Freshpet Inc

Previous wording

We started Freshpet with a single-minded mission to bring the power of real, fresh food to our dogs and cats. We were inspired by the rapidly growing view among pet owners that their dogs and cats are a part of their family, leading them to demand healthier pet food choices. Since Freshpet's inception in 2006, we have created a comprehensive business model to deliver wholesome pet food that pet parents can trust, and in the process we believe we have become one of the fastest growing pet food companies in North America. Our business model is difficult for others to replicate and we see significant opportunity for future growth by leveraging the unique elements of our business, including our brand, our product know-how, our Freshpet Kitchens, our refrigerated distribution, our Freshpet Fridge and our culture.

Current wording

We started Freshpet with a single-minded mission to bring the power of real, fresh food to our dogs and cats. We were inspired by the rapidly growing view among pet owners that their dogs and cats are a part of their family, leading them to demand healthier pet food choices. Since Freshpet's inception in 2006, we have created a comprehensive business model to deliver wholesome pet food that pet parents can trust, and in the process we believe we have become one of the fastest growing pet food companies in North America. Our business model is difficult for others to replicate and we see significant opportunity for future growth by leveraging the unique elements of our business, including our brand, our product know-how, our Freshpet Kitchens, our refrigerated distribution, our Freshpet Fridges and our culture.

Previous wording

Our net sales are derived from the sale of pet food products that are sold to retailers through broker and distributor arrangements. Our products are sold to consumers through a fast-growing network of company-owned branded refrigerators, known as Freshpet Fridges, located in our customers’ stores. We continue to roll out Freshpet Fridges at leading retailers across North America and parts of Europe and have installed Freshpet Fridges in approximately 27,497 retail stores as of June 30, 2024. Our products are sold under the Freshpet brand name with ingredients, packaging and labeling customized by class of retail. Sales are recorded net of discounts, returns and promotional allowances.

Current wording

Our net sales are derived from the sale of pet food products that are sold to retailers through broker and distributor arrangements. Our products are sold to consumers through a fast-growing network of company-owned branded refrigerators, known as Freshpet Fridges, located in our customers’ stores. We continue to roll out Freshpet Fridges at leading retailers across North America and parts of Europe and have installed Freshpet Fridges in approximately 27,838 retail stores as of September 30, 2024. Our products are sold under the Freshpet brand name with ingredients, packaging and labeling customized by class of retail. Sales are recorded net of discounts, returns and promotional allowances.

Previous wording

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

Current wording

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Previous wording

Net sales increased $51.9 million, or 28.3%, to $235.3 million for the three months ended June 30, 2024 as compared to $183.3 million in the same period in the prior year. The $51.9 million increase in net sales was driven by growth in the Grocery, Mass, International, and Digital channel of $37.4 million, with the remaining growth in the Pet Specialty and Club channel. The net sales increase was entirely driven by volume gains of 28.3%.

Current wording

Net sales increased $52.7 million, or 26.3%, to $253.4 million for the three months ended September 30, 2024 as compared to $200.6 million in the same period in the prior year. The $52.7 million increase in net sales was driven by growth in the Grocery, Mass, International, and Digital channel of $41.1 million, with the remaining growth in the Pet Specialty and Club channel. The net sales increase was primarily driven by volume gains of 26.1%.

Previous wording

Gross profit was $94.0 million, or 39.9% as a percentage of net sales, for the three months ended June 30, 2024, compared to $59.2 million, or 32.3% as a percentage of net sales, in the prior year period. The increase in gross profit as a percentage of net sales was primarily due to lower input costs, reduced quality costs, and improved leverage on plant expenses. For the three months ended June 30, 2024, Adjusted Gross Profit was $108.0 million, or 45.9% as a percentage of net sales, compared to $73.0 million, or 39.8% as a percentage of net sales, in the prior year period.

