Shares of pet food company Freshpet (FRPT 17.35%) surged higher on Monday after the company reported completed financial results for 2023. As of 10:40 a.m. ET, Freshpet stock was up 19% and had hit new 52-week highs.Business is booming for FreshpetIn the fourth quarter of 2023, Freshpet had net sales of $215 million, its highest ever and up 30% from the prior-year period. This was almost $12 million more than what management had expected. And the good news is that its growth was driven by a 25% increase in ...

Freshpet (FRPT) came out with quarterly earnings of $0.31 per share, beating the Zacks Consensus Estimate of $0.09 per share. This compares to loss of $0.06 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 244.44%. A quarter ago, it was expected that this seller of refrigerated fresh pet food would post a loss of $0.20 per share when it actually produced a loss of $0.15, delivering a surprise of 25%.Over the last four quarters, ...

Full Year 2023 Net Sales and Adjusted EBITDA Exceed Company GuidanceSixth Consecutive Year of >25% Net Sales GrowthProvides Full Year 2024 Outlook SECAUCUS, N.J., Feb. 26, 2024 (GLOBE NEWSWIRE) -- Freshpet, Inc. ("Freshpet" or the "Company") (NASDAQ:FRPT) today reported financial results for its fourth quarter and full year ended December 31, 2023. Fourth Quarter 2023 Financial Highlights Compared to Prior Year Period Net sales of $215.4 million, an increase of 29.9%Net income of $15.3 million, compared to ...

Market Presence and Sales - As of December 31, 2023, Freshpet's household penetration in the U.S. was approximately 11.5 million, with a target of reaching 20 million households by 2027[14]. - Freshpet operates in approximately 26,777 stores, with about 22% of these stores featuring second and third Freshpet Fridge placements[53]. - In 2023, Walmart accounted for 23.4% of Freshpet's net sales, while the largest distributor, Animal Supply Co., represented 9.0% of net sales[54]. - Freshpet's network includes approximately 26,777 retail locations, enhancing brand visibility and consumer engagement[63]. - The company has expanded into the UK market, selling products in approximately 544 stores, indicating growth in international operations[127]. Financial Performance - Net sales increased by $171.6 million, or 28.8%, to $766.9 million for the twelve months ended December 31, 2023, compared to the prior year, primarily driven by volume gains of 20%[188]. - Gross profit was $250.9 million, or 32.7% of net sales, for the twelve months ended December 31, 2023, an increase from $186.0 million, or 31.2% of net sales, in the prior year[189]. - Adjusted EBITDA was $66.6 million, or 8.7% of net sales, for the twelve months ended December 31, 2023, compared to $20.1 million, or 3.4% of net sales, in the prior year[198]. - The net loss decreased by $25.9 million to $33.6 million for the twelve months ended December 31, 2023, compared to a net loss of $59.5 million in the prior year[197]. - The company reported a net loss of $33.6 million for 2023, an improvement from a net loss of $59.5 million in 2022[206]. Manufacturing and Operations - Freshpet's manufacturing network includes three facilities, with the Ennis, Texas facility expected to complete its second phase by the end of Q3 2024[44]. - Approximately 99.1% of Freshpet's product volume was manufactured using Freshpet-owned equipment in 2023[45]. - Manufacturing capacity expansion is crucial; failure to align manufacturing capabilities with demand could materially affect business operations[104]. - The company's Freshpet Fridges are critical to success; any harm to their operating capacity could negatively impact brand reputation and sales[108]. Marketing and Brand Strategy - Freshpet's marketing strategy focuses on educating consumers about the benefits of fresh refrigerated pet food and increasing brand awareness through various channels[61]. - Freshpet aims to increase brand loyalty and consumer trial through effective marketing strategies and community engagement[64]. - The company emphasizes the importance of its trademarks and intellectual property in building brand recognition and competitive advantage[77]. Challenges and Risks - The pet food industry is highly competitive, with major competitors including Nestlé Purina, Mars Pet Care, and others, impacting market share[66]. - The company faces risks related to competition, including pricing pressures and the need for effective marketing to maintain market share[90]. - Input costs for ingredients are subject to volatility and shortages, which could adversely impact production schedules and profitability[105]. - Adverse weather conditions and natural disasters can disrupt operations, affecting ingredient supply and production schedules[107]. - The company may face product recalls or adverse publicity if products are alleged to cause injury or illness, which could lead to significant unexpected expenditures[99]. Employee and Corporate Governance - Freshpet employs 1,083 employees as of December 31, 2023, with a focus on diversity, equity, and inclusion in the workplace[71]. - The company faces challenges in attracting and retaining qualified employees, which could increase operational costs[115]. - Compliance with extensive government regulations may increase production costs and legal expenses[118]. Financial Instruments and Capital Structure - The company issued approximately $402.5 million in convertible notes in March 2023 to meet capital needs[212]. - The company has 48,263,097 shares of common stock outstanding as of December 31, 2023, with authorization to issue up to 200 million shares[146]. - The company has not declared or paid any cash dividends since becoming publicly traded in 2014 and does not anticipate doing so in the foreseeable future[165]. Cybersecurity and IT Risks - The company is subject to cybersecurity risks, with a dedicated information security organization in place to manage these threats[151]. - Cybersecurity risks are increasing, and breaches could lead to significant legal and financial exposure[135]. - Information technology systems are essential for operations, and failures could disrupt business processes and result in transaction errors[134].

