Company Performance - Freshpet (FRPT) stock closed at $52.47, down 4.29% from the previous day, underperforming the S&P 500's gain of 0.47% [1] - The stock has decreased by 10.48% over the past month, compared to a 1.75% loss in the Consumer Staples sector and a 2.32% gain in the S&P 500 [1] Upcoming Earnings - Analysts expect Freshpet to report earnings of $0.44 per share, reflecting an 83.33% year-over-year growth [2] - Revenue is projected to be $285.88 million, which is a 12.83% increase from the same quarter last year [2] Annual Forecast - Zacks Consensus Estimates predict earnings of $1.31 per share and revenue of $1.11 billion for the year, indicating increases of 70.13% and 13.86% respectively compared to the previous year [3] Analyst Sentiment - Recent changes in analyst estimates suggest optimism regarding Freshpet's business and profitability [3] - The Zacks Rank system currently rates Freshpet as 3 (Hold), with the EPS estimate remaining unchanged over the last 30 days [5] Valuation Metrics - Freshpet has a Forward P/E ratio of 41.84, which is significantly higher than the industry average of 16.09 [5] - The company has a PEG ratio of 0.97, compared to the industry average PEG ratio of 1.83 [6] Industry Context - The Food - Miscellaneous industry, which includes Freshpet, ranks 163 out of over 250 industries, placing it in the bottom 35% [7] - Historically, the top 50% rated industries outperform the bottom half by a factor of 2 to 1 [7]

Company Overview - Freshpet has maintained a strong belief in the long-term potential of fresh pet food, which is supported by data from competitors and retailers [1] - The company has grown to become a $1 billion entity, with an estimated $3 billion in retail sales potential within the fresh pet food market [1] Industry Insights - The fresh pet food category, which Freshpet pioneered 20 years ago, continues to show strong growth prospects and is expected to remain a significant segment of the pet food market [1]

Financial Data and Key Metrics Changes - The company has improved its EBITDA margin from 3% three years ago to a projected 18% this year, with gross margins running around 48% [8][19][34] - The company is approaching $1 billion in revenue and sees a potential market growth from $3 billion to $10 billion in the next decade [5][45] Business Line Data and Key Metrics Changes - The company has successfully built a strong business and competitive moat through investments in manufacturing capabilities, retail fridge availability, and brand equity [5][41] - The operational improvements over the last couple of years have been significant, contributing to the current financial performance [8][66] Market Data and Key Metrics Changes - Consumer sentiment has negatively impacted growth rates, with the second quarter showing the worst consumer sentiment on record [6][12] - Despite the slowdown, the existing user base remains strong, indicating that the category is sticky [7][34] Company Strategy and Development Direction - The company aims to adapt its messaging to target consumers who are considering trading up to higher-quality dog food [21][22] - The focus is on attracting high-value consumers, referred to as MVPs (Most Valuable Pet Parents), who are expected to spend more on Freshpet products [35][36] Management's Comments on Operating Environment and Future Outlook - Management believes the current slowdown is a temporary phenomenon and expects to return to growth as consumer sentiment improves [6][61] - The company is well-prepared for increased competition in the fresh dog food market and believes that new entrants will ultimately benefit the category [39][44] Other Important Information - The company has reduced its capital expenditure (CapEx) forecast for the year to about $175 million, down from an initial outlook of $250 million [53] - New technology is being tested that could significantly improve bag margins and production efficiency [48][52] Q&A Session Summary Question: What are your expectations for top line growth this year? - The company is focusing on adapting its message to consumers and targeting advertising to those likely to trade up their dog food [21][22] Question: Can you describe the strategic shift towards MVPs? - The goal is to build a loyal base of consumers who feed Freshpet as their main meal, focusing on high-value consumers [35][36] Question: How does the company view the increased competition in the fresh dog food market? - The company welcomes competition and believes it will raise awareness of the benefits of fresh pet food, ultimately benefiting the category [39][44] Question: What is the breakdown of your CapEx? - The company spends about $20 million on maintenance capital, $20 to $25 million on fridges, with the remainder for capacity expansion [53][54] Question: How is the company managing its margins amid the slowdown? - Management is confident that margins can be maintained even with slower growth, projecting an 18% EBITDA margin for the year [66]

Financial Data and Key Metrics Changes - The company has improved its EBITDA margin from 3% three years ago to a projected 18% this year, with gross margins running around 48% [8][19][71] - The company is approaching $1 billion in revenue, with a significant portion of the pet food market still untapped, estimated at $3 billion in retail sales for fresh and frozen products [4][5] Business Line Data and Key Metrics Changes - The company has seen a slowdown in new user acquisition due to weak consumer sentiment, although the existing user base remains strong [6][7] - Household penetration growth rates are in the high single digits overall, with mid double digits for the most valuable pet parents (MVPs) [38] Market Data and Key Metrics Changes - Consumer sentiment has been at its lowest, impacting the willingness to adopt dogs and trade up to premium dog food [6][12] - The company expects the dog food category to continue growing, with long-term trends favoring premiumization despite short-term fluctuations [11][14] Company Strategy and Development Direction - The company aims to maintain a competitive edge through strong manufacturing capabilities and brand equity, preparing for increased competition in the fresh pet food market [44][46] - The focus is on targeting high-value consumers (MVPs) who are likely to feed Freshpet as their main meal, enhancing brand loyalty [39][40] Management's Comments on Operating Environment and Future Outlook - Management believes the current slowdown is a temporary phenomenon and remains confident in the long-term growth potential of the fresh pet food market [64][67] - The company is adapting its advertising strategy to better communicate the value of fresh food to consumers, particularly in a challenging economic environment [21][22] Other Important Information - The company has reduced its capital expenditure (CapEx) forecast for the year to about $175 million, down from an initial outlook of $250 million, allowing for more free cash flow [56][58] - New technology is being tested that could significantly improve bag margins and production efficiency, with expectations for implementation in the coming years [50][53] Q&A Session Summary Question: What gives you confidence in your ability to hit long-term margin targets? - Management expressed confidence in achieving 48% gross margin and 22% adjusted EBITDA margin by 2027, contingent on steady sales growth [19][20] Question: Can you talk about your expectations for top-line growth this year? - The company is focusing on adapting its messaging to attract consumers willing to trade up, while also expanding distribution channels [21][23] Question: How do you foresee the competitive landscape evolving? - Management believes they are well-prepared for increased competition and that new entrants will ultimately benefit the category by raising awareness [42][46] Question: What are the key themes from investor meetings? - Investors are concerned about the current slowdown but are reminded that it does not diminish the long-term opportunity in the market [64][66]

Core Viewpoint - Freshpet's stock has experienced a significant decline, attributed to concerns over its slowing sales growth and an analyst's revised price target [1][2]. Sales Growth Slowdown - Analyst Robert Moskow from TD Cowen has reduced Freshpet's price target from $72 to $63 per share while maintaining a hold recommendation [2]. - Moskow noted that Freshpet's growth rate appears to be slower than in previous years, leading to a revised estimate for fourth-quarter year-over-year sales growth at 10%, below the consensus estimate of 13% [4]. - This adjustment impacts the annual growth estimate, which is now expected to be at the lower end of management's guidance of 13% to 16% [4]. Competitive Landscape - Moskow indicated that Freshpet may need further reevaluation if General Mills' new marketing initiatives for its Blue Buffalo line and the launch of a high-end brand, Edgard & Cooper, significantly attract Freshpet's customers [5][6].

