Freshpet, Inc.

Previous wording

Our net sales are derived from the sale of fresh pet food products to retailers, through direct sales 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 28,141 retail stores as of December 31, 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 fresh pet food products to retailers, through direct sales and distributor arrangements. Our products are primarily 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 30,235 retail stores as of December 31, 2025. 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

Our net sales growth is driven by the following key factors:

Current wording

Our net sales growth strategy is driven by the following key factors:

Previous wording

•Increasing penetration of Freshpet Fridge locations in major classes of retail, including Grocery, Mass, International, Digital, Pet Specialty, and Club. The impact of new Freshpet Fridge installations on our net sales varies by retail class and depends on numerous factors including store traffic, refrigerator size, placement within the store, and proximity to other stores that carry our products.

Current wording

•Increasing distribution and penetration of Freshpet products in major classes of retail, including Grocery, Mass, International, Digital, Pet Specialty, and Club. The impact of new Freshpet Fridge installations on our net sales varies by retail class and depends on numerous factors including store traffic, refrigerator size, placement within the store, and proximity to other stores that carry our products. Digital orders include any purchases made online, including our direct-to-consumer business, and may also be fulfilled by our Freshpet Fridge network in brick and mortar stores.

Previous wording

•Consumer trends including growing pet ownership, pet humanization and a focus on health and wellness.

Current wording

•Consumer trends including long-term growth in pet ownership, pet humanization and a focus on health and wellness.

Previous wording

Marketing & advertising. Our marketing and advertising expenses primarily consist of national television media, digital marketing, social media and grass roots marketing to drive brand awareness. These expenses may vary from quarter to quarter depending on the timing of our marketing and advertising campaigns. Our Feed the Growth initiative focuses on growing the business through increased marketing investments.

Current wording

Marketing & advertising. Our marketing and advertising expenses primarily consist of television advertising, digital, and social media channels. Our digital efforts span a range of platforms and environments, including company and retail websites, retail media networks, search engines, blogs, and online reviews. These expenses may vary from quarter to quarter depending on the timing of marketing and advertising campaigns.

Previous wording

Freshpet Fridge operating costs. Freshpet Fridge operating costs consist of repair costs and depreciation. The purchase and installation costs for new Freshpet Fridges are capitalized and depreciated over the estimated useful life. All new refrigerators are covered by a manufacturer warranty for three years. We subsequently incur maintenance and freight costs for repairs and refurbishments handled by third-party service providers.

Current wording

Freshpet Fridge operating costs. Freshpet Fridge operating costs consist of repair costs and depreciation. The purchase and installation costs for new Freshpet Fridges are capitalized and depreciated over the estimated useful life. Freshpet Fridges purchased in 2025 are protected by a manufacturer warranty of five years, while those purchased prior to 2025 carry a three-year manufacturer warranty. We subsequently incur maintenance and freight costs for repairs and refurbishments handled by third-party service providers.

Previous wording

Share-based compensation. The Company recognizes share-based compensation based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. The Company estimates grant date fair value of its options using the Black-Scholes Merton option-pricing model. Restricted stock units are measured based on the fair market value of the underlying stock on the dates of the grants. Share awards are amortized under the straight-line method over the requisite service period of the entire award. The Company accounts for forfeitures as they occur.

Current wording

Share-based compensation. The Company recognizes share-based compensation based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. The Company estimates grant date fair value of its options using the Black-Scholes Merton option-pricing model. Service and performance based restricted stock units are measured based on the fair market value of the underlying stock on the dates of the grants whereas market based restricted stock units, such as total shareholder return awards, are measured using the Monte-Carlo simulation. Share awards are amortized under the straight-line method over the requisite service period of the entire award. The Company accounts for forfeitures as they occur.

Previous wording

Net sales were $975.2 million and $766.9 million for the years ended December 31, 2024 and 2023, respectively, representing increases of $208.3 million and $171.6 million, or 27.2% and 28.8%, as compared to the respective prior years. The net sales increases were driven by year-over-year growth in the Grocery, Mass, International and Digital channel of $158.5 million and $138.6 million in 2024 and 2023, respectively, with the remaining growth in the Pet Specialty and Club channel. This growth was primarily driven by year-over-year volume gains of 26.1% and 20.0% in 2024 and 2023, respectively.

