Ladies and gentlemen, thank you for standing by and welcome to The Honest Company’s first quarter 2022 earnings call. At this time all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Mr. Steve Austenfeld, VP, Investor Relations at The Honest Company.

Great! Thank you. Good afternoon, everyone, and thank you for joining our first quarter 2022 conference call. Joining me today are Nick Vlahos, our Chief Executive Officer; and Kelly Kennedy, our Chief Financial Officer. Before we start, I’d like to remind you that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business, and other matters referenced in our earnings release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our earnings release issued today, as well as our SEC filings for a more detailed description of the risk factors that may affect our results. Please also note that we are – that these forward-looking statements reflect our opinions only as of the date of this call. We undertake no obligation to revise or publicly raise results of any revision to these forward-looking statements in light of new information or future events, except as required by law. Also, during this call we will discuss certain non-GAAP financial measures which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures, and a reconciliation of these non-GAAP to GAAP measures in the financial results section of today’s earnings release. In addition, a live broadcast of this call is also available on the investor relations section of our website at investors.honest.com. With that, I’ll turn the call over to Nick.

Thanks, Steve. Good afternoon everyone and thanks for joining us today. As noted in today’s earnings release, our first quarter results were in line with the outlook we provided in our last earnings call. As we highlighted in that call, first quarter revenue was impacted by unfavorable sales comparisons, as well as consumer channel shifts that resulted in a year-over-year decline in revenue for the quarter. Over the last four quarters, our core category revenue was up 6% versus prior year, a solid comp over COVID-driven demand in the year-ago period. As we look to the balance of the year, we’re excited to share that we’re on track for delivering new product innovation and expanding our retail footprint to build a solid foundation for future growth. Despite unprecedented volatility and macro environment challenges, I’m pleased we were able to maintain our financial outlook for the year. Today, we are reaffirming our full year outlook with mid-single digit growth over the remainder of the year as we gained distribution with new strategic retail partners, launch new margin-accretive products, and continue to invest in our digital capabilities. I’d like to start by sharing some thoughts on the macro challenges the industry is currently facing, starting with inflation. Costs affecting every part of the P&L are rising, impacting product, logistics, warehousing, labor and administrative costs. In response, we remain in close contact with our suppliers and partners to understand and address any potential cost impacts. Additionally, to help mitigate inflationary pressures, we’ve executed mid to high single-digit price increases on our product portfolio. While it is still early, an initial read of our first run of pricing is in line with our expectations. We have seen a modest decline in volume, but over time we expect velocities to rebound. As indicated by tracked…

Thank you, Nick and welcome everyone. I’ll start by saying that our first quarter results and 2022 outlook are consistent with what we shared with you during our last earnings call. Our Q1 results reflect difficult year-over-year comparisons that we do not expect to continue into the remainder of the year, as well as elevated cost pressures that impacted margins. Looking ahead, we continue to expect Honest to deliver mid-single-digit growth over the remaining three quarters of the year compared to 2021 as we introduce innovation, expanded with strategic retail partners and improved the digital experience on honest.com. While cost pressures are expected to remain elevated, we anticipate much of the margin impact will be offset by the benefit of recent pricing actions. Now, diving into the financials. Starting with our financial results and key drivers for the quarter. Revenues decreased 15% to $69 million for the first quarter of 2022 compared to the first quarter of 2021. The decrease in revenue for the quarter partially reflects a liquidation of legacy beauty inventory in the first quarter of 2021, ahead of last year’s beauty restage, as well as a tough comparison against elevated sales in the year-ago period related to sanitizing and disinfecting products. Combined, these two items impacted revenue growth for the quarter by approximately 6 percentage points. The other key driver is the consumer shift from the digital to the retail channel. Given our high digital penetration, our revenue has been negatively impacted as consumers return to in-store shopping as our ACV lags leading conventional brands with Honest products only on roughly half of retail shelves in the U.S. As we expand our retail distribution later in the year, most notably our launch with Wal-Mart, we anticipate significant ACV expansion, which will help to capture this consumer shift…

Thank you. [Operator instructions] Our first question comes from the line of Dana Telsey of Telsey Group. Your line is open. Dana, please make sure your line isn’t muted and if you’re in a speakerphone, lift your handset.