Group 1 - Freshpet, Inc. will participate in the Barclays 18th Annual Global Consumer Staples Conference on September 4, 2025 [1] - The event will feature a fireside chat with members of the executive management team at 1:30 p.m. ET [1] - A live webcast and replay of the event will be available on the company's website [1] Group 2 - Freshpet's mission is to provide fresh food for pets, using locally sourced ingredients [2] - The company prepares its foods in small batches at lower temperatures to maintain the natural goodness of the ingredients [2] - Freshpet foods are kept refrigerated from production until they reach local markets [2] Group 3 - Freshpet products are available in various retail formats including grocery, mass, digital, pet specialty, and club retailers across the U.S., Canada, and Europe [3] - The company emphasizes integrity, transparency, and social responsibility in its operations [3]

Core Insights - Freshpet Inc. reported second-quarter 2025 earnings of 33 cents per share, exceeding the consensus estimate of 16 cents [1] - Net sales increased by 12.5% year-over-year to $264.7 million, although it fell short of the analyst estimate of $268.9 million [1] - Sales growth was attributed to a 10.8% rise in volume and a 1.7% improvement in price and mix [1] Company Performance - CEO Billy Cyr noted that Freshpet continues to outperform the dog food category despite challenging consumer sentiment, achieving category-leading sales growth and operational improvements [2] - The company updated its 2025 outlook, now expecting net sales growth of 13% to 16%, down from a previous range of 15% to 18% [3] - Adjusted EBITDA guidance remains unchanged at $190 million to $210 million, while capital expenditures are now forecasted at approximately $175 million, reduced from the prior estimate of $225 million [3] Market Reaction - Following the earnings announcement, Freshpet shares fell by 2.2% to trade at $68.33 [3] - Analysts adjusted their price targets for Freshpet, with Benchmark analyst Todd Brooks maintaining a Buy rating but lowering the target from $120 to $95, and Truist Securities analyst Bill Chappell maintaining a Hold rating while reducing the target from $80 to $70 [5]

[Part I. Financial Information](index=5&type=section&id=Part%20I.%20Financial%20Information) This section presents Freshpet, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis for the interim periods [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Freshpet, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with accompanying notes [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The condensed consolidated balance sheets provide a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------- | :------------ | :---------------- | :----- | :------- | | Total Current Assets | $409,177 | $436,998 | $(27,821) | -6.36% | | Total Assets | $1,647,494 | $1,574,878 | $72,616 | 4.61% | | Total Current Liabilities | $84,981 | $98,869 | $(13,888) | -14.05% | | Total Liabilities | $575,840 | $519,518 | $56,322 | 10.84% | | Total Stockholders' Equity | $1,071,654 | $1,055,360 | $16,294 | 1.54% | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) This statement outlines the company's financial performance, including net sales, gross profit, operating expenses, and net income (loss) For the Three Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | Change | % Change | | :-------------------- | :---------- | :---------- | :---------- | :------- | | Net Sales | $264,689 | $235,253 | $29,436 | 12.51% | | Gross Profit | $108,190 | $93,952 | $14,238 | 15.15% | | Income (Loss) from Operations | $17,804 | $(1,750) | $19,554 | -1117.37% | | Net Income (Loss) Attributable to Common Stockholders | $16,356 | $(1,694) | $18,050 | -1065.53% | | Basic EPS | $0.34 | $(0.03) | $0.37 | -1233.33% | | Diluted EPS | $0.33 | $(0.03) | $0.36 | -1200.00% | For the Six Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | Change | % Change | | :-------------------- | :---------- | :---------- | :---------- | :------- | | Net Sales | $527,938 | $459,102 | $68,836 | 15.00% | | Gross Profit | $211,978 | $182,110 | $29,868 | 16.40% | | Income (Loss) from Operations | $6,307 | $6,714 | $(407) | -6.06% | | Net Income (Loss) Attributable to Common Stockholders | $3,659 | $16,908 | $(13,249) | -78.35% | | Basic EPS | $0.08 | $0.35 | $(0.27) | -77.14% | | Diluted EPS | $0.07 | $0.34 | $(0.27) | -79.41% | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This statement details changes in stockholders' equity components, including common stock, paid-in capital, and accumulated deficit Changes in Stockholders' Equity (in thousands) - Six Months Ended June 30, 2025 | Item | Amount | | :-------------------------------- | :----- | | Balance, December 31, 2024 | $1,055,360 | | Exercise of options to purchase common stock | $187 | | Vesting of restricted stock units | $(3,162) | | Share-based compensation expense | $15,159 | | Foreign currency translation | $451 | | Net income | $3,659 | | Balance, June 30, 2025 | $1,071,654 | Changes in Stockholders' Equity (in thousands) - Six Months Ended June 30, 2024 | Item | Amount | | :-------------------------------- | :----- | | Balance, December 31, 2023 | $953,454 | | Exercise of options to purchase common stock | $4,196 | | Vesting of restricted stock units | $(2,159) | | Share-based compensation expense | $23,602 | | Foreign currency translation | $(197) | | Net income | $16,908 | | Balance, June 30, 2024 | $995,804 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement presents cash inflows and outflows categorized into operating, investing, and financing activities Net Cash Flows (in thousands) - Six Months Ended June 30 | Activity | 2025 | 2024 | Change | % Change | | :-------------------- | :---------- | :---------- | :---------- | :------- | | Operating Activities | $38,693 | $47,819 | $(9,126) | -19.08% | | Investing Activities | $(59,932) | $(94,795) | $34,863 | -36.78% | | Financing Activities | $(3,710) | $1,804 | $(5,514) | -305.65% | | Net Change in Cash and Cash Equivalents | $(24,949) | $(45,172) | $20,223 | -44.77% | | Cash and Cash Equivalents, End of Period | $243,684 | $251,699 | $(8,015) | -3.18% | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of accounting policies, estimates, and specific financial statement line items [Note 1 – Summary of Significant Accounting