Current wording

Gross profit was $102.2 million, or 40.4% as a percentage of net sales, for the three months ended September 30, 2024, compared to $66.3 million, or 33.0% as a percentage of net sales, in the prior year period. The increase in gross profit as a percentage of net sales was primarily due to lower input costs and reduced quality costs. For the three months ended September 30, 2024, Adjusted Gross Profit was $117.7 million, or 46.5% as a percentage of net sales, compared to $80.6 million, or 40.2% as a percentage of net sales, in the prior year period.

Previous wording

Selling, general and administrative expenses ("SG&A") were $175.4 million for the six months ended June 30, 2024, compared to $148.3 million in the prior year period. As a percentage of net sales, SG&A decreased to 38.2% for the six months ended June 30, 2024, compared to 42.3% in the prior year period. The decrease of 410 basis points in SG&A as a percentage of net sales was mainly a result of reduced logistics costs and media as a percentage of net sales, offset by higher share-based compensation.

Current wording

Selling, general and administrative expenses ("SG&A") were $90.3 million for the three months ended September 30, 2024, compared to $73.4 million in the prior year period. As a percentage of net sales, SG&A decreased to 35.7% for the three months ended September 30, 2024, compared to 36.6% in the prior year period. The decrease of 90 basis points in SG&A as a percentage of net sales was mainly a result of reduced logistics costs as a percentage of net sales and the non-recurring charges in the prior year, offset by increased media as a percentage of net sales, higher share-based compensation and increased variable compensation accrual.

Previous wording

Adjusted SG&A for the three months ended June 30, 2024, was $72.9 million, or 31.0% as a percentage of net sales, compared to $64.0 million, or 34.9% as a percentage of net sales, in the prior year period.

Current wording

Adjusted SG&A for the three months ended September 30, 2024, was $74.2 million, or 29.3% as a percentage of net sales, compared to $57.4 million, or 28.6% as a percentage of net sales, in the prior year period.

Previous wording

As a result of the factors discussed above, income from operations increased by $45.0 million to an income from operations of $6.7 million for the six months ended June 30, 2024 as compared to a loss from operations of $38.3 million for the same period in the prior year.

Current wording

As a result of the factors discussed above, income from operations increased by $19.0 million to an income from operations of $11.9 million for the three months ended September 30, 2024 as compared to a loss from operations of $7.1 million for the same period in the prior year.

Previous wording

The Company recorded interest and other income, net of $2.9 million for the three months ended June 30, 2024 as a result of interest income generated from cash and cash equivalents as compared to $4.1 million for the three months ended June 30, 2023.

Current wording

The Company recorded interest and other income, net of $3.0 million for the three months ended September 30, 2024 as a result of interest income generated from cash and cash equivalents as compared to $4.1 million for the three months ended September 30, 2023.

Previous wording

Interest expense decreased $0.5 million to $2.8 million for the three months ended June 30, 2024 as compared to $3.3 million for the same period in the prior year. The decrease was primarily driven by a $1.2 million decrease in interest expense on our Convertible Notes due to an increase in capitalized interest compared to prior period, offset by an increase of $0.6 million related to the interest on our finance lease liability.

Current wording

Interest expense decreased $1.2 million to $2.9 million for the three months ended September 30, 2024 as compared to $4.1 million for the same period in the prior year. The decrease was primarily driven by a $1.2 million decrease in interest expense on our Convertible Notes due to an increase in capitalized interest compared to prior period.

Previous wording

Net loss decreased $15.3 million to $1.7 million for the three months ended June 30, 2024, as compared to $17.0 million for the same period in the prior year due to contribution from higher sales, improved gross margin, and reduced logistics costs as a percentage of net sales, partially offset by increased SG&A expenses.

Current wording

Net income increased $19.1 million to $11.9 million for the three months ended September 30, 2024, as compared to a net loss of $7.2 million for the same period in the prior year due to contribution from higher sales, improved gross margin, and reduced logistics costs as a percentage of net sales, partially offset by increased SG&A expenses.

Previous wording

Adjusted EBITDA was $35.1 million for the three months ended June 30, 2024, compared to $9.0 million in the prior year period. The increase in Adjusted EBITDA was a result of increased Adjusted Gross Profit, partially offset by higher Adjusted SG&A expenses.