Okay. Yes, I think I was muted, sorry about that. As you think about the guidance that you’re giving for the remainder of the year, when you think about the price increases being taken, is it more than the mid-single digits; is it ranging differently by category? And with the increased distribution channels, which are impressive in terms of where you’re going into with Ulta, Wal-Mart, how does that phase in, and what are you budgeting for an uptick in revenue from the expanded distribution channels, whether it’s this year or as you anniversary next year? Thank you.

I’ll start by taking the pricing question, and then we’ll come back on the distribution question. So the pricing – the first pricing that went into effect in January, again, both of these price increases will cover about a third of our portfolio. So in total, by the end, of course the second pricing going in at the end of Q2, so in total we’ll have taken mid to high single digit increases on two-thirds of the portfolio, and that is across the entire portfolio, so it will cover diapers, personal care, wipes, as well as select beauty items as well, so kind of pretty robust. We do anticipate this pricing to benefit margin by about 300 basis points in 2022. Of course it’s going in over the course of the year on a full annualized basis that would be closer to 400 basis points. And when we think about the impact on the pricing, we of course mentioned in our last call that we’re keeping a really close eye on the elasticities and the impact on volume. We have had the pricing out in the market for just roughly 90 days and pretty much elasticities and impact on volume are right where we anticipated them to be. We are certainly hopeful that over time, the consumer, you know that will rebalance later in the year. And so we haven’t built in significant revenue upside for the pricing, it’s predominantly going to benefit our margin.

I could add Dana – it’s Nick, concerning the distribution pickup, everything is on target as I referenced earlier on the call, as it pertains to Wal-Mart national distribution, broad footprint on our diapers, wipes, as well as our personal care business, the dot com portion of that is going to hit in Q3 and then retail stores in Q4. And then with Ulta, again broad distribution against our skin business. They’ll start to hit stores in Q3 also, so a real nice complement at Ulta. We’ve been with Ulta on the dot com side of the business at ulta.com now for a while and just a testament to the strength of the business as we’re now driving distribution in store. So pretty much right on target from a plan perspective on the distribution side.

Right. And then just on supply chain with the constraints on inventory levels, how do you think about that pacing through the balance of the year? How you’re thinking about supply chain?

Yes, you know certainly we have on the biggest piece of our business, the diaper business, we really haven’t been impacted by supply chain, we haven’t been out of stock, we’ve been able to get regular supply on that. You’ll have noted in Q1, we did actually expand our overall inventory position by about 10%. That was really to address longer lead times across the board, but predominantly in the wipes, where we are seeing what had previously been shorter lead times coming from China, wipes representing less than 20% of our overall kind of business. We did want to take that into account and we’ve had out of stocks and we’re impacted by out-of-stocks in Q1. We’re now back in stock, so we expect to be continuing to see longer lead times and some supply chain constraints in that part of the business. The only other supply chain issue that we mentioned was really around some of the components that are coming out of China for the personal care and beauty business. Although those are manufactured here in North America, some of the components do come from China. And also, some of the oils that were impacted more by conflict in Ukraine, such as sunflower oil and palm kernel oil. So as we think about supply chain, continue to be a little bit of a drag in the first half, and we’re anticipating some intermittent out of stocks with some of the beauties, we continue to change the component. But overall we feel we’ve been able to secure alternate sources of supply for many of those ingredients that are being impacted, and we don’t anticipate, especially as we get to the back half of the year, we’re feeling very good about our ability to deliver on the new distribution and new product innovation. Those are all as we highlighted, on schedule and on time, as anticipated and built into our projections for the year.

