to get Tractor Wheels back into the market. We have brought in third-party experts from as far as Europe to be able to look at the products and be able to quickly understand what potentially -- if there was anything that potentially has caused this problem and then make any changes in the formula to be able to -- and then test that product to be able to ensure that it's safe as we get back in. So we are -- it's been a good partnership as we drive to get this product back into the market. We may, in the future, decide to in-house the production. But at this point, we believe that it is more prudent and for us to work with our co-manufacturer to come up with a better product, better processes to produce and to be able to get back on shelf as quickly as we can.

Operator: And we'll go back to Steve Powers with Deutsche Bank.

Stephen Robert Powers: Okay. Can you hear me, okay?

John Foraker: Yes, thank you.

Stephen Robert Powers: Okay. Perfect. Sorry about that earlier. I'm not sure what happened. Two quick, I guess, follow-ups from some of what's been discussed. Larry, on the low single-digit inflation call that you made for looking ahead, I wasn't clear if that was just inclusive of raw materials and packaging with logistics costs incremental to that or if that was an all-in inflation outlook?

Lawrence Waldman: It's an all-in inflation outlook. We worked really hard in '26 to be able to offset a lot of the inflation pressures and headwinds coming in, especially on the freight and the warehousing side. We have been contracting for our raw materials. We very much under -- the inflation that ran in '26, we definitely were better than what it was in '26. There will be some year-over-year impact associated with the contracts that we have that will impact '27. But based upon what we're looking for in the way of ingredients, what we've done to kind of offset El Nino and the impact there, the higher drivers when it comes to -- with fuel, taking into account both packaging and freight costs, we're still looking at an under mid-single-digit inflation rate going in -- total portfolio-wide going into '27.

Stephen Robert Powers: Okay. Perfect. Very clear. The other question I wanted to ask is, it's kind of an extension of what David Palmer was asking. In kind of a, I guess, kind of worst-case scenario with Tractor Wheels, if this becomes more persistent or more complex problem to remedy, you talked about the incremental innovation you have planned that you're going to go all in on next year. I guess the question I'm left with is the longer-term pipeline that you have, is there a scenario in which you have some flexibility to pull downstream innovations forward to the extent that a near-term remedy on Tractor Wheels proves more complicated?

John Foraker: Yes, absolutely. We have a very robust innovation pipeline, and we absolutely could do that. There are a lot of places that we've identified strategically where we think this brand should play. There are real white space opportunities for the brand that we would be expecting to be going over, over the next 3 to 5 years. No doubt we can pull stuff faster.

Operator: And this now concludes our question-and-answer session. I would like to turn the floor over to John Foraker for closing comments.

John Foraker: Yes. Thank you. As I reflect on these past 2 weeks, my conviction in Once Upon a Farm's long-term opportunity has not changed. We're building one of the most compelling, durable growth platforms in food with increasing household penetration, strong consumer loyalty, attractive retail productivity and significant opportunities to expand our reach in new categories relevant to our consumers. We've also demonstrated something equally important. When faced with a difficult decision, our organization can and will act quickly, decisively and in the best interest of our consumers. We are committed to resolving the Tractor Wheels situation correctly, continuing to earn the trust of families and retailers and executing against the significant growth opportunity ahead of us. I remain highly confident in the future of Once Upon a Farm. Thank you for joining us today.

Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.