[Company Overview and Highlights](index=1&type=section&id=Company%20Overview%20and%20Highlights) Freshpet's 2023 results mark an inflection point, with strategic investments yielding improved profitability and strong financial performance [CEO Commentary](index=1&type=section&id=CEO%20Commentary) CEO Billy Cyr emphasizes 2023 as an inflection point, with investments driving improved profitability and cash flow, aligning with the 'Fresh Future' plan - Freshpet's 2023 results indicate an inflection point, with investments leading to **improved profitability and operating cash flow**, validating the 'Fresh Future' plan[2](index=2&type=chunk) - For 2024, the company plans to continue **strong margin improvement**, demonstrate capital discipline, and sustain net sales growth to drive profitability and shareholder value[2](index=2&type=chunk) [Fourth Quarter 2023 Highlights](index=1&type=section&id=Fourth%20Quarter%202023%20Highlights) Freshpet reported robust financial performance for Q4 2023, with significant increases in net sales, a shift from net loss to net income, and substantial growth in Adjusted EBITDA, reflecting improved operational efficiency and higher sales volume Fourth Quarter 2023 Key Financial Highlights (in millions) | Metric | Q4 2023 | Q4 2022 | Change (%) | | :----------------- | :---------- | :---------- | :--------- | | Net sales | $215.4 | $165.8 | +29.9% | | Net income (loss) | $15.3 | ($2.9) | N/A | | Adjusted EBITDA | $31.3 | $18.8 | +66.5% | - The increase in net sales was primarily driven by **volume gains of 25%**[3](index=3&type=chunk) [Full Year 2023 Highlights](index=2&type=section&id=Full%20Year%202023%20Highlights) For the full year 2023, Freshpet achieved significant net sales growth for the sixth consecutive year, reduced its net loss, and more than tripled its Adjusted EBITDA, demonstrating strong overall financial improvement Full Year 2023 Key Financial Highlights (in millions) | Metric | FY 2023 | FY 2022 | Change (%) | | :----------------- | :---------- | :---------- | :--------- | | Net sales | $766.9 | $595.3 | +28.8% | | Net loss | ($33.6) | ($59.5) | -43.5% | | Adjusted EBITDA | $66.6 | $20.1 | +231.3% | - Full year net sales growth of **28.8%** marks the sixth consecutive year of over **25% net sales growth**[1](index=1&type=chunk)[9](index=9&type=chunk) - The increase in net sales was primarily driven by **volume gains of 20%**[9](index=9&type=chunk) [Fourth Quarter 2023 Financial Performance](index=1&type=section&id=Fourth%20Quarter%202023%20Financial%20Performance) Freshpet's Q4 2023 financial performance shows strong net sales growth, improved profitability, and a significant increase in Adjusted EBITDA [Net Sales](index=1&type=section&id=Net%20Sales_Q4) Freshpet's net sales for the fourth quarter of 2023 increased significantly by 29.9% year-over-year, primarily driven by strong volume gains Q4 2023 Net Sales (in millions) | Metric | Q4 2023 | Q4 2022 | YoY Change | | :------- | :---------- | :---------- | :--------- | | Net sales | $215.4 | $165.8 | +29.9% | | Volume gains | N/A | N/A | +25% | [Gross Profit](index=1&type=section&id=Gross%20Profit_Q4) Gross profit and Adjusted Gross Profit both saw substantial increases in Q4 2023, with margins improving due to better plant expense leverage and reduced quality costs, despite increased depreciation and equipment disposal costs Q4 2023 Gross Profit (in millions) | Metric | Q4 2023 | Q4 2022 | YoY Change | | :---------------------- | :---------- | :---------- | :--------- | | Gross profit | $74.6 | $45.7 | +63.2% | | Gross profit % of net sales | 34.6% | 27.6% | +700 bps | | Adjusted Gross Profit | $88.5 | $54.8 | +61.5% | | Adjusted Gross Profit % of net sales | 41.1% | 33.0% | +810 bps | - Increase in gross profit as a percentage of net sales was primarily due to **improved leverage on plant expenses** and **reduced quality costs**, partially offset by depreciation and equipment disposal costs[4](index=4&type=chunk) [Selling, General and Administrative Expenses (SG&A)](index=1&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses%20%28SG%26A%29_Q4) SG&A expenses increased in absolute terms but decreased as a percentage of net sales in Q4 2023, driven by reduced logistics costs and ERP implementation costs, and increased leverage, partially offset by higher media spend and variable compensation Q4 2023 SG&A Expenses (in millions) | Metric | Q4 2023 | Q4 2022 | YoY Change | | :---------------------- | :---------- | :---------- | :--------- | | SG&A expenses | $59.7 | $47.8 | +24.9% | | SG&A % of net sales | 27.7% | 28.8% | -110 bps | | Adjusted SG&A | $57.2 | $37.2 | +53.7% | | Adjusted SG&A % of net sales | 26.6% | 22.4% | +420 bps | - The decrease in SG&A as a percentage of net sales was mainly a result of **reduced logistics cost**, **decreased ERP implementation costs**, and **increased leverage** on depreciation and share-based compensation, partially offset by increased media spend and variable compensation accrual[5](index=5&type=chunk) [Net Income](index=1&type=section&id=Net%20Income_Q4) Freshpet swung to a net income of $15.3 million