Current wording

Adjusted EBITDA was $43.5 million for the three months ended September 30, 2024, compared to $23.2 million in the prior year period. The increase in Adjusted EBITDA was a result of increased Adjusted Gross Profit, partially offset by higher Adjusted SG&A expenses.

Previous wording

Net sales increased $108.2 million, or 30.9%, to $459.1 million for the six months ended June 30, 2024 as compared to $350.9 million in the same period in the prior year. The $108.2 million increase in net sales was driven by growth in the Grocery, Mass, International and Digital channel of $81.6 million, with the remaining growth in Pet Specialty and Club channel. The net sales increase was primarily driven by volume gains of 29.4%.

Current wording

Net sales increased $161.0 million, or 29.2%, to $712.5 million for the nine months ended September 30, 2024 as compared to $551.5 million in the same period in the prior year. The $161.0 million increase in net sales was driven by growth in the Grocery, Mass, International and Digital channel of $122.8 million, with the remaining growth in Pet Specialty and Club channel. The net sales increase was primarily driven by volume gains of 28.2%.

Previous wording

Gross profit was $182.1 million, or 39.7% as a percentage of net sales, for the six months ended June 30, 2024, compared to $110.0 million, or 31.4% as a percentage of net sales, in the prior year period. The increase in gross profit as a percentage of net sales was primarily due to lower input costs, reduced quality costs, and improved leverage on plant expenses. For the six months ended June 30, 2024, Adjusted Gross Profit was $209.5 million, or 45.6% as a percentage of net sales, compared to $137.5 million, or 39.2% as a percentage of net sales, in the prior year period.

Current wording

Gross profit was $284.4 million, or 39.9% as a percentage of net sales, for the nine months ended September 30, 2024, compared to $176.3 million, or 32.0% as a percentage of net sales, in the prior year period. The increase in gross profit as a percentage of net sales was primarily due to lower input costs and reduced quality costs. For the nine months ended September 30, 2024, Adjusted Gross Profit was $327.2 million, or 45.9% as a percentage of net sales, compared to $218.1 million, or 39.5% as a percentage of net sales, in the prior year period.

Previous wording

Selling, general and administrative expenses ("SG&A") were $95.7 million for the three months ended June 30, 2024, compared to $76.0 million in the prior year period. As a percentage of net sales, SG&A decreased to 40.7% for the three months ended June 30, 2024, compared to 41.5% in the prior year period. The decrease of 80 basis points in SG&A as a percentage of net sales was mainly a result of reduced logistics costs and media as a percentage of net sales, offset by higher share-based compensation.

Current wording

Selling, general and administrative expenses ("SG&A") were $265.7 million for the nine months ended September 30, 2024, compared to $221.6 million in the prior year period. As a percentage of net sales, SG&A decreased to 37.3% for the nine months ended September 30, 2024, compared to 40.2% in the prior year period. The decrease of 290 basis points in SG&A as a percentage of net sales was mainly a result of reduced logistics costs and media as a percentage of net sales and the non-recurring charges in the prior year, offset by higher share-based compensation and increased variable compensation accrual.

Previous wording

Adjusted SG&A for the six months ended June 30, 2024, was $143.8 million, or 31.3% as a percentage of net sales, compared to $125.5 million, or 35.8% as a percentage of net sales, in the prior year period.

Current wording

Adjusted SG&A for the nine months ended September 30, 2024, was $218.0 million, or 30.6% as a percentage of net sales, compared to $182.9 million, or 33.2% as a percentage of net sales, in the prior year period.

Previous wording

As a result of the factors discussed above, loss from operations decreased by $15.0 million to a loss from operations of $1.8 million for the three months ended June 30, 2024 as compared to a loss from operations of $16.8 million for the same period in the prior year.

Current wording

As a result of the factors discussed above, income from operations increased by $64.0 million to an income from operations of $18.6 million for the nine months ended September 30, 2024 as compared to a loss from operations of $45.3 million for the same period in the prior year.