Policies](index=11&type=section&id=Note%201%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines Freshpet's business, financial statement presentation, key accounting estimates, and specific policies - Freshpet, Inc. manufactures and markets natural fresh meals and treats for dogs and cats, distributed across major retail classes including Grocery, Mass, International, Digital, Pet Specialty, and Club[21](index=21&type=chunk) - The Company operates as a single operating and reportable segment, with the CEO reviewing financial information on a consolidated basis[25](index=25&type=chunk)[99](index=99&type=chunk) - As of March 30, 2023, the Company lost significant influence over a privately held equity investment and began accounting for it under ASC 321 (cost minus impairment, plus/minus observable price changes) A gain of **$9,918 thousand** was recognized in 2024 due to an equity funding event[29](index=29&type=chunk)[31](index=31&type=chunk) - The Company accounts for its **$402.5 million** Convertible Notes as a single liability measured at amortized cost, using the effective interest rate method for debt issuance costs[32](index=32&type=chunk)[33](index=33&type=chunk) - The Company maintains a full valuation allowance against its net deferred tax assets as of June 30, 2025, and December 31, 2024, despite generating net income in recent periods, due to the outweighing evidence supporting the allowance[40](index=40&type=chunk)[41](index=41&type=chunk) Net Sales by Class of Retailer (in thousands) | Class of Retailer | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Grocery, Mass, International and Digital | $216,888 | $192,255 | $432,044 | $376,647 | | Pet Specialty and Club | $47,801 | $42,998 | $95,894 | $82,455 | | **Total Net Sales** | **$264,689** | **$235,253** | **$527,938** | **$459,102** | - The FASB issued ASU 2023-09 (Improvements to Income Tax Disclosures) effective for FY2025 and ASU 2024-03 (Disaggregation of Income Statement Expenses) effective for FY2027, which the Company is currently evaluating for their impact on future consolidated financial statements[54](index=54&type=chunk)[55](index=55&type=chunk) [Note 2 – Inventories, net](index=15&type=section&id=Note%202%20%E2%80%93%20Inventories,%20net) This note provides a detailed breakdown of the company's inventory components, including raw materials and finished goods Inventories, net (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | % Change | | :------------------------ | :------------ | :---------------- | :----- | :------- | | Raw Materials and Work in Process | $18,247 | $16,289 | $1,958 | 12.02% | | Packaging Components Material | $7,741 | $7,296 | $445 | 6.10% | | Finished Goods | $64,595 | $57,209 | $7,386 | 12.91% | | **Inventories, net** | **$90,583** | **$80,794** | **$9,789** | **12.11%** | [Note 3 – Property, Plant and Equipment, net](index=16&type=section&id=Note%203%20%E2%80%93%20Property,%20Plant%20and%20Equipment,%20net) This note details the composition of property, plant, and equipment, including refrigeration, machinery, and buildings Property, Plant and Equipment, net (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | % Change | | :------------------------ | :------------ | :---------------- | :----- | :------- | | Refrigeration Equipment | $201,885 | $193,249 | $8,636 | 4.47% | | Machinery and Equipment | $345,662 | $279,093 | $66,569 | 23.85% | | Building, Land and Improvements | $711,280 | $712,209 | $(929) | -0.13% | | Construction in Progress | $85,878 | $104,526 | $(18,648) | -17.84% | | Finance Lease Right of Use Asset | $35,714 | $28,478 | $7,236 | 25.41% | | Less: Accumulated Depreciation and Amortization | $(300,162) | $(265,268) | $(34,894) | 13.15% | | **Property, Plant and Equipment, net** | **$1,101,367** | **$1,065,869** | **$35,498** | **3.33%** | Depreciation and Amortization Expense (in thousands) | Period | 2025 | 2024 | Change | % Change | | :-------------------- | :---------- | :---------- | :---------- | :------- | | Three Months Ended June 30 | $19,852 | $17,311 | $2,541 | 14.68% | | Six Months Ended June 30 | $40,770 | $33,117 | $7,653 | 23.11% | [Note 4 – Accrued Expenses](index=16&type=section&id=Note%204%20%E2%80%93%20Accrued%20Expenses) This note provides a breakdown of the company's accrued expenses, including compensation, production, and legal obligations Accrued Expenses (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | % Change | | :------------------------ | :------------ | :---------------- | :----- | :------- | | Accrued Compensation and Employee Related Costs | $9,587 | $34,550 | $(24,963) | -72.25% | | Accrued Production Expenses | $6,488 | $4,176 | $2,312 | 55.36% | | Accrued Legal Obligations | $4,987 | $— | $4,987 | N/A | | Accrued Corporate and Marketing Expenses | $3,491 | $4,166 | $(675) | -16.20% | | Accrued Chiller Cost | $3,712 | $3,468 | $244 | 7.04% | | Accrued Freight | $3,112 | $4,358 | $(1,246) | -28.60% | | Accrued Interest | $3,019 | $3,019 | $0 | 0.00% | | Accrued Construction Costs | $1,356 | $190 | $1,166 | 613.68% | | Other Accrued Expenses | $2,120 | $2,336 | $(216) | -9.25% | | **Total Accrued Expenses** | **$37,872** | **$56,263** | **$(18,391)** | **-32.69%** | [Note 5 – Convertible Senior Notes](index=16&type=section&id=Note%205%20%E2%80%93%20Convertible%20Senior%20Notes) This note details the $402.5 million 3.0% Convertible Senior Notes due 2028, including conversion rights and interest expense - In March 2023, Freshpet issued **$402.5 million** aggregate principal amount of 3.0% convertible senior notes due 2028, with net proceeds of approximately **$391.5 million** after deducting offering and issuance costs[60](index=60&type=chunk) - Noteholders had the right to early convert under the 130% early conversion feature as of December 31, 2024, but this right was no longer available as of June 30, 2025, and no early conversions occurred[62](index=62&type=chunk) - The effective interest rate for the Convertible Notes is **3.59%**, with **$11.0 million** in transaction costs amortized to interest expense over the term[65](index=65&type=chunk)[66](index=66&type=chunk) Convertible Senior Notes Carrying Value vs. Fair Value (in thousands) as of June 30, 2025 | Metric | Carrying Value | Fair Value | | :------------------------------------ | :------------- | :--------- | | 3.00% Convertible Senior Notes Maturing April 1, 2028 | $396,237 | $504,105 | Interest Expense Related to Convertible Notes (in