in Q4 2023 from a net loss in the prior year, primarily due to higher sales, increased gross margin, and reduced logistics costs, despite increased media spend Q4 2023 Net Income (in millions) | Metric | Q4 2023 | Q4 2022 | YoY Change | | :--------- | :---------- | :---------- | :--------- | | Net income | $15.3 | ($2.9) | N/A | - The improvement in net income was due to **contribution from higher sales**, **increased gross margin**, and **reduced logistics costs** as a percentage of net sales, partially offset by increased SG&A including increased media spend of **$10.4 million**[6](index=6&type=chunk) [Adjusted EBITDA](index=2&type=section&id=Adjusted%20EBITDA_Q4) Adjusted EBITDA for Q4 2023 significantly increased, both in absolute terms and as a percentage of net sales, driven by higher Adjusted Gross Profit partially offset by increased Adjusted SG&A expenses Q4 2023 Adjusted EBITDA (in millions) | Metric | Q4 2023 | Q4 2022 | YoY Change | | :---------------------- | :---------- | :---------- | :--------- | | Adjusted EBITDA | $31.3 | $18.8 | +66.5% | | Adjusted EBITDA % of net sales | 14.5% | 11.3% | +320 bps | - The increase in Adjusted EBITDA was a result of **increased Adjusted Gross Profit** partially offset by higher Adjusted SG&A expense[8](index=8&type=chunk) [Full Year 2023 Financial Performance](index=2&type=section&id=Full%20Year%202023%20Financial%20Performance) Freshpet's full year 2023 financial performance demonstrates robust net sales growth, improved profitability, and a substantial increase in Adjusted EBITDA [Net Sales](index=2&type=section&id=Net%20Sales_FY23) Freshpet's full year 2023 net sales grew by 28.8%, reaching $766.9 million, primarily fueled by a 20% increase in sales volume Full Year 2023 Net Sales (in millions) | Metric | FY 2023 | FY 2022 | YoY Change | | :------- | :---------- | :---------- | :--------- | | Net sales | $766.9 | $595.3 | +28.8% | | Volume gains | N/A | N/A | +20% | [Gross Profit](index=2&type=section&id=Gross%20Profit_FY23) For the full year 2023, both gross profit and Adjusted Gross Profit increased significantly, with margins improving due to better plant expense leverage, reduced quality costs, and increased net sales pricing, partially offset by higher depreciation Full Year 2023 Gross Profit (in millions) | Metric | FY 2023 | FY 2022 | YoY Change | | :---------------------- | :---------- | :---------- | :--------- | | Gross profit | $250.9 | $186.0 | +34.9% | | Gross profit % of net sales | 32.7% | 31.2% | +150 bps | | Adjusted Gross Profit | $306.6 | $214.1 | +43.2% | | Adjusted Gross Profit % of net sales | 40.0% | 36.0% | +400 bps | - The increase in gross profit as a percentage of net sales was primarily due to **improved leverage on plant expenses**, **reduced quality costs**, and **decreased input cost** as a percentage of sales mainly due to an increase in net sales pricing, partially offset by increased depreciation expense and equipment disposal costs[10](index=10&type=chunk) [Selling, General and Administrative Expenses (SG&A)](index=2&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses%20%28SG%26A%29_FY23) Full year 2023 SG&A expenses increased in absolute terms but decreased as a percentage of net sales, driven by reduced logistics costs, decreased ERP implementation costs, and increased leverage, partially offset by activism engagement charges, increased media spend, and variable compensation accrual Full Year 2023 SG&A Expenses (in millions) | Metric | FY 2023 | FY 2022 | YoY Change | | :---------------------- | :---------- | :---------- | :--------- | | SG&A expenses | $281.3 | $238.0 | +18.2% | | SG&A % of net sales | 36.7% | 40.0% | -330 bps | | Adjusted SG&A | $240.1 | $195.7 | +22.7% | | Adjusted SG&A % of net sales | 31.3% | 32.9% | -160 bps | - The decrease of **330 basis points** in SG&A as a percentage of net sales was mainly a result of **reduced logistics cost**, **decreased ERP implementation costs**, and **increased leverage** on depreciation and share-based compensation, partially offset by activism engagement charges, increased media spend (**$23.1 million**), and increased variable compensation accrual[11](index=11&type=chunk)[12](index=12&type=chunk) [Net Loss](index=2&type=section&id=Net%20Loss_FY23) Freshpet significantly reduced its net loss for the full year 2023, improving from $59.5 million in 2022 to $33.6 million, primarily due to higher sales, increased gross margins, and reduced logistics costs Full Year 2023 Net Loss (in millions) | Metric | FY 2023 | FY 2022 | YoY Change | | :--------- | :---------- | :---------- | :--------- | | Net loss | ($33.6) | ($59.5) | -43.5% | - The decrease in net loss was due to **contribution profit from higher sales**, **increased gross margins**, and **reduced logistics cost** as a percentage of net sales, partially offset by increased SG&A including increased media spend of **$23.1 million**[12](index=12&type=chunk) [Adjusted EBITDA](index=2&type=section&id=Adjusted%20EBITDA_FY23) Adjusted EBITDA for the full year 2023 more than tripled, reaching $66.6 million, with a substantial increase in margin as a