Current wording

Net sales increased $126.8 million, or 13.0%, to $1,102.0 million for the year ended December 31, 2025 as compared to $975.2 million for the year ended December 31, 2024. The $126.8 million increase in net sales was driven by growth in the Grocery, Mass, International, and Digital channel of $92.2 million, with the remaining growth in the Pet Specialty and Club channel. The net sales increase was primarily driven by volume gains of 12.0% and favorable price/mix of 1.0%.

Previous wording

Gross profit was $396.0 million, or 40.6% as a percentage of net sales, for the year ended December 31, 2024, compared to $250.9 million, or 32.7% as a percentage of net sales, for the prior year. 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 year ended December 31, 2024, Adjusted Gross Profit was $453.5 million, or 46.5% as a percentage of net sales, compared to $306.6 million, or 40.0% as a percentage of net sales, in the prior year. See "—Non-GAAP Financial Measures" below.

Current wording

Gross profit was $449.6 million, or 40.8% as a percentage of net sales, for the year ended December 31, 2025, compared to $396.0 million, or 40.6% as a percentage of net sales, in the prior year. The 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.

Previous wording

Selling, general and administrative expenses ("SG&A") were $358.0 million for the year ended December 31, 2024, compared to $281.3 million for the prior year. As a percentage of net sales, SG&A remained consistent at 36.7% for both years ended December 31, 2024 and 2023. SG&A as a percentage of net sales remained consistent as the decreases due to reduced logistics as a percentage of net sales and the absence of non-recurring charges incurred in the prior year were fully offset by increased media as a percentage of net sales, higher share-based compensation and increased variable compensation accrual.

Current wording

Selling, general and administrative expenses ("SG&A") were $374.0 million for the year ended December 31, 2025, compared to $358.0 million in the prior year. As a percentage of net sales, SG&A decreased to 33.9% for the year ended December 31, 2025, compared to 36.7% in the prior year. The decrease in SG&A as a percentage of net sales was primarily due to decreased share-based compensation, driven by the reversal of previously recorded expense in the current year related to performance-based conditions deemed improbable of achievement as of year end, and decreased variable compensation accrual, partially offset by increased media spend as a percentage of net sales and higher non-recurring charges in 2025.

Previous wording

Adjusted SG&A for the year ended December 31, 2024, was $291.6 million, or 29.9% as a percentage of net sales, compared to $240.1 million, or 31.3% as a percentage of net sales, for the prior year. See "—Non-GAAP Financial Measures" below.

Current wording

Adjusted SG&A for the year ended December 31, 2025, was $319.4 million, or 29.0% as a percentage of net sales, compared to $291.6 million, or 29.9% as a percentage of net sales, in the prior year. See "—Non-GAAP Financial Measures" below.

Previous wording

As a result of the factors discussed above, income from operations increased by $68.4 million to income from operations of $38.0 million for the year ended December 31, 2024 as compared to a loss from operations of $30.4 million for the prior year.

Current wording

As a result of the factors discussed above, income from operations increased by $37.7 million to $75.7 million for the year ended December 31, 2025 as compared to $38.0 million in the prior year.

Previous wording

The Company recorded interest and other income, net of $11.9 million for the year ended December 31, 2024 as a result of interest income generated from cash and cash equivalents as compared to $13.0 million for the prior year, which also included interest income generated from short-term investments.

Current wording

The Company recorded interest and other income, net of $9.2 million for the year ended December 31, 2025 as a result of interest income generated from cash and cash equivalents as compared to $11.9 million in the prior year.

Previous wording

The $9.9 million gain on equity investment for the year ended December 31, 2024, resulted from the change in fair value of the Company's equity interest in a privately held company.

Current wording

The $9.9 million gain on equity investment for the year ended December 31, 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 consolidated financial statements.

Previous wording

Adjusted EBITDA was $161.8 million, or 16.6% as a percentage of net sales, for the year ended December 31, 2024, compared to $66.6 million, or 8.7% as a percentage of net sales, in the prior year. The increase in Adjusted EBITDA was a result of increased Adjusted Gross Profit partially offset by higher Adjusted SG&A expenses. See "—Non-GAAP Financial Measures" below.