thousands) | Period | 2025 | 2024 | | :-------------------- | :---------- | :---------- | | Three Months Ended June 30 | $3,558 | $3,539 | | Six Months Ended June 30 | $7,112 | $7,072 | - Approximately **$1,119 thousand** of interest expense for the six months ended June 30, 2025, was capitalized to construction in progress, compared to **$2,407 thousand** in the prior year, as proceeds fund manufacturing facility expansion[69](index=69&type=chunk) [Note 6 – Purchase of Capped Call Options](index=18&type=section&id=Note%206%20%E2%80%93%20Purchase%20of%20Capped%20Call%20Options) This note describes capped call transactions used to mitigate potential dilution from Convertible Notes, detailing their accounting treatment - Freshpet used **$66.2 million** of the Convertible Notes proceeds to enter into capped call transactions, expected to reduce potential dilution and/or offset cash payments upon conversion[70](index=70&type=chunk)[71](index=71&type=chunk) - The capped call transactions have an initial cap price of approximately **$120.23 per share** and are accounted for as freestanding derivatives recorded at initial fair value in additional paid-in-capital, qualifying for equity classification as of June 30, 2025[72](index=72&type=chunk)[73](index=73&type=chunk) [Note 7 – Leases](index=19&type=section&id=Note%207%20%E2%80%93%20Leases) This note provides comprehensive information on Freshpet's operating and finance lease agreements, terms, and costs Weighted-average lease terms and discount rates as of June 30, 2025 | Lease Type | Weighted-average remaining lease term (years) | Weighted-average discount rate | | :--------- | :------------------------------------------ | :----------------------------- | | Operating | 17.98 | 8.4% | | Finance | 10.57 | 8.6% | Maturities of Lease Liabilities (in thousands) as of June 30, 2025 | Year | Operating Leases | Finance Lease | | :--- | :--------------- | :------------ | | 2025 (a) | $3,831 | $2,111 | | 2026 | $7,765 | $4,791 | | 2027 | $7,100 | $4,810 | | 2028 | $6,395 | $4,831 | | 2029 and beyond | $114,282 | $32,232 | | **Total lease payments** | **$139,373** | **$48,775** | | Less: Imputed interest | $(71,644) | $(17,590) | | **Present value of lease liabilities** | **$67,729** | **$31,185** | Summary of Lease Costs (in thousands) - Six Months Ended June 30 | Lease Type | Cost Category | 2025 | 2024 | | :--------- | :------------ | :---------- | :---------- | | Operating Lease | Lease cost | $1,201 | $876 | | Finance Lease | Amortization of right of use asset | $1,512 | $1,388 | | Finance Lease | Interest on lease liabilities | $1,217 | $1,127 | | Variable lease cost | Inventory/Cost of goods sold | $10,918 | $6,669 | [Note 8 – Equity Incentive Plans](index=21&type=section&id=Note%208%20%E2%80%93%20Equity%20Incentive%20Plans) This note details total compensation cost for share-based payments and provides an overview of stock option and RSU activity Total Share-based Compensation Cost (in thousands) | Period | 2025 | 2024 | | :-------------------- | :---------- | :---------- | | Three Months Ended June 30 | $6,221 | $18,722 | | Six Months Ended June 30 | $15,037 | $23,728 | - During the six months ended June 30, 2025, **147,587** service-based restricted stock units were granted at a weighted average grant-date fair market value of **$88.55**, and **68,748** restricted stock units vested[82](index=82&type=chunk) - **40,314** performance-based and total shareholder return (TSR) restricted stock units were granted in the six months ended June 30, 2025, with vesting contingent on three-year performance period targets and a weighted average grant-date fair market value of **$87.51** for TSR units[83](index=83&type=chunk) [Note 9 – Net Income (Loss) Per Share Attributable to Common Stockholders](index=21&type=section&id=Note%209%20%E2%80%93%20Net%20Income%20(Loss)%20Per%20Share%20Attributable%20to%20Common%20Stockholders) This note explains the calculation of basic and diluted net income (loss) per share, including potentially dilutive securities Net Income (Loss) Per Share Attributable to Common Stockholders | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income (Loss) Attributable to Common Stockholders (in thousands) | $16,356 | $(1,694) | $3,659 | $16,908 | | Weighted Average Common Shares Outstanding, Basic (in thousands) | 48,778 | 48,461 | 48,755 | 48,400 | | Weighted Average Common Shares Outstanding, Diluted (in thousands) | 50,198 | 48,461 | 50,256 | 50,154 | | Basic Net Income (Loss) per Share | $0.34 | $(0.03) | $0.08 | $0.35 | | Diluted Net Income (Loss) per Share | $0.33 | $(0.03) | $0.07 | $0.34 | Potentially Dilutive Securities Excluded (in thousands) | Security | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Service Period Stock Options | — | 682 | — | — | | Restricted Stock Units | — | 239 | — | — | | Performance Stock Options | — | 804 | — | — | | Convertible Notes | 5,776 | 5,776 | 5,776 | 5,776 | | **Total** | **5,776** | **7,500** | **5,776** | **5,776** | [Note 10 – Concentrations](index=22&type=section&id=Note%2010%20%E2%80%93%20Concentrations) This note discloses concentrations of credit risk, particularly regarding cash balances and major customer relationships - For the three months ended June 30, 2025, one distributor and two customers accounted for **7%**, **26%**, and **10%** of net sales, respectively[89](index=89&type=chunk) - For the six months ended June 30, 2025, one distributor and two customers accounted for **5%**, **26%**, and **10%** of net sales, respectively[90](index=90&type=chunk) - As of June 30, 2025, one distributor and two customers accounted for **6%**, **28%**, and **15%**, respectively, of accounts receivable[91](index=91&type=chunk) [Note 11 – Commitments and Contingencies](index=22&type=section&id=Note%2011%20%E2%80%93%20Commitments%20and%20Contingencies) This note outlines the company's commitments and discusses ongoing legal proceedings, including a breach of contract claim - The Company is involved in a legal dispute with Phillips Feed Service, Inc. for breach of contract, with Phillips seeking over **$8.3 million** in damages[94](index=94&type=chunk) - On March 14, 2025, the court partially granted Phillips' motion for partial summary judgment, entitling Phillips to a 'termination payment' of **$4,987 thousand**, which the Company has accrued as of June 30, 2025[97](index=97&type=chunk) - Management believes the outcome of this