Previous wording

The Company recorded interest and other income, net of $6.2 million for the six months ended June 30, 2024 as a result of interest income generated from cash and cash equivalents and short-term investments as compared to $5.1 million for the six months ended June 30, 2023.

Current wording

The Company recorded interest and other income, net of $9.2 million for the nine months ended September 30, 2024 and 2023, as a result of interest income generated from cash and cash equivalents and short-term investments.

Previous wording

Interest expense decreased $0.7 million to $5.8 million for the six months ended June 30, 2024 as compared to $6.5 million for the same period in the prior year. The decrease was primarily driven by the termination of our Credit Agreement in the prior year period resulting in the write-off of unamortized fees of $2.5 million, which were recorded to interest expense, partially offset by a $0.6 million increase (net of capitalized interest) as a result of interest incurred on our Convertible Notes compared to interest incurred in the prior year period, as well as a $1.2 million increase related to the interest on our finance lease liability.

Current wording

Interest expense decreased $1.9 million to $8.7 million for the nine months ended September 30, 2024 as compared to $10.6 million for the same period in the prior year. The decrease was primarily driven by the termination of our Credit Agreement in the prior year period resulting in the write-off of unamortized fees of $2.5 million, which were recorded to interest expense, and a $0.2 million decrease (net of capitalized interest) as a result of interest incurred on our Convertible Notes compared to interest incurred in the prior year period, partially offset by a $1.1 million increase related to the interest on our finance lease liability.

Previous wording

The $9.9 million gain on equity investment for the six months ended June 30, 2024, resulted from the change in fair value of the Company's equity interest in a privately held company, as discussed in Note 1 - Summary of Significant Accounting Policies of our (unaudited) condensed consolidated financial statements.

Current wording

The $9.9 million gain on equity investment for the nine months ended September 30, 2024, resulted from the change in fair value of the Company's equity interest in a privately held company, as discussed in Note 1 - Summary of Significant Accounting Policies of our (unaudited) condensed consolidated financial statements.

Previous wording

Net income increased $58.6 million to net income of $16.9 million for the six months ended June 30, 2024, as compared to a net loss of $41.7 million for the same period in the prior year due to contribution from higher sales, improved gross margin, reduced logistics costs as a percentage of net sales, and gain on equity investment, partially offset by increased SG&A expenses.

Current wording

Net income increased $77.7 million to net income of $28.8 million for the nine months ended September 30, 2024, as compared to a net loss of $48.9 million for the same period in the prior year due to contribution from higher sales, improved gross margin, reduced logistics costs as a percentage of net sales, and gain on equity investment, partially offset by increased SG&A expenses.

Previous wording

Adjusted EBITDA was $65.7 million for the six months ended June 30, 2024, compared to $12.0 million in the prior year period. The increase in Adjusted EBITDA was a result of increased Adjusted Gross Profit partially offset by higher Adjusted SG&A expenses.

Current wording

Adjusted EBITDA was $109.2 million for the nine months ended September 30, 2024, compared to $35.2 million in the prior year period. The increase in Adjusted EBITDA was a result of increased Adjusted Gross Profit partially offset by higher Adjusted SG&A expenses.

Previous wording

Such financial measures are not financial measures prepared in accordance with U.S. GAAP. We define Adjusted Gross Profit as Gross Profit before depreciation expense, non-cash share-based compensation, and loss on disposal of manufacturing equipment. We define Adjusted SG&A as SG&A expenses before depreciation and amortization expense, non-cash share-based compensation, implementation and other costs associated with the implementation of an ERP system, fees related to the Capped Call Transactions, loss on disposal of equipment, and advisory fees related to activism engagement. EBITDA represents net income (loss) plus interest expense net of interest income, income tax expense and depreciation and amortization expense. Adjusted EBITDA represents EBITDA plus loss on equity method investment, gain on equity investment, non-cash share-based compensation expense, implementation and other costs associated with the implementation of an ERP system, loss on disposal of property, plant and equipment, fees related to the Capped Call Transactions, and advisory fees related to activism engagement.