Thank you.

Thank you, Dana.

Thank you. Our next question comes from Laura Champine of Loop Capital. Your question, please.

Thanks for taking my question. It’s about your digital marketing, which I think you mentioned that digital in part was weak because just the CAC was much higher. Do you anticipate that changing or do you expect to spend up specifically on digital marketing in order to drive the growth you expect in the next few quarters?

Now, I’ll talk first about what we’re doing under marketing and then I’ll talk about our additional digital initiatives. On the marketing front there’s two things we’re doing, the first is really changing the way we’re spending against digital. You know a great example of this is we were able to refocus spend with our key digital partner really on the top items, and we were actually able to deliver higher sales, consumption data sales on those items on lower spend. So we’re changing the way and utilizing things like our omni analytics, to really drive and spend digital in a more cost-effective way, given that we’ve seen much escalation in the cost structure there. The second piece, we did is we’re really shifting into retailer marketing. We had a great example in Q1 with our Oscar TV campaign and we partnered with a major retail partner to really serve up those adds specifically to their customers through streaming TV, and we’re able to see and they were extremely pleased that they saw that drive, specifically customers, into their stores, [Indiscernible] Honest product. So two efforts, just being much more thoughtful and utilizing our data and our tools to invest behind what’s working in digital spend and then really supporting retail and where the consumer is going. On the digital front, we talked in our last call about various initiatives really to optimize the shopping experience. The biggest thing that has gone live in Q1 that we wanted to highlight, given that 76% of our traffic comes from mobile, we just implemented a new optimized design for honest.com, which actually is both for desktop and mobile. It’s really a dynamic layout content win. It allows for things like personalization and improved shopping across category. Coming up in the back half of the year, you know we have a rolling schedule of new improvement on honest.com. We’ll be doing things in the back half of the year like changing the way our subscription business works with new bundles and some more cross-category [curation] (ph) that we anticipate will launch in Q3, and then as we get farther in the year, things like loyalty personalization and you know other main features to really drive and improve. And our focus in digital again, we know the headwinds are against us in digital. We’re not the only ones who experienced this. We’re really focused on driving conversion. So the traffic that is coming to our site, really ensuring that we make it as seamless as possible for our customers, but we do think you know digital of course is here to stay and we want to make those investments for the future, and we’ll be coming back and talking about additional initiatives in 2023 as well.

Got it. So is it fair to summarize that cost to acquire a customer is expected to be reduced, but because of your own efforts to be more efficient and drive conversion, not necessarily because the market is coming to you?

Correct.

Got it.

Thank you. Our next question comes from Andrea Teixeira of J.P. Morgan. Your line is open.

Hey there! This is Drew Levine on for Andrea. Thank you for taking the questions. I wanted to circle back on the U.S. listing conversation. So just curious if it’s kind of differing by channel or by category. You talked about the second price increase going in, I think at the end of Q2. Are you modeling for the sort of levels of elasticity that you’ve seen thus far? Are you modeling for sort of more historical elasticities? And then just anything you’re seeing, I guess quarter-to-date in April and May, if there’s been any sort of shift in things progressing, if consumers are trading down more and just sort of like any changes I guess that you’re seeing in the marketplace or what gives you confidence that the elasticities are going to hold to your expectations?

Yes, I’ll start, and then I’ll let Kelly kind of add. Just based on the data that’s out there in the marketplace, and if you take a look at ROI kind of MULO data or the like, we’re just kind of 12 weeks for the quarter. What we’ve seen is, you know take diapers, the price per count has gone up about roughly 9% and the category is up roughly about 12.8%. Honest, during that same time period, our pricing has moved up about 5%, and our results were up about 22.5% during that time period. So what we’re seeing kind of based on our current plans for example with fibers based on our elasticity assumptions that we’re seeing, you know the consumer continue to kind of pick Honest. When you look at the category, we’re outperforming from a consumption perspective, and again, that’s going head-to-head when you look at those consumption numbers versus the national players that are in the marketplace, that are also reflecting price. So from that standpoint, that gives us conviction and as it pertains to kind of the second round that we’re also talking about. Because again, some of those individual players have already passed through that pricing and we’re going to be following and be able to continue to maintain kind of our price gap relationships versus the rest of the marketplace. I don’t know, Kelly, do you want to add anything else?