matter is unlikely to have a material adverse effect on the business, financial condition, results of operations, or liquidity[98](index=98&type=chunk) [Note 12 – Segments](index=23&type=section&id=Note%2012%20%E2%80%93%20Segments) This note reiterates Freshpet operates as a single segment and provides detailed breakdowns of segment revenues and expenses - The Company operates in one consolidated operating and reportable segment: the manufacturing, marketing, and distribution of fresh dog food, cat food, and dog treats[99](index=99&type=chunk) Segment Financial Information (in thousands) - Three Months Ended June 30 | Metric | 2025 | 2024 | | :------------------------------------ | :---------- | :---------- | | Net sales | $264,689 | $235,253 | | Input costs | $(76,446) | $(70,122) | | Quality costs | $(5,271) | $(6,349) | | Logistics costs | $(15,108) | $(13,612) | | Media costs | $(39,632) | $(28,589) | | Plant costs and other costs of goods sold | $(58,253) | $(50,039) | | Other segment selling, general and administrative items | $(24,860) | $(31,200) | | Depreciation and amortization | $(20,609) | $(17,422) | | Share-based compensation | $(6,221) | $(19,533) | | Loss on disposals of equipment | $(485) | $(137) | | Interest and other income | $2,199 | $2,861 | | Interest expense | $(3,749) | $(2,751) | | Gain on equity investment | — | — | | Income tax benefit (expense) | $102 | $(54) | | **Consolidated net income (loss)** | **$16,356** | **$(1,694)** | Segment Financial Information (in thousands) - Six Months Ended June 30 | Metric | 2025 | 2024 | | :------------------------------------ | :---------- | :---------- | | Net sales | $527,938 | $459,102 | | Input costs | $(153,533) | $(139,946) | | Quality costs | $(11,150) | $(12,712) | | Logistics costs | $(30,494) | $(27,953) | | Media costs | $(79,423) | $(60,679) | | Plant costs and other costs of goods sold | $(117,580) | $(95,549) | | Other segment selling, general and administrative items | $(70,749) | $(56,185) | | Depreciation and amortization | $(42,436) | $(33,324) | | Share-based compensation | $(15,037) | $(25,754) | | Loss on disposals of equipment | $(1,229) | $(286) | | Interest and other income | $4,592 | $6,195 | | Interest expense | $(7,208) | $(5,811) | | Gain on equity investment | — | $9,918 | | Income tax benefit (expense) | $(32) | $(108) | | **Consolidated net income (loss)** | **$3,659** | **$16,908** | [Note 13 – Subsequent Events](index=24&type=section&id=Note%2013%20%E2%80%93%20Subsequent%20Events) This note discloses the enactment of the One Big Beautiful Bill Act (OBBBA) and its potential future impact on income tax - The One Big Beautiful Bill Act (OBBBA) was enacted on July 4, 2025, making permanent 100% bonus depreciation, immediate deduction for domestic R&D expenses, and changes to business interest expense limitation[107](index=107&type=chunk) - The OBBBA did not impact the income tax provision for the quarter ended June 30, 2025, and the Company is currently evaluating its future effects[107](index=107&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Freshpet's financial condition, results of operations, liquidity, and cash flows [Overview](index=26&type=section&id=Overview) This section introduces Freshpet's mission to provide fresh pet food, highlighting its unique business model and growth opportunities - Freshpet's mission is to elevate pet feeding with fresh food, driven by the humanization of pets and demand for healthier choices[111](index=111&type=chunk) - The company's growth strategy leverages its brand, product know-how, Freshpet Kitchens, refrigerated distribution, Freshpet Fridges (**29,141** installed as of June 30, 2025), and culture[111](index=111&type=chunk)[112](index=112&type=chunk) [Components of our Results of Operations](index=26&type=section&id=Components%20of%20our%20Results%20of%20Operations) This section details key factors influencing Freshpet's Net Sales, Gross Profit, SG&A, and Income Taxes, outlining their composition - Net Sales growth is driven by: * Increasing sales velocity from Freshpet Fridges due to awareness, trial, and innovation * Increasing penetration of Freshpet Fridge locations across major retail classes * Consumer trends including growing pet ownership, pet humanization, and health/wellness focus * Price increases to offset input costs[114](index=114&type=chunk) - Gross profit is net of costs of goods sold, including manufacturing, ingredients, packaging, inbound freight, depreciation, and non-cash share-based compensation[113](index=113&type=chunk) - SG&A expenses include: * Outbound freight * Marketing & advertising (national TV, digital, social, grassroots) * Freshpet Fridge operating costs (repair, depreciation) * Research & development * Brokerage * Share-based compensation * Other general & administrative costs[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) - The Company had federal net operating loss (NOL) carryforwards of approximately **$391.5 million** as of December 31, 2024, with a full valuation allowance against net deferred tax assets[122](index=122&type=chunk)[123](index=123&type=chunk) [Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024](index=28&type=section&id=Three%20Months%20Ended%20June%2030,%202025%20Compared%20to%20Three%20Months%20Ended%20June%2030,%202024) This section analyzes Freshpet's financial performance for Q2 2025 versus Q2 2024, highlighting improvements in sales and profit Financial Performance (in thousands) - Three Months Ended June 30 | Metric | 2025 | 2024 | Change | % Change | | :-------------------- | :---------- | :---------- | :---------- | :------- | | Net Sales | $264,689 | $235,253 | $29,436 | 12.5% | | Gross Profit | $108,190 | $93,952 | $14,238 | 15.2% | | Gross Profit % of Net Sales | 40.9% | 39.9% | 1.0% pts | | | SG&A Expenses | $90,386 | $95,702 | $(5,316) | -5.6% | | SG&A % of Net Sales | 34.1% | 40.7% | -6.6% pts | | | Income (Loss) from Operations | $17,804 | $(1,750) | $19,554 | -1117.4% | | Net Income (Loss) | $16,356 | $(1,694) | $18,050 | -1065.5% | | Adjusted EBITDA | $44,402 | $35,131 | $9,271 | 26.4% | - The increase in net sales was primarily driven by volume gains of **10.8%** and favorable price/mix of **1.7%**[125](index=125&type=chunk) - The **1.0%** increase in gross profit as a percentage of net sales was primarily due to lower input costs and reduced quality costs, partially offset by reduced leverage on plant