Current wording

Such financial measures are not financial measures prepared in accordance with U.S. GAAP. We define Adjusted Gross Profit as Gross Profit before depreciation expense, non-cash share-based compensation, and loss on disposal of manufacturing equipment. We define Adjusted SG&A as SG&A expenses before depreciation and amortization expense, non-cash share-based compensation, implementation and other costs associated with the implementation of an ERP system, fees related to the Capped Call Transactions, loss on disposal of equipment, and advisory fees related to shareholder activism defense engagement. EBITDA represents net income (loss) plus interest expense net of interest income, income tax expense and depreciation and amortization expense. Adjusted EBITDA represents EBITDA plus loss on equity method investment, gain on equity investment, non-cash share-based compensation expense, implementation and other costs associated with the implementation of an ERP system, loss on disposal of property, plant and equipment, fees related to the Capped Call Transactions, and advisory fees related to activism engagement.

Previous wording

(d)Represents advisory fees related to activism engagement.

Current wording

(d)Represents advisory fees related to shareholder activism defense engagement.

Previous wording

(d)Represents advisory fees related to activism engagement.

Current wording

(d)Represents advisory fees related to shareholder activism defense engagement.

Previous wording

We expect to make future capital expenditures in connection with the completion of our planned development of Freshpet Kitchens Ennis Phase 2 and 3. During the six months ended June 30, 2024, we spent approximately $94.8 million of capital to meet our capacity needs as well as recurring capital expenditures. We expect to spend an additional $105.2 million in the remainder of fiscal 2024.

Current wording

We expect to make future capital expenditures in connection with the completion of our planned development of Freshpet Kitchens Ennis Phase 2 and 3. During the nine months ended September 30, 2024, we spent approximately $128.8 million of capital to meet our capacity needs as well as recurring capital expenditures. We expect to spend an additional $51.2 million in the remainder of fiscal 2024.

Previous wording

Working capital consists of current assets net of current liabilities. Working capital decreased $22.9 million to $315.2 million as of June 30, 2024 compared with working capital of $338.1 million as of December 31, 2023. The decrease was primarily a result of a decrease of $45.2 million in cash and cash equivalents and an increase in accrued expenses of $3.1 million due to timing. The decrease was partially offset by an increase in accounts receivable of $11.4 million, an increase in inventories, net of $10.0 million, an increase in prepaid expenses of $1.0 million, an increase in other current assets of $0.7 million, a decrease in accounts payable of $2.0 as a result of timing, and a decrease of current operating lease liabilities of $0.3 million.

Current wording

Working capital consists of current assets net of current liabilities. Working capital decreased $6.0 million to $332.1 million as of September 30, 2024 compared with working capital of $338.1 million as of December 31, 2023. The decrease was primarily a result of a decrease of $22.3 million in cash and cash equivalents, a decrease of $1.8 million in prepaid expenses, and an increase in accrued expenses of $0.6 million due to timing. The decrease was partially offset by an increase of $8.3 million in accounts receivable, an increase of $9.6 million in inventories, net, and a decrease of $0.6 in accounts payable as a result of timing.

Previous wording

As of June 30, 2024, our capital resources consisted primarily of $251.7 million of cash and cash equivalents on hand.

Current wording

As of September 30, 2024, our capital resources consisted primarily of $274.6 million of cash and cash equivalents on hand.

Previous wording

Net Cash Provided by (Used In) Operating Activities

Current wording

Net Cash Provided by Operating Activities

Previous wording

Net cash provided by (used in) operating activities consists primarily of net income (loss) adjusted for certain non-cash items (i.e., provision for loss (gains) on receivable, loss on disposal of property, plant and equipment, share-based compensation, change in reserve for inventory obsolescence, depreciation and amortization, write-off and amortization of deferred financing costs and loan discount, change in operating lease right of use asset, loss on equity method investment, and gain on equity investment).

Current wording

Net cash provided by operating activities consists primarily of net income (loss) adjusted for certain non-cash items (i.e., provision for loss on accounts receivable, loss on disposal of property, plant and equipment, share-based compensation, change in reserve for inventory obsolescence, depreciation and amortization, write-off and amortization of deferred financing costs and loan discount, change in operating lease right of use asset, loss on equity method investment, and gain on equity investment).