percentage of net sales, driven by increased Adjusted Gross Profit partially offset by higher Adjusted SG&A expense Full Year 2023 Adjusted EBITDA (in millions) | Metric | FY 2023 | FY 2022 | YoY Change | | :---------------------- | :---------- | :---------- | :--------- | | Adjusted EBITDA | $66.6 | $20.1 | +231.3% | | Adjusted EBITDA % of net sales | 8.7% | 3.4% | +530 bps | - The increase in Adjusted EBITDA was a result of **increased Adjusted Gross Profit** partially offset by higher Adjusted SG&A expense[13](index=13&type=chunk) [Financial Position and Cash Flow](index=2&type=section&id=Financial%20Position%20and%20Cash%20Flow) Freshpet's financial position shows a strong cash balance and increased operating cash flow, supporting ongoing investments in its long-term capacity plan [Balance Sheet Summary](index=2&type=section&id=Balance%20Sheet%20Summary) As of December 31, 2023, Freshpet reported a strong cash position and increased total assets, while also having significant debt outstanding, indicating ongoing investments in its long-term capacity plan Balance Sheet Snapshot (as of December 31, 2023, in millions) | Metric | Amount | | :---------------------- | :------------- | | Cash and cash equivalents | $296.9 | | Debt outstanding (net) | $393.1 | - The company plans to utilize its balance sheet to support ongoing capital needs for its **long-term capacity plan**[15](index=15&type=chunk) [Cash Flow from Operations](index=2&type=section&id=Cash%20Flow%20from%20Operations) Cash flow from operations for the full year 2023 saw a substantial increase, driven by improved profitability and more efficient working capital management Full Year 2023 Cash Flow from Operations (in millions) | Metric | FY 2023 | FY 2022 | YoY Change | | :---------------------- | :---------- | :---------- | :--------- | | Cash from operations | $75.9 | ($43.2) | +$119.1 | - The significant increase in cash from operations was driven by **improved profitability** and **more efficient working capital**[14](index=14&type=chunk) [Full Year 2024 Outlook](index=2&type=section&id=Full%20Year%202024%20Outlook) Freshpet provided optimistic guidance for full year 2024, projecting continued strong net sales growth and a significant increase in Adjusted EBITDA, alongside planned capital expenditures Full Year 2024 Guidance (in millions) | Metric | Guidance | | :----------------- | :------------------- | | Net sales | At least $950 | | Net sales growth | At least 24% from 2023 | | Adjusted EBITDA | $100 to $110 | | Capital expenditures | ~$210 | - The company does not provide guidance for net income or a reconciliation to Adjusted EBITDA due to the unavailability of reliable estimates for certain components of net income[16](index=16&type=chunk) [Additional Company Information](index=3&type=section&id=Additional%20Company%20Information) This section provides details on Freshpet's conference call, company mission, and important forward-looking statement disclaimers [Conference Call Details](index=3&type=section&id=Conference%20Call%20Details) Freshpet hosted a conference call on February 26, 2024, to discuss its financial results, with webcast and telephonic replay options available for investors - A conference call was held on **February 26, 2024, at 8:00 a.m. Eastern Time**, with a live webcast available through the 'Investors' section of the company's website[17](index=17&type=chunk) - A replay of the conference call is archived on the company's website and available via telephonic playback until **March 11, 2024**[18](index=18&type=chunk) [About Freshpet](index=3&type=section&id=About%20Freshpet) Freshpet is dedicated to improving the lives of pets through fresh, real food made from locally farmed meats, vegetables, and fruits, prepared in small batches and kept refrigerated. Their products are distributed across various retailers in North America and Europe - Freshpet's mission is to improve the lives of dogs and cats with **fresh, real food**, using natural ingredients cooked in small batches at lower temperatures[19](index=19&type=chunk) - Products are kept refrigerated from production to retail and are available in grocery, mass, club, pet specialty, natural, and digital retailers across the **United States, Canada, and Europe**[19](index=19&type=chunk)[20](index=20&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) The release contains forward-looking statements regarding future growth, profitability, and financial guidance, which are subject to risks and uncertainties detailed in SEC filings. Freshpet disclaims any obligation to update these statements unless required by law - Statements regarding long-term growth, profitability, capital discipline, and 2024 guidance are **forward-looking** and subject to risks and uncertainties outlined in the Company's Form 10-K and 10-Q filings[21](index=21&type=chunk) - Freshpet undertakes no obligation to publicly update or revise any forward-looking statement unless required by law[21](index=21&type=chunk) [Non-GAAP Financial Measures Definitions](index=4&type=section&id=Non-GAAP%20Financial%20Measures%20Definitions) This