No, given that the easy impact as what we’ve seen historically and also on our expectations, that is what we have built in for the second price increase, which is on a different set of products, the only thing I want to highlight is we’ve seen consistency across these elasticies with the one exception of wipe. We did not see as much impact on unit volumes, but we do think that that was partially due to not just ours, but not just Honest, but other wipes coming from kind of being either kind of short on the shelf. So we think that that might be a little bit more noise. We’ll be keeping a close eye on it and we’re happy to come back and provide some additional color on our next call.

Great! Thanks. And then I just want to ask about the shift to retail from digital. I think last quarter you may have said that for the year you’re expecting digital to be down mid-single digit in retail, mid-single digit if I have that right or not. But is that still the case or are you seeing kind of an acceleration in the shift relative to your expectations heading into the year and so just anything there would be helpful as well. I think you moved past maybe the quite toughest compare from a mix perspective on the channel, so curious on your thoughts there.

Yeah, no change, you’re exactly right. Mid to high single digit decline in digital for the year, and a mid to high single-digit increase for retail, so that’s correct.

Thank you.

Thank you.

Thank you. Our next question comes from Laurent Grandet of Guggenheim. Your line is open

Hey! Good morning, everyone, and great to see you meeting your expectation in the quarter and reiterating your guide for the year, that’s a good change. Okay, so two questions. The first is really about not to shoot for the moon, but try to frame probably better the size of obvious upside for Wal-Mart.com at Wal-Mart. So could you tell us a bit more about the number of SKUs you are planning to get, I mean maybe the lineup versus target. So trying to frame what the upside would be for you on Wal-Mart and Ulta?

Well, clearly Wal-Mart being the largest seller of the diapers, it is really a big potential for us. We will have broad-based distribution, but it’s launching at the end of the year and so this is really a 2023 play and we will be on the shelf, in store, in diapers, wipes, as well as personal care. So it’s across our product categories. We’ll be – as we get closer to launch date, we’ll be providing more color on what the launch – by concluding launch support. But we’re again as Nick highlighted earlier, you know we’re pretty excited by the potential, particularly as it relates to creating more kind of geographic diversity for Honest and really getting into the South and Southeast, where things such as new births in the U.S., 42% of them are in the Southeast. We know that we’re underpenetrated. Our ACV in the Southeast is the lowest of all the regions that rents roughly 20%, so that’s certainly a big potential for us at the time. Certainly, you know Honest may not be a fit for all Wal-Mart stores, but we’re pretty excited that we expect to get broad-based distribution nationally with Wal-Mart.

Okay, thanks. And I also would like to understand period data, potential for the supplement range at GNC assuming that they were – meaning that they were doing a press release this morning mentioning the launch of Honest brands, so I’d like to understand the size of it. I mean if you can help us, and also as well for this international expansion in Asia with SuperOrdinary. How should we think about this? And what’s the resource you are probably willing to allocate for those initiatives?