Previous wording

•$68.9 million of net income, adjusted for reconciling non-cash items, which excludes $52.0 million of non-cash items related to $33.3 million of depreciation and amortization, $25.8 million of share-based compensation including amortization of warrants, $1.0 million of write-off and amortization of deferred financing costs and loan discount, $0.8 million of change in operating lease right of use asset, $0.7 million of reserve for inventory obsolescence and $0.3 million of loss on disposal of property, plant and equipment, partially offset by $9.9 million of gain on equity investment.

Current wording

•$113.4 million of net income, adjusted for reconciling non-cash items, which excludes $84.6 million of non-cash items related to $52.2 million of depreciation and amortization, $37.9 million of share-based compensation including amortization of warrants, $1.6 million of write-off and amortization of deferred financing costs and loan discount, $1.1 million of loss on disposal of property, plant and equipment, $0.7 million of a reserve for inventory obsolescence, $1.0 million of change in operating lease right of use asset, partially offset by $9.9 million of gain on equity investment.

Previous wording

•$21.1 million decrease due to changes in operating assets and liabilities. The decrease was primarily due to the change in accounts receivable, inventories, prepaid expenses and other current assets, other assets, accounts payable, and operating lease liability, partially offset by the change in accrued expenses.

Current wording

•$9.5 million decrease due to changes in operating assets and liabilities. The decrease was primarily due to the change in inventories, accounts receivable, other assets, operating lease liability, and prepaid expenses and other current assets, , partially offset by the change in accounts payable and accrued expenses.

Previous wording

•$9.3 million of net income, adjusted for reconciling non-cash items, which excludes $51.0 million of non-cash items related to $28.9 million of depreciation and amortization, $16.9 million of share-based compensation including amortization of warrants, $3.0 million of write-off and amortization of deferred financing costs and loan discount, $1.9 million of loss on investments in equity method investment, $0.8 million of change in operating lease right of use asset and $0.5 million of loss on disposal of property, plant and equipment, offset by $1.0 of amortization of discount on short-term investments.

Current wording

•$28.8 million of net income, adjusted for reconciling non-cash items, which excludes $77.7 million of non-cash items related to $45.4 million of depreciation and amortization, $25.0 million of share-based compensation including amortization of warrants, $3.5 million of write-off and amortization of deferred financing costs and loan discount, $1.9 million of loss on investments in equity method investment, $1.2 million of change in operating lease right of use asset and $0.7 million of loss on disposal of property, plant and equipment.

Previous wording

•$9.5 million decrease due to changes in operating assets and liabilities. The decrease was primarily due to the change in inventories, accounts payable, other assets, and operating lease liability, partially offset by the change in accounts receivable, and accrued expenses.

Current wording

•$10.2 million increase due to changes in operating assets and liabilities. The increase was primarily due to the change in accrued expenses, accounts receivable, and accounts payable, primarily offset by the change in other assets, operating lease liability, inventories, and prepaid expenses and other current assets,

Previous wording

•$94.8 million of capital expenditures related to Freshpet Kitchens, plant recurring capital expenditures, expenditures relating to investment in fridges, and other capital spend.

Current wording

•$128.8 million of capital expenditures related to Freshpet Kitchens, plant recurring capital expenditures, expenditures relating to investment in fridges, and other capital spend.

Previous wording

•$102.5 million of capital expenditures related to Freshpet Kitchens, plant recurring capital expenditures, expenditures relating to investment in fridges, and other capital spend.

Current wording

•$161.6 million of capital expenditures related to Freshpet Kitchens, plant recurring capital expenditures, expenditures relating to investment in fridges, and other capital spend.

Previous wording

•$3.1 million cash proceeds from the exercise of stock options.

Current wording

•$5.5 million cash proceeds from the exercise of stock options.

Previous wording

•$1.0 million for principal payments under finance lease obligations.

Current wording

•$1.4 million for principal payments under finance lease obligations.