section defines key non-GAAP financial measures used by Freshpet, including Adjusted Gross Profit, Adjusted SG&A, EBITDA, and Adjusted EBITDA, and their components [Adjusted Gross Profit Definition](index=4&type=section&id=Adjusted%20Gross%20Profit%20Definition) Adjusted Gross Profit is defined as gross profit before specific non-cash and non-recurring items, providing a clearer view of core operational profitability - Adjusted Gross Profit is defined as gross profit before **depreciation expense**, **non-cash share-based compensation**, and **loss on disposal of manufacturing equipment**[23](index=23&type=chunk) [Adjusted SG&A Expenses Definition](index=4&type=section&id=Adjusted%20SG%26A%20Expenses%20Definition) Adjusted SG&A excludes certain non-cash, non-recurring, or specific operational costs from SG&A expenses to present a more normalized view of selling, general, and administrative costs - Adjusted SG&A is defined as SG&A expenses before **depreciation and amortization**, **non-cash share-based compensation**, **loss on disposal of equipment**, **ERP implementation costs**, **capped call option fees**, and **activism engagement advisory fees**[24](index=24&type=chunk) [EBITDA and Adjusted EBITDA Definition](index=4&type=section&id=EBITDA%20and%20Adjusted%20EBITDA%20Definition) EBITDA and Adjusted EBITDA are non-GAAP measures used to assess the company's operating performance by excluding various non-operating, non-cash, or non-recurring items from net income (loss) - EBITDA represents net income (loss) plus **interest expense net of interest income**, **income tax expense**, and **depreciation and amortization expense**[25](index=25&type=chunk) - Adjusted EBITDA further adjusts EBITDA by adding back **loss on equity method investment**, **loss on disposal of property, plant and equipment**, **non-cash share-based compensation expense**, **ERP implementation costs**, **capped call option fees**, and **activism engagement advisory fees**[25](index=25&type=chunk) - Management believes these non-GAAP measures provide a **meaningful view of ongoing operating results** for investors[26](index=26&type=chunk) [Consolidated Financial Statements](index=5&type=section&id=Consolidated%20Financial%20Statements) This section presents Freshpet's consolidated balance sheets, statements of operations, and cash flows, providing a comprehensive view of its financial health [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets show Freshpet's financial position as of December 31, 2023, highlighting significant increases in cash and cash equivalents and total assets, alongside the introduction of convertible senior notes Consolidated Balance Sheets (Key Figures in thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $296,871 | $132,735 | | Total Current Assets | $427,319 | $261,965 | | Property, plant and equipment, net | $979,164 | $800,586 | | Total Assets | $1,464,421 | $1,125,383 | | Total Current Liabilities | $89,222 | $89,614 | | Convertible senior notes | $393,074 | — | | Total Liabilities | $510,967 | $93,814 | | Total Stockholders' Equity | $953,454 | $1,031,569 | [Consolidated Statements of Operations and Comprehensive Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%28Loss%29) The consolidated statements of operations reflect Freshpet's strong revenue growth and improved profitability in Q4 and full year 2023, moving from a net loss to net income in the fourth quarter and significantly reducing the full-year net loss Consolidated Statements of Operations (Key Figures in thousands) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :------------------------------------ | :-------- | :-------- | :-------- | :-------- | | NET SALES | $215,420 | $165,833 | $766,895 | $595,344 | | GROSS PROFIT | $74,575 | $45,709 | $250,872 | $186,033 | | SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES | $59,680 | $47,775 | $281,318 | $238,016 | | INCOME (LOSS) FROM OPERATIONS | $14,895 | ($2,066) | ($30,446) | ($51,983) | | INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | $15,289 | ($2,918) | ($33,614) | ($59,494) | | NET INCOME (LOSS) PER SHARE - BASIC | $0.32 | ($0.06) | ($0.70) | ($1.29) | | NET INCOME (LOSS) PER SHARE - DILUTED | $0.31 | ($0.06) | ($0.70) | ($1.29) | [Consolidated Statement of Cash Flows](index=7&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) The consolidated statement of cash flows for 2023 shows a significant positive shift in cash from operating activities, while investing activities continued to be a net outflow due to substantial capital expenditures, and financing activities provided a net inflow Consolidated Statement of Cash Flows (Key Figures in thousands) | Metric | FY 2023 | FY 2022 | FY 2021 | | :------------------------------------ | :-------- | :-------- | :-------- | | Net cash flows provided by (used in) operating activities | $75,940 | ($43,227) | $647 | | Net cash flows used in investing activities | ($239,093) | ($233,364) | ($322,099) | | Net cash flows provided by financing activities | $327,289 | $336,538 | $326,993 | | NET CHANGE IN CASH AND CASH EQUIVALENTS | $164,136 | $59,947 | $5,541 | | CASH AND CASH EQUIVALENTS, END OF PERIOD | $296,871 | $132,735 | $72,788 | - Acquisitions of property, plant and equipment, software and deposits on equipment remained a significant use of cash in investing activities, totaling **$239.1 million** in 2023[33](index=33&type=chunk) - Financing activities in 2023 included proceeds from the issuance of convertible senior notes (**$393.5 million**) and purchase of capped call options (**$66.2 million**)[33](index=33&type=chunk) [Non-GAAP Reconciliations](index=8&type=section&id=Non-GAAP%20Reconciliations) This section provides detailed reconciliations of GAAP to non-GAAP financial measures, including Gross Profit, SG&A, and Net Income (Loss) to Adjusted EBITDA [Gross Profit to Adjusted Gross Profit Reconciliation](index=8&type=section&id=Gross%20Profit%20to%20Adjusted%20Gross%20Profit%20Reconciliation) This section provides a reconciliation of GAAP Gross Profit to Adjusted Gross Profit, detailing adjustments for depreciation, non-cash share-based compensation, and loss on disposal of manufacturing equipment for both quarterly and full-year periods Gross Profit to Adjusted Gross Profit Reconciliation (in thousands) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :-------------------------------- | :-------- | :-------- | :-------- | :-------- | | Gross profit | $74,575 | $45,709 | $250,872 | $186,033 | | Depreciation expense | $8,103 | $6,566 | $41,209 | $20,774 | | Non-cash share-based compensation | $2,299 | $2,505 | $10,995 | $7,293 | | Loss on disposal of manufacturing equipment | $3,547 | — | $3,547 | — | | Adjusted Gross Profit | $88,524 | $54,780 | $306,623 | $214,100 | | Adjusted Gross Profit as a % of Net Sales | 41.1% | 33.0% | 40.0% | 36.0% | [SG&A Expenses to Adjusted SG&A Expenses Reconciliation](index=9&type=section&id=SG%26A%20Expenses%20to%20Adjusted%20SG%26A%20Expenses%20Reconciliation) This reconciliation details the adjustments made to GAAP SG&A expenses to arrive at Adjusted SG&A, including exclusions for depreciation, share-based compensation, ERP implementation costs, and activism engagement fees, for both quarterly and full-year periods SG&A Expenses to Adjusted SG&A Expenses Reconciliation (in thousands) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :-------------------------------- | :-------- | :-------- | :-------- | :-------- | | SG&A expenses | $59,680 | $47,775 | $281,318 | $238,016 | | Depreciation and amortization expense | $4,248 | $3,565 | $15,849 | $13,781 | | Non-cash share-based compensation (a) | ($2,315) | $3,178 | $13,941 | $18,799 | | Loss on disposal of equipment | $86 | $193 | $774 | $396 | | Enterprise Resource Planning (b) | $465 | $3,613 | $2,457 | $8,558 | | Capped Call Transactions fees (c) | — | — | $113 | — | | Activism engagement (d) | — | — | $8,177 | — | | Organization changes (e) | — | — | ($67) | $734 | | Adjusted SG&A Expenses | $57,196 | $37,227 | $240,074 | $195,748 | | Adjusted SG&A Expenses as a % of Net Sales | 26.6% | 22.4% | 31.3% | 32.9% | - Non-cash share-based compensation for Q4 2023 includes a **true-up reversal** due to reassessment of performance-based vesting conditions for multi-year awards[35](index=35&type=chunk) [Net Income (Loss) to Adjusted EBITDA Reconciliation](index=10&type=section&id=Net%20Income%20%28Loss%29%20to%20Adjusted%20EBITDA%20Reconciliation) This section reconciles GAAP Net Income (Loss) to Adjusted EBITDA, outlining adjustments for non-cash expenses, interest, taxes, and other specific non-recurring items to provide a clearer measure of operational profitability for both quarterly and full-year periods Net Income (Loss) to Adjusted EBITDA Reconciliation (in thousands) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :-------------------------------- | :-------- | :-------- | :-------- | :-------- | | Net Income (loss) | $15,289 | ($2,918) | ($33,614) | ($59,494) | | Depreciation and amortization | $12,351 | $10,131 | $57,058 | $34,555 | | Interest expense, net of interest income | ($394) | $1,148 | $1,069 | $5,208 | | Income tax expense | — | $159 | $210 | $282 | | EBITDA | $27,246 | $8,520 | $24,723 | ($19,449) | | Loss on equity method investment | — | $762 | $1,890 | $3,731 | | Loss on disposal of property, plant and equipment | $3,633 | $193 | $4,321 | $396 | | Non-cash share-based compensation (a) | ($16) | $5,683 | $24,936 | $26,092 | | Enterprise Resource Planning (b) | $465 | $3,613 | $2,457 | $8,558 | | Capped Call Transaction fees (c) | — | — | $113 | — | | Activism engagement (d) | — | — | $8,177 | — | | Organization changes (e) | — | — | ($67) | $734 | | Adjusted EBITDA | $31,328 | $18,771 | $66,550 | $20,062 | | Adjusted EBITDA as a % of Net Sales | 14.5% | 11.3% | 8.7% | 3.4% | - The non-cash share-based compensation adjustment for Q4 2023 reflects a **true-up** due to a reassessment of the probability of achieving performance criteria for multi-year awards[37](index=37&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-36729 FRESHPET, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 20-1884894 (State or other jurisdiction of incorporation or organization) (I.R.S. Emp ...