Yeah. I’ll give you some color here Laurent. Number one, is a purchase of the supplement, you know I’d start with number one, the consumer has always given us the credibility around better for you from a lifestyle perspective to kind of play in this space from a brand perspective. And we’ve been in this category with our prenatal vitamin business. It’s a great acquisition tool as you think of dot-com and digital in this space. The way we’ve identified this area right now is really around kind of holistic Health and Wellness, specifically around not traditional vitamins and it’s really around sleep, around stress, immunity, around hair. We believe we’ve got a right to win, because from a formulation perspective, we’ve got proprietary blends that are unique in the market. For example, if you look at sleep, a lot of blends out there talk about melatonin. Our product does not have things like melatonin. It’s got a different magnesium-based proprietary blend. So we believe that this gives us a nice foray into a space that also benefits us as we think of our dot com business, as we think of subscription and point of entry with new consumers, so we like that. I would though highlight the fact that this isn’t a major huge bet. You know we’ve been in this space before. We’re going to be methodical about the distribution, getting the credibility with the GNC, that’s the preeminent player in the space, but then also be able to drive it within our dot-com offering. So that’s kind of the supplement kind of takeaway. The SuperOrdinary piece, obviously SuperOrdinary, they are the premier kind of partner when you look at beauty brands that get introduced in China. We’ve partnered with them specifically to introduce our Honest beauty business in China with a Tmall execution. They’ve got a history with a variety of brands they can look at, that they’ve been able to scale in a very significant way. We want to make sure that from a prioritization resource standpoint, that we’ve partnered with a preeminent player there because they’re going to be managing that part of the business, so then obviously the team here is going to be obviously prioritizing what we have in front of us as it pertains to North America, as well as the European business that we’ve been driving with June [ph] West and some of our other partners. But again, these are areas that from a strategic perspective as we talked about Honest from a global brand perspective, there are going to be methodical introductions around one, adjacencies, which is the supplemental component, and then two, the geography piece as it pertains to beauty and then Asia.

Thank you, guys. I appreciate that. Thanks.

Thanks a lot.

Thank you. Our next question comes from Jon Andersen of William Blair. Please go ahead.

Hey! Good afternoon! Thanks. First question, just a follow up on I guess Laurent’s question on supplements. I may have missed it, but could you talk about the timing of the launch, and then could you talk a little bit about your broader plans for the household and wellness segment?

Yeah. I would say Jon, from a supplements perspective, you’re going to start to see those start to show up this quarter within GNC in the market and then obviously honest.com is the second component of that. And then as it pertains to household and obviously the wellness piece, this wellness element that we talk about is a key play for us, because as we think of Honest from a solution set innovation perspective, we’ve always identified wellness around kind of what you put in your body, what goes on your skin, and what can impact you, around you from an environment perspective. And again when we say in, we’re not talking about food specifically, but areas like this around supplements and being in a position to start to address really some of these key consumer dis-satisfiers that are in the market as it pertains to formulations that can address the sleep distress, the immunity, the hair growth, etc. And it also is a good precursor as you think of evolution around innovation in the future, as we talk about beauty from within, as you talk about your health, also from inside out. So that’s kind of another element as we think of innovation and our cadence moving forward. The second piece around the household specifically, obviously sanitization continues to be a component of our offering, as well as our household cleaning lineup that we currently have, and we’re going to continue to look at innovation that we work on to be differentiated within the marketplace in that space. But currently, we’re satisfied on the household side with the product offerings that we have.

Thanks that’s helpful. As you – you have a lot of – obviously you have a lot of new products, new distribution as the year proceeds. Do you have any plans or needs to heavy up on marketing spending throughout the year in order to support these launches, either some of the mid-year developments or the Wal-Mart national rollout, which I guess is happening later in the year?

Yeah, of course those will be supported. Like all of our other retail partners, you know we will open up more cooperatively with them, utilize our kind of content commerce, community commerce strategy to build content for their customers. But as we look at our overall marketing spend, you would – you know we did mention that we expect to be in the mid-teens. We think that’s the right level to be able to support both the retail distribution growth that we have planned for the year, which is probably more 2023 than in 2022. But as we launch those, the biggest focus will be execution and landing both our new product innovation and distribution, getting those on time into the stores. And as we think about marketing longer term, you know we have historically said 15% to 17%, and we will scale that as needed, particularly to support specific product launches, probably more than distribution launches.

Okay, that’s great. A couple of housekeeping questions. Kelly, you mentioned that I think you said margins on the year are expected to be flattish to slightly down. Were you referring to gross margins when you said that?

