Freshpet(FRPT) - 2024 Q4 - Annual Report

Market Presence and Growth - Freshpet's household penetration in the United States reached approximately 13.5 million as of December 31, 2024, with a target of 20 million households by 2027[18]. - The company operates in approximately 28,141 stores, with about 22% of these stores featuring second and third Freshpet Fridge placements[56]. - Freshpet's largest customer, Walmart, accounted for 24.5% of net sales in 2024, while the largest distributor, Animal Supply Co., represented 7.9% of net sales[56]. - Freshpet has established a network of approximately 28,141 retail locations to enhance brand visibility and consumer engagement[64]. - The grocery, mass, international, and digital channels accounted for 82% of net sales in 2024, up from 84% in 2023[194]. - The company currently operates in approximately 608 stores across four retailers in the United Kingdom as part of its global expansion strategy[136]. Financial Performance - Net sales for the year ended December 31, 2024, reached $975.2 million, a 27.2% increase from$ 766.9 million in 2023[193]. - Gross profit for 2024 was $396.0 million, representing 41% of net sales, compared to 33% in 2023[193]. - The company reported a net income of$ 46.9 million for 2024, a significant recovery from a net loss of $33.6 million in 2023[193]. - Adjusted Gross Profit was$ 453.5 million, or 46.5% of net sales, up from 40.0% in 2023[196]. - Income from operations improved by $68.4 million, resulting in a profit of$ 38.0 million for 2024, compared to a loss of $30.4 million in 2023[199]. - Adjusted EBITDA reached$ 161.8 million, or 16.6% of net sales, compared to $66.6 million or 8.7% in 2023[204]. Manufacturing and Operations - Freshpet's manufacturing facilities include Freshpet Kitchens Bethlehem, which is 240,000 square feet, and Freshpet Kitchens Ennis, which began production in Q4 2022 with plans for further expansion[44][46]. - In 2024, approximately 99.1% of Freshpet's product volume was manufactured using company-owned equipment[47]. - Freshpet's growth strategy relies on timely expansion of Freshpet Kitchens and installation of new Freshpet Fridges to meet consumer demand[86]. - Freshpet Kitchens Ennis facility is expected to grow by approximately 400,000 square feet upon completion of phases 2 and 3[169]. Marketing and Consumer Engagement - Freshpet's marketing strategy focuses on educating consumers about the benefits of fresh refrigerated pet food through various channels, including television and digital media[62]. - The company has expanded its online presence across multiple digital platforms, including Instagram, Facebook, TikTok, and YouTube, to target health-conscious pet food consumers[64]. - Freshpet's marketing strategy has successfully attracted new consumers and fostered a highly engaged community of users advocating for the brand[65]. Sustainability and Corporate Responsibility - Freshpet's commitment to sustainability includes operating a landfill-free facility and utilizing renewable energy sources for its operations[31]. - The company has donated over 21 million fresh meals to pets through shelters and charitable organizations since its founding[29]. Risks and Challenges - The company faces competition from major pet food manufacturers such as Nestlé Purina, Mars Petcare, and regional niche brands, which impacts market share and pricing strategies[67][91]. - The company faces risks from macroeconomic factors affecting input prices, including tariffs, inflation, and supply chain disruptions[109]. - New U.S. tariffs on imports could lead to increased material costs, negatively impacting cash flow and financial condition[110]. - The company must effectively manage its supply chain to avoid increased operating costs and decreased profit margins due to inventory mismanagement[112]. - Adverse weather conditions and natural disasters can disrupt operations, potentially leading to increased ingredient costs and reduced supply, adversely affecting financial results[113]. - The company faces regulatory compliance costs and risks associated with government scrutiny, which could impact production costs and operational efficiency[127]. Workforce and Employment - As of December 31, 2024, Freshpet employed 1,296 individuals, with a focus on creating a healthy work environment and offering industry-leading compensation[72]. - The company must maintain a qualified workforce to meet operational needs; competition for talent may drive up labor costs, affecting profitability[123]. Financial Strategies and Capital Management - Freshpet's ability to generate sufficient cash flow and secure favorable financing terms is critical for future business development and operational efficiency[88][89]. - The company has federal net operating loss (NOL) carryforwards of approximately$ 391.5 million and state NOLs of approximately $278.4 million as of December 31, 2024[147]. - Rising interest rates could increase the company's borrowing costs and affect customer purchasing power, potentially impacting earnings and cash flows[149]. - The company issued approximately$ 402.5 million in convertible notes in March 2023[216]. Compliance and Intellectual Property - The company is committed to maintaining compliance with extensive regulations governing product quality, safety, and marketing in the pet food industry[81][83]. - Freshpet's intellectual property, including trademarks and proprietary technology, plays a significant role in its competitive positioning and brand recognition[79][80]. - Intellectual property protection is crucial; failure to safeguard these rights could lead to significant business impacts and resource diversion[131].