Freshpet(FRPT) - 2025 Q2 - Quarterly Report

Part I. Financial Information 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) 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 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) 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 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 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 These notes provide detailed explanations of accounting policies, estimates, and specific financial statement line items Note 1 – Summary of Significant Accounting Policies 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] - The Company operates as a single operating and reportable segment, with the CEO reviewing financial information on a consolidated basis[25][99] - 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][31] - 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][33] - 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][41] 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][55] Note 2 – Inventories, net 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 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 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 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] - 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] - 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][66] 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] Note 6 – Purchase of Capped Call Options 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][71] - 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][73] Note 7 – Leases 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 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] - 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] Note 9 – Net Income (Loss) Per Share Attributable to Common Stockholders 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 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] - For the six months ended June 30, 2025, one distributor and two customers accounted for 5%, 26%, and 10% of net sales, respectively[90] - As of June 30, 2025, one distributor and two customers accounted for 6%, 28%, and 15%, respectively, of accounts receivable[91] Note 11 – Commitments and Contingencies 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] - 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] - 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] Note 12 – Segments 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] 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 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] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Freshpet's financial condition, results of operations, liquidity, and cash flows 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] - 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][112] Components of our Results of Operations 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] - Gross profit is net of costs of goods sold, including manufacturing, ingredients, packaging, inbound freight, depreciation, and non-cash share-based compensation[113] - 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][117][118][119][120][121] - 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][123] Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 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] - 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] - 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] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 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] - 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] - 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] - 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][144] Non-GAAP Financial Measures 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] - 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] 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 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] - 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] 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] 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] Critical Accounting Estimates 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] Recent Accounting Pronouncements 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] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses Freshpet's exposure to market risks, including interest rate, commodity price, and foreign exchange rate risks Interest Rate Risk 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] Commodity Price and Inflation Risk 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] - The Company generally addresses material commodity cost increases by increasing prices or reducing operating expenses, but competitive conditions may limit pricing flexibility[186][188] Foreign Exchange Rates 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] - Consolidated revenue from Europe was less than 1% for the six months ended June 30, 2025[189] - The Company may use forward exchange contracts to reduce foreign currency exposure; however, none were outstanding as of June 30, 2025[190] Item 4. Controls and Procedures This section addresses the effectiveness of Freshpet's disclosure controls and internal control over financial reporting Evaluation of Disclosure Controls and Procedures 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] Changes in Internal Control 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] Limitations on Effectiveness of Controls and Procedures 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] Part II. Other Information This section contains additional information not covered in the financial statements, including legal proceedings and risk factors Item 1. Legal Proceedings 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] - Further details on pending litigation are provided in Note 11 - Commitments and Contingencies[195] Item 1A. Risk Factors 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] Item 5. Other Information This section provides other information, specifically regarding insider trading arrangements Insider Trading Arrangements 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] Item 6. Exhibits 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]