expenses[126](index=126&type=chunk) - SG&A as a percentage of net sales decreased due to decreased share-based compensation and variable compensation accrual, partially offset by increased media spend[128](index=128&type=chunk) [Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024](index=30&type=section&id=Six%20Months%20Ended%20June%2030,%202025%20Compared%20to%20Six%20Months%20Ended%20June%2030,%202024) This section analyzes Freshpet's financial performance for H1 2025 versus H1 2024, detailing sales growth and net income changes Financial Performance (in thousands) - Six Months Ended June 30 | Metric | 2025 | 2024 | Change | % Change | | :-------------------- | :---------- | :---------- | :---------- | :------- | | Net Sales | $527,938 | $459,102 | $68,836 | 15.0% | | Gross Profit | $211,978 | $182,110 | $29,868 | 16.4% | | Gross Profit % of Net Sales | 40.2% | 39.7% | 0.5% pts | | | SG&A Expenses | $205,671 | $175,396 | $30,275 | 17.3% | | SG&A % of Net Sales | 39.0% | 38.2% | 0.8% pts | | | Income from Operations | $6,307 | $6,714 | $(407) | -6.1% | | Net Income | $3,659 | $16,908 | $(13,249) | -78.4% | | Adjusted EBITDA | $79,937 | $65,712 | $14,225 | 21.6% | - The increase in net sales was primarily driven by volume gains of **12.8%** and favorable price/mix of **2.2%**[135](index=135&type=chunk) - The **0.5%** increase in gross profit as a percentage of net sales was primarily due to lower input costs and reduced quality costs, partially offset by reduced leverage on plant expenses[136](index=136&type=chunk) - SG&A as a percentage of net sales increased due to increased media spend and higher non-recurring charges in Q1 2025, partially offset by decreased share-based compensation and variable compensation accrual[138](index=138&type=chunk) - Net income decreased significantly due to increased SG&A expenses (including **$18.8 million** increased media spend and **$16.9 million** non-recurring charges in Q1 2025) and the absence of a **$9.9 million** gain on equity investment recorded in the prior year[143](index=143&type=chunk)[144](index=144&type=chunk) [Non-GAAP Financial Measures](index=31&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and reconciles Freshpet's non-GAAP financial measures, including Adjusted Gross Profit and Adjusted EBITDA - Non-GAAP financial measures used include: * Adjusted Gross Profit and Adjusted Gross Margin * Adjusted SG&A Expenses and Adjusted SG&A Expenses as a percentage of net sales * EBITDA and Adjusted EBITDA and Adjusted EBITDA as a percentage of net sales (Adjusted EBITDA Margin)[149](index=149&type=chunk) - Adjusted EBITDA is defined as Net (loss) income plus interest expense net of interest income, income tax expense, depreciation and amortization expense, less gain on equity investment, plus non-cash share-based compensation expense, loss on disposal of property, plant and equipment, distributor transition costs, legal obligation, and international business changes[147](index=147&type=chunk) Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $16,356 | $(1,694) | $3,659 | $16,908 | | Depreciation and amortization | $19,896 | $17,212 | $41,013 | $32,957 | | Interest expense, net of interest income | $1,546 | $(110) | $2,610 | $(384) | | Income tax (benefit) expense | $(102) | $54 | $32 | $108 | | **EBITDA** | **$37,696** | **$15,462** | **$47,314** | **$49,589** | | Non-cash share-based compensation | $6,221 | $19,533 | $15,037 | $25,755 | | Loss on disposal of property, plant and equipment | $485 | $136 | $646 | $286 | | Distributor transition costs | — | — | $10,680 | — | | Legal obligation | — | — | $4,987 | — | | International business charges | — | — | $1,273 | — | | Gain on equity investment | — | — | — | $(9,918) | | **Adjusted EBITDA** | **$44,402** | **$35,131** | **$79,937** | **$65,712** | | Adjusted EBITDA as a % of Net Sales | 16.8% | 14.9% | 15.1% | 14.3% | Reconciliation of Gross Profit to Adjusted Gross Profit (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gross profit | $108,190 | $93,952 | $211,978 | $182,110 | | Depreciation expense | $13,729 | $11,827 | $28,909 | $22,502 | | Non-cash share-based compensation | $1,831 | $2,220 | $3,114 | $4,841 | | Loss on disposal of manufacturing equipment | $260 | $32 | $255 | $53 | | **Adjusted Gross Profit** | **$124,010** | **$108,031** | **$244,256** | **$209,506** | | Adjusted Gross Profit as a % of Net Sales | 46.9% | 45.9% | 46.3% | 45.6% | Reconciliation of SG&A Expenses to Adjusted SG&A Expenses (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | SG&A expenses | $90,386 | $95,702 | $205,671 | $175,396 | | Depreciation and amortization expense | $6,167 | $5,385 | $12,104 | $10,455 | | Non-cash share-based compensation | $4,390 | $17,313 | $11,923 | $20,913 | | Loss on disposal of equipment | $225 | $104 | $391 | $233 | | Distributor transition costs | — | — | $10,680 | — | | Legal obligation | — | — | $4,987 | — | | International business charges | — | — | $1,273 | — | | **Adjusted SG&A Expenses** | **$79,604** | **$72,900** | **$164,313** | **$143,795** | | Adjusted SG&A Expenses as a % of Net Sales | 30.1% | 31.0% | 31.1% | 31.3% | [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Freshpet's liquidity, capital expenditure plans, working capital, and funding strategies for future growth - The Company expects to make future capital expenditures for Freshpet Kitchens Ennis Phase 2 and 3, with an additional **$115.1 million** expected to be spent in the remainder of fiscal year 2025[160](index=160&type=chunk) - Capital expenditure forecast for 2025 has been reduced, reflecting moderation in demand and operational efficiencies, expected to improve near-term cash flow and reduce capital intensity[166](index=166&type=chunk) Working Capital (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------- | :------------ | :---------------- | :----- | :------- | | Total Working Capital | $324,196 | $338,129 | $(13,933) | -4.12% | - As of June 30, 2025, capital resources primarily consisted of **$243.7 million** in cash and cash equivalents[169](index=169&type=chunk) Net Cash Flows (in thousands) - Six Months Ended June 30 | Activity | 2025 | 2024 | | :-------------------- | :---------- | :---------- | | Net cash provided by operating activities | $38,693 | $47,819 | | Net cash used in investing activities | $(59,932) | $(94,795) | | Net cash (used in) provided by financing activities | $(3,710) | $1,804 | - The Company has implemented strategic initiatives, including targeted marketing, value-focused product innovation, and expanded distribution in club and mass channels, to mitigate the impact of macroeconomic factors like inflation and increased interest rates[165](index=165&type=chunk) [Critical Accounting Estimates](index=38&type=section&id=Critical%20Accounting%20Estimates) This section states no material changes to critical accounting estimates previously disclosed in the Annual Report on Form 10-K - No material changes to critical accounting estimates compared to the Annual Report[181](index=181&type=chunk) [Recent Accounting Pronouncements](index=38&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 1 for information regarding recently issued accounting pronouncements and their potential impact - Refer to Note 1 for information on recently issued accounting pronouncements[182](index=182&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses Freshpet's exposure to market risks, including interest rate, commodity price, and foreign exchange rate risks [Interest Rate Risk](index=39&type=section&id=Interest%20Rate%20Risk) This subsection addresses the potential impact of rising interest rates on the company's borrowing costs and customer purchasing power - Rising interest rates could increase borrowing costs, affect the fair value of investments, and constrain customer purchasing power[185](index=185&type=chunk) [Commodity Price and Inflation Risk](index=39&type=section&id=Commodity%20Price%20and%20Inflation%20Risk) This subsection discusses the company's exposure to commodity price volatility and inflation, and its mitigation strategies - The Company is exposed to commodity price volatility for agricultural products due to factors like weather, market conditions, and disease[186](index=186&type=chunk) - The Company generally addresses material commodity cost increases by increasing prices or reducing operating expenses, but competitive conditions may limit pricing flexibility[186](index=186&type=chunk)[188](index=188&type=chunk) [Foreign Exchange Rates](index=39&type=section&id=Foreign%20Exchange%20Rates) This subsection details Freshpet's exposure to foreign currency fluctuations, particularly in GBP, Euro, and CAD - The Company is exposed to movements in the British pound sterling, Euro, and Canadian Dollar[189](index=189&type=chunk) - Consolidated revenue from Europe was less than **1%** for the six months ended June 30, 2025[189](index=189&type=chunk) - The Company may use forward exchange contracts to reduce foreign currency exposure; however, none were outstanding as of June 30, 2025[190](index=190&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of Freshpet's disclosure controls and internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=40&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management concluded that Freshpet's disclosure controls and procedures were effective as of June 30, 2025 - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025[191](index=191&type=chunk) [Changes in Internal Control](index=40&type=section&id=Changes%20in%20Internal%20Control) No material changes in internal control over financial reporting were identified during the period covered by this report - No material changes in internal control over financial reporting were identified during the quarter[192](index=192&type=chunk) [Limitations on Effectiveness of Controls and Procedures](index=40&type=section&id=Limitations%20on%20Effectiveness%20of%20Controls%20and%20Procedures) This subsection acknowledges that control systems have inherent limitations and cannot prevent all errors or fraud - Control systems provide reasonable, not absolute, assurance and are subject to inherent limitations, such as faulty judgments, circumvention by individuals or collusion, and management override[193](index=193&type=chunk) [Part II. Other Information](index=39&type=section&id=Part%20II.%20Other%20Information) This section contains additional information not covered in the financial statements, including legal proceedings and risk factors [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal actions, but management does not expect a material adverse effect on its financials - No material adverse effect is expected from current legal proceedings on the company's business, financial condition, results of operations, or cash flows[195](index=195&type=chunk) - Further details on pending litigation are provided in Note 11 - Commitments and Contingencies[195](index=195&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously reported in the company's Annual Report on Form 10-K were identified - No material changes to the risk factors previously reported in the Annual Report on Form 10-K[196](index=196&type=chunk) [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) This section provides other information, specifically regarding insider trading arrangements [Insider Trading Arrangements](index=41&type=section&id=Insider%20Trading%20Arrangements) No directors or executive officers reported adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or executive officers during the quarter ended June 30, 2025[198](index=198&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed or furnished with the Quarterly Report on Form 10-Q, including certifications and XBRL documents - Exhibits include: * Certifications of CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 * Inline XBRL Instance Document and Taxonomy Extension Documents[199](index=199&type=chunk)