Financial Data and Key Metrics Changes - In Q2, net sales reached $183.3 million, representing a 26% increase year-over-year, with a net price mix up slightly more than 7% and volume growth around 18% [15][16] - Adjusted gross margin improved to 39.8%, up 110 basis points from the previous year, driven by better pricing and operational improvements [16][17] - Adjusted EBITDA for Q2 was $9 million, significantly exceeding initial expectations, with a total of $12 million in adjusted EBITDA year-to-date [20][21] Business Line Data and Key Metrics Changes - The Ennis Kitchen start-up is operational with one bag line and one roll line running 24/7, contributing to production efficiency and supply chain stability [3][4] - The company placed 1,385 new fridges in Q2, with expectations to install over 5,000 new fridges for the year, enhancing retail refrigerated space [5] Market Data and Key Metrics Changes - Nielsen measured dollar growth was up 23% year-over-year, with non-measured channels showing even stronger growth, contributing significantly to overall performance [16][50] - Household penetration increased by 10% year-over-year, with the buying rate for high-profit pet-owning households (HIPPOs) up 17% [79][105] Company Strategy and Development Direction - The company aims to make Freshpet accessible to a broader consumer base while focusing on operational improvements to restore margins and enhance returns on invested capital [2][14] - The strategic focus includes ramping up production in Ennis and expanding capacity to meet consumer demand without further dilution [33][36] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future gains as operational efficiencies improve, with expectations for continued strong growth driven by volume rather than pricing [4][23] - The company anticipates a positive trajectory for the remainder of the year, with adjusted EBITDA guidance raised to at least $55 million [30][31] Other Important Information - Recent board appointments include industry veterans with relevant expertise, enhancing governance and strategic direction [6][7][10] - The company has made significant investments in human capital, including the Freshpet Academy, to reduce turnover and build critical skills [11][12] Q&A Session Summary Question: Media spend efficiency and targeting - Management noted that media spending is more balanced this year, with a focus on both new and existing consumers, and highlighted strong performance from high-profit pet-owning households [45][47] Question: Unmeasured channel growth - Management confirmed that non-measured channel growth is strong, driven by club and e-commerce, and is expected to continue accelerating [53][56] Question: Pricing strategy and consumer behavior - Management indicated that consumers have adapted to previous price increases, and the company is focused on maintaining value while monitoring competitive pricing dynamics [94][133] Question: Volume acceleration drivers - Management attributed volume growth to improved in-stock conditions and effective media strategies, with expectations for continued acceleration in the second half of the year [123][129]

Financial Performance - Total net sales for the second quarter of 2023 reached $183.3 million, a 25.6% increase from $146.0 million in the same period of 2022[16] - Gross profit for the second quarter of 2023 was $59.2 million, compared to $51.1 million in the second quarter of 2022, reflecting a gross margin improvement[16] - The company reported a net loss attributable to common stockholders of $16.9 million for the second quarter of 2023, a decrease from a loss of $20.6 million in the same quarter of 2022[16] - For the six months ended June 30, 2023, the net loss was $41,738,000, compared to a net loss of $38,128,000 for the same period in 2022, indicating an increase in losses of approximately 6.9%[21] - The company experienced a loss from operations of $16.8 million in the second quarter of 2023, slightly improved from a loss of $18.1 million in the same period of 2022[16] Assets and Liabilities - Total current assets increased to $487.1 million as of June 30, 2023, up from $262.0 million at the end of 2022, primarily driven by higher cash and cash equivalents[12] - Total liabilities surged to $472.6 million as of June 30, 2023, compared to $93.8 million at the end of 2022, largely due to the issuance of convertible senior notes[12] - The company’s accumulated deficit increased to $336.9 million as of June 30, 2023, from $295.1 million at the end of 2022[12] - Cash and cash equivalents increased significantly to $244.0 million as of June 30, 2023, compared to $132.7 million at the end of 2022[12] - As of June 30, 2023, total inventories amounted to $65.3 million, compared to $58.3 million as of December 31, 2022, reflecting an increase of 11.8%[42] Expenses - Selling, general, and administrative expenses for the second quarter of 2023 were $76.0 million, up from $69.2 million in the same quarter of 2022[16] - The company reported share-based compensation expenses of $16,862,000 for the six months ended June 30, 2023, up from $12,589,000 in the prior year, reflecting a 34.5% increase[21] - The company recorded depreciation and amortization expense of $28,930,000 for the first half of 2023, compared to $15,888,000 in the same period of 2022, indicating an increase of 82%[21] Cash Flows - Total cash flows used in operating activities for the first half of 2023 were $(231,000), a significant improvement compared to $(62,402,000) in the same period of 2022[21] - Freshpet's cash flows used in investing activities totaled $(215,948,000) for the