I was. I was speaking to gross margin, that’s correct. This is slightly different than what we communicated in our last call. You’ll recall that we said flat. Now, just based on some of the escalation we’ve seen, some things like the oils and some of the other components driven predominantly by the conflict in Ukraine. We are seeing some slightly higher costs come through than we did last time we spoke. And the one thing I want to mention, just as you think about going over the course of the year, each quarter, we’ll be progressively better as it relates to revenue, gross margin, as well as adjusted EBITDA. So progressively over the quarter, because the one that you want to highlight, particularly for Q2 since our round two pricing, it is not going to be until the end of Q2. Some of that margin pressure in particular is hitting Q2.

Yeah, that’s understandable. That kind of gets to my second question on EBITDA. You mentioned EBITDA positivity in the second half of the year. Do you mean the second half in aggregate or in Q3 and Q4?

We said in aggregate.

Okay, if I can squeeze one broader question in, it sounds like you’re shifting more emphasis to retail and more marketing dollars to retail. How do you think about that in terms of affecting your ability to acquire new households or consumers? And do you – I guess do you lose something in the lack of I guess first-party data, maybe that you’ll acquire and/or your ability to cross-sell using some of the tools you use on honest.com or do you just see this as a great opportunity to try and bring new users into the franchise and perhaps then kind of usher them into the digital side of the business as well? Thanks.

Yeah, it’s a great question, Jon. I think for us what’s really important is and if you recall, you know we have a limited amount of partners from a retail perspective that we work with. So our ability to work with them on their card data, their loyalty programs is a precursor to where we invest our shopper marketing dollars. So there has to be a connection around the marketing that’s being done with those partners on the digital side, to be able to drive acquisition, to be able to drive trade-up and incrementality across category, as well as the support that goes then in with those partners that go beyond a specific category. So if it’s the diaper business, also how we connect our wipes business and our personal care business. So it’s really around driving, number one, awareness and being able to drive a shopper and make them that Honest shopper. And then two, the marketing that we are doing is cross-category oriented that takes that consumer to that second or third item, both for the baby business, as well as our beauty business as we talk about different solution sets around skin, as well as color. So it’s kind of a twofer for us, and we think it can benefit us, and we’re seeing it when you look at the consumption data that I referenced earlier, when you look at over the last 12 weeks, how our business is performing and outpacing the category in both, for example, in diapers as well as in wipes as well as in personal care. So that gives us confidence that we’re definitely driving not only the trade up, but we’re also driving incrementality.

Great! Thanks.

Thank you. Our next question comes from Steph Wissink of Jefferies. Your line is open.

Hi everyone! I have a couple of technical questions, so my apologies. I just want to go back to Kelly, your response to a prior question. The guidance is in aggregate to grow mid-single digits or each quarter you expect to grow mid-single digits?

It’s in aggregate.

Okay. So if we use that as a base, I think that would imply about $12 million or so of growth year-over-year. Maybe help us think about the contribution of price, which I think you mentioned was mid to upper mid-single digits, the new distribution, maybe how much conservatism you’re building in to that assumption just given the timing of that new distribution. And then as a related question, it would seem like your legacy distribution might be down. So just trying to understand a little bit of how we kind of bridge the total amount of growth given the distribution you’re gaining, the pricing that you’re putting into place relative to the performance of the legacy distribution. Thank you.

Thank you, Steph. It’s a good question. I think when you think about the new distribution, we laid out a couple of points of growth in 2022 on our last call, also from innovation as well. I think the headwinds that we’re seeing as we think about the digital decline in traffic, you know really being kind of offset by the new distribution and innovation, I think we are seeing growth as we’ve seen it attract data and kind of our legacy distribution is actually seeing great growth in the retail side. Where we’re really seeing the headwind as we mentioned in our last call, is you know we have a rotational program that we’ve landed for the past two years that we are not comping in 2022. It was a very successful program in the back half of 2021 and that is the largest single headwind that we have. That program in total is kind of a decline on the year-over-year business, so it’s – you know certainly we’ve got a good base business with them and we periodically have had success and certainly over the last few years have had great success getting rotational programs in. But that’s really offsetting the strong growth that we’re really seeing with our legacy retail partners and track data.