Financial Data and Key Metrics Changes - Second quarter net sales were $264.7 million, up 12.5% year over year, primarily driven by volume growth [18][26] - Adjusted gross margin in the second quarter was 46.9%, compared to 45.9% in the prior year period [18][27] - Adjusted EBITDA in the second quarter was $44.4 million, up approximately $9 million or 26% year over year [19][29] - Capital expenditures for the second quarter were $33.4 million, with cash on hand of $243.7 million at the end of the quarter [29] Business Line Data and Key Metrics Changes - The company remains the number one dog food brand in the U.S. with a 95% market share in the gently cooked fresh frozen branded food dog segment [19] - Digital orders, previously referred to as e-commerce, grew by 40% in the second quarter and now account for 13% of total sales [16] Market Data and Key Metrics Changes - Household penetration as of June 29 was 14.4 million households, up 11% year over year, with a total buy rate of $110, up 6% year over year [22] - The company competes in the $54 billion U.S. pet food category and has a 3.6% market share within the $37 billion U.S. dog food and treats segment [19][20] Company Strategy and Development Direction - The company is focusing on operational improvements and capital efficiencies to achieve long-term margin and free cash flow targets [6][7] - Plans to launch a new complete nutrition bag product and roll out new multi-packs and bundles later this year [17] - The company is increasing its marketing efforts, particularly in digital and social channels, to drive household penetration [15][16] Management's Comments on Operating Environment and Future Outlook - Management acknowledged economic uncertainty affecting consumer behavior, leading to hesitance in trading up dog food and deferring pet-related expenses [8][9] - The company expects net sales growth of 13% to 16% for fiscal year 2025, adjusting previous guidance due to the current macroeconomic environment [23][30] - Long-term targets for net sales and household penetration have been removed due to challenges in maintaining projected growth rates [24] Other Important Information - The company is lowering its capital expenditure estimates for 2025 and 2026 by at least $100 million due to improved operational efficiencies [12] - The company has made significant progress in its Ennis plant, which is expected to provide over 50% of production volume in the coming years [10] Q&A Session Summary Question: Path to 22% EBITDA margin in 2027 - Management indicated that achieving a 22% EBITDA margin is feasible with mid-teens growth, emphasizing operational performance and potential upside from new technologies [36][41] Question: Clarification on net sales target removal - Management confirmed that while the net sales target has been removed, the gross margin and EBITDA margin targets remain, contingent on achieving low to mid-teen growth [44] Question: Dynamics between household penetration and buy rates - Management noted that while household penetration is growing, the buy rate is affected by consumers' reluctance to trade up, although some premium products are still seeing growth [45][48] Question: Impact of Blue Buffalo's competition - Management views increased competition as a validation of the category's growth potential, believing that overall category awareness will benefit all players, including Freshpet [82][84] Question: Nature of new advertising strategy - The new advertising will emphasize health benefits of fresh food while maintaining the brand's established emotional connection with consumers [76][90]

Financial Data and Key Metrics Changes - Second quarter net sales were $264.7 million, up 12.5% year over year, primarily driven by volume growth [18][26] - Adjusted gross margin in the second quarter was 46.9%, compared to 45.9% in the prior year period [18][27] - Adjusted EBITDA in the second quarter was $44.4 million, up approximately $9 million or 26% year over year [19][29] - Capital expenditures for the second quarter were $33.4 million, with cash on hand of $243.7 million at the end of the quarter [29] Business Line Data and Key Metrics Changes - Freshpet remains the number one dog food brand in the U.S. with a 95% market share in the gently cooked fresh frozen branded food dog segment [19] - Digital orders, previously referred to as e-commerce, grew by 40% in the second quarter and now account for 13% of total sales [16] - The company is expanding its product offerings with new complete nutrition bag products and multi-packs [17] Market Data and Key Metrics Changes - Household penetration as of June 29 was 14.4 million households, up 11% year over year [22] - The total buy rate was $110, up 6% year over year, with the heaviest users (MVPs) growing to 2.2 million households, up 18% year over year [22] - Freshpet's products are now in 29,141 stores, with 24% having multiple fridges [20] Company Strategy and Development Direction - The company is focusing on operational improvements and capital efficiencies to deliver long-term margin and free cash flow targets [5][12] - Freshpet is adapting its marketing strategy to better explain the benefits of fresh food and is launching a new media campaign [14][66] - The company is optimistic about expanding its presence in the club channel and has recently expanded its test in a leading club retailer [17][96] Management's Comments on Operating Environment and Future Outlook - Management acknowledges economic uncertainty affecting consumer behavior, leading to hesitance in trading up dog food and deferring pet-related expenses [6][12] - The company has adjusted its net sales guidance for the year, now expecting growth of 13% to 16% year over year [23][30] - Management remains confident in achieving adjusted EBITDA targets of $190 million to $210 million despite the revised sales outlook [30][33] Other Important Information - The company is lowering its capital expenditure estimates for 2025 and 2026 by at least $100 million due to improved operational efficiencies [8][11] - Freshpet is removing its previous net sales target of $1.8 billion for fiscal year 2027 due to challenges in maintaining projected growth rates [24][33] - The company is confident in its ability to achieve long-term margin targets of 48% adjusted gross margin and 22% adjusted EBITDA margin [24][33] Q&A Session Summary Question: Path to 22% EBITDA margin in 2027 - Management believes mid-teens growth over the next couple of years will support the 22% EBITDA margin target, with potential upside from new technologies [36][38] Question: Clarification on net sales target removal - Management confirms that while the net sales target has been removed, the gross margin and EBITDA margin targets remain based on low to mid-teen growth expectations [45][46] Question: Dynamics between household penetration and buy rates - Management acknowledges that while household penetration is growing, the buy rate is impacted by consumers' reluctance to trade up, but there are still positive trends in premium product sales [47][50] Question: Competitive dynamics with Blue Buffalo's entry - Management views increased competition as validation of the category's growth potential and believes it will drive overall category growth, benefiting Freshpet [84][86]