first half of 2023, compared to $(118,006,000) in the same period of 2022, representing an increase of approximately 83%[21] - Proceeds from the issuance of convertible senior notes amounted to $393,518,000, contributing to net cash flows provided by financing activities of $327,492,000 for the first half of 2023[21] Investments and Capital Expenditures - The company invested $102,507,000 in property, plant, and equipment during the first half of 2023, compared to $94,872,000 in the same period of 2022, marking an increase of about 8.7%[21] - The carrying amount of property, plant, and equipment, net, was $865.2 million as of June 30, 2023, an increase from $800.6 million at the end of 2022[43] Debt and Financing - The Company issued $402.5 million of 3.00% Convertible Senior Notes in March 2023, which are accounted for as a single liability measured at amortized cost[29][30] - The effective interest rate for the Convertible Notes is 3.59%, with total interest expense for the six months ended June 30, 2023, amounting to $3,896[58][60] - As of June 30, 2023, the carrying value of the Convertible Notes was $391,882, while the fair value was $476,327[59] Legal and Regulatory Matters - The company is involved in various claims and legal actions, including a breach of contract claim with Phillips Feed Service, seeking damages in excess of $8,300[77] Market and Economic Conditions - The company is exposed to commodity price volatility and inflation risks, which could increase operating costs as a percentage of net sales if not addressed[157]

Financial Data and Key Metrics Changes - The company reported a net sales growth of 27% in Q1 2023, reaching $167.5 million, which aligns with the guidance provided for the quarter [21][26] - Adjusted EBITDA for Q1 was $3 million, significantly better than initial expectations, primarily due to strong operational performance in cost of goods sold (COGS) and logistics [22][29] - Adjusted gross margin was 38.5% in Q1, slightly above the previous year, driven by increased pricing and improvements in quality costs [27][29] Business Line Data and Key Metrics Changes - The pet specialty business saw a consumption growth rebound of 19% in Q1 compared to the prior year, indicating strong performance across channels [26][106] - The company added 369 net new stores and upgraded 241 stores to larger fridges in Q1, with plans for more fridge placements throughout the year [25][40] Market Data and Key Metrics Changes - Household penetration growth was reported at 7% over the past 52 weeks, with a buying rate growth of 28%, indicating solid loyalty among heavy users despite a 20% price increase [9][104] - Nielsen measured volume growth rate increased from 12% at the beginning of Q1 to around 16% by the end of the quarter, with expectations for continued growth into the high teens and low 20s by year-end [14][34] Company Strategy and Development Direction - The company is focused on improving operational efficiencies, particularly in logistics and quality, as part of its Fresh Future plan, which aims to enhance margins and support long-term growth [10][31] - Marketing strategies are being fully deployed for the first time in several years, with new advertising campaigns and updated packaging expected to resonate well with consumers [11][27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the ongoing improvements in operations and the positive impact of investments made in training and facilities, particularly in Ennis [10][17] - The company anticipates that net sales growth will increasingly be driven by volume rather than pricing as the year progresses, with Q2 and Q3 expected to show mid-20s growth rates [13][14] Other Important Information - The company has a strong cash position, with $387 million in cash and short-term investments at the end of the quarter, which will support growth through 2024 [30] - The Ennis Kitchen startup is progressing well, with production ramping up and expected to unlock significant logistics savings [24][31] Q&A Session Summary Question: Can you unpack the guidance a little bit? - Management indicated that while pricing benefits will moderate, they expect volume growth to drive sales acceleration, particularly from heavy users [39][40] Question: What is the plan for attracting new users? - The strategy includes focusing on heavy users and expanding product offerings to appeal to a broader consumer base, while also enhancing advertising efforts [54][59] Question: How is the advertising spend expected to change? - Q2 advertising spending is projected to be slightly higher than Q1, with a significant portion allocated to the first half of the year [45][46] Question: What is the current status of household penetration? - Management noted that while household penetration has decreased, heavy users are increasing their buying rates, and efforts are being made to attract new users [110][120] Question: How are commodity input costs affecting margins? - Commodity costs are locked in at around 80%, with mid to upper single-digit inflation expected, allowing for potential margin expansion [125][126]

PERFORMANCE AND STRONG GROWTH $132.2 2022 2023 +27% +41% FRESHPET Q1 2023 ADJ. EBITDA ($ millions) 7 Q1 2023 EARNINGS PRESENTATION PARTIALLY OFFSET BY TRADE INVENTORY RE-FILL IN THE YA MegaChannel (xAOC+Pet Superstore) Certain statements in this presentation by Freshpet, Inc. (the "Company") constitute "forward-looking" statements, which include any statements related to the the Freshpet Kitchens Expansion, our long-term capacity planning, our net sales and Adjusted EBITDA guidance and the Company's general ...