That’s very helpful.

The only thing I wanted to mention on the pricing is because we are kind of assuming, especially this is the first price increase that Honest consumers have ever seen from us. We did take a conservative approach in elasticity. So far that’s tracking versus our expectations, while we’re hopeful that over time those velocities, unit velocities will come back. We did not assume a step-up in overall revenue in any significant way as a result of the pricing. That was really a margin improvement strategy.

Thanks Kelly. That was my final question, so you got it. Thanks so much.

Thank you so much.

Thank you. Our next question comes from Bryan Spillane of Bank of America. Your line is open.

Alright, thanks operator. Good morning everyone or good afternoon I should say, here at least. Just a couple of questions. First, Kelly as we think about the more of a shift in the marketing mix or the sort of demand spend going from digital to supporting brick-and-mortar retail, is there any change in the geography, the P&L of where those expenses will be sort of realized? I guess what I’m thinking is, will there be more that is more like trade spend above the revenue line versus being captured in SG&A? Just trying to understand if there’s going to be any kind of shift in where we’d recognize that spend.

Yeah. There will be, meaning there will not be a shift. There is a shift, but it’s already been reflected in our outlook.

So the revenue outlook includes some spending above the net revenue line.

It does. That’s correct.

Okay, okay. Any – can you give us any sort of idea in terms of just size, just how much of the spend is shifting or how material that is?

So, we don’t break down the components really by channel. Overall, I think the highlight to say is that we are shifting from kind of a year in which kind of volume was slightly weighted toward digital to moving toward being slightly weighted toward retail. You know we’ve always said in this 50-50 scenario there will be years where there’ll be a little stronger retail. You can expect the strength in retail as we roll out some distribution, but it’s going to be more like a 45-55, not a really big departure from what you’ve seen from us in the past. And therefore, we’re not calling out and it’s because it’s really not material in nature, the shift.

Okay, alright, that’s helpful. Thank you. And then in the Q there’s a mention about two co-manufacturers who I guess inflation triggered a renegotiation of the rates I guess. Can you give us a sense of just how that impacted your inflation assumptions? And then should we be – is there a possibility that maybe more of your co-manufacturers might be in that same position, and we may see more of that over the course of the year?

Yeah, so we have about 80% of our overall product cost with the three manufacturers and those are negotiated in advance. So typically we have you know a complete line of sight to kind of what our pricing structure looks like for the year. And in 2021 their contracts do have escalation if there are two quarters in a row of input cost escalation above hurdles that are within the contract, and it gets triggered to renegotiate, and so that actually happened already and was built into the outlook that we provided to you when we talked just seven weeks ago. And so we have a clear line of sight kind of with those manufacturers. We’ve agreed on pricing for 2022 and we don’t – well certainly, you know there would need to be a very significant escalation above where prices are now for an extended period of time for that to trigger, and it would trigger toward the end of the year, and so we have pretty good confidence perhaps versus maybe other people out there, other companies out there who are getting surprised by these. I think we have a pretty good overall visibility to what our cost structure is for the year.

Oh! That’s great. Okay, thank you.

Thank you.

Thank you. At this time, I’d like to turn the call back over to Nick Vlahos for any closing remarks. Sir.

Great! Well, thank you so much everyone. I appreciate you spending the time with us today. You know on behalf of this team, I just want to thank you for your participation, and we really look forward to sharing our progress with you in our next quarterly earnings call. So have a great weekend, everybody! Thank you.

And this concludes today’s conference call. Thank you for participating. You may now disconnect!