Current wording

Adjusted EBITDA was $195.7 million for the year ended December 31, 2025, compared to $161.8 million, in the prior year. The increase in Adjusted EBITDA was a result of increased Adjusted Gross Profit, partially offset by higher Adjusted SG&A expenses. See "—Non-GAAP Financial Measures" below.

Previous wording

•Adjusted EBITDA as a percentage of net sales

Current wording

•Adjusted EBITDA as a percentage of net sales (Adjusted EBITDA Margin)

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 associated with the sale of our Convertible Notes in 2023, loss on disposal of equipment, advisory fees related to shareholder activism defense engagement, and organizational changes. EBITDA represents net income (loss) plus interest expense net of interest income, income tax expense and depreciation and amortization expense. Adjusted EBITDA represents EBITDA less gain on equity investment, plus loss on equity method 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, advisory fees related to activism engagement, and organizational changes.

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, loss on disposal of equipment, distributor transition costs, legal obligation and international business charges. EBITDA represents net income (loss) plus depreciation and amortization expense, interest expense net of interest income and, income tax (benefit) expense. Adjusted EBITDA represents EBITDA 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 charges.

Previous wording

(a)Includes true-ups to share-based compensation expense compared to prior periods. We have certain outstanding share-based awards with performance-based vesting conditions that require the achievement of certain Adjusted EBITDA and/or Net Sales targets as a condition of vesting. At each reporting period, we reassess the probability of achieving the performance criteria and the performance period required to meet those targets. When the probability of achieving such performance conditions changes, the compensation cost previously recorded is adjusted as needed. When such performance conditions are deemed to be improbable of achievement, the compensation cost previously recorded is reversed.

Current wording

(a)Includes true-ups to share-based compensation expense. We have certain outstanding share-based awards with performance-based vesting conditions that require the achievement of certain Adjusted EBITDA margins, Adjusted EBITDA and/or Net Sales targets as a condition of vesting. At each reporting period, we reassess the probability of achieving the performance criteria and the performance period required to meet those targets. When the probability of achieving such performance conditions changes, the compensation cost previously recorded is adjusted as needed. When such performance conditions are deemed to be improbable of achievement, the compensation cost previously recorded is reversed.

Previous wording

(a)Includes true-ups to share-based compensation expense compared to prior periods. We have certain outstanding share-based awards with performance-based vesting conditions that require the achievement of certain Adjusted EBITDA and/or Net Sales targets as a condition of vesting. At each reporting period, we reassess the probability of achieving the performance criteria and the performance period required to meet those targets. When the probability of achieving such performance conditions changes, the compensation cost previously recorded is adjusted as needed. When such performance conditions are deemed to be improbable of achievement, the compensation cost previously recorded is reversed.

Current wording

(a)Includes true-ups to share-based compensation expense. We have certain outstanding share-based awards with performance-based vesting conditions that require the achievement of certain Adjusted EBITDA margins, Adjusted EBITDA and/or Net Sales targets as a condition of vesting. At each reporting period, we reassess the probability of achieving the performance criteria and the performance period required to meet those targets. When the probability of achieving such performance conditions changes, the compensation cost previously recorded is adjusted as needed. When such performance conditions are deemed to be improbable of achievement, the compensation cost previously recorded is reversed.

Previous wording

To meet our capital needs, we issued approximately $402.5 million in convertible notes in March 2023 (the "Convertible Notes"), used $66.2 million of the proceeds to enter into capped call transactions, and used $11.0 million of the proceeds on debt issuance related costs. Further, on March 13, 2023, in connection with the proposed offering of the Convertible Notes, the Company notified City National Bank of Freshpet's intent to terminate the Credit Agreement, and such termination became effective as of March 15, 2023 (the "Termination Date"). The Company had no borrowings outstanding under the Credit Agreement as of the Termination Date.

Current wording

To meet our capital needs, we issued approximately $402.5 million in convertible notes in March 2023 (the "Convertible Notes"), used $66.2 million of the proceeds to enter into capped call transactions, and used $11.0 million of the proceeds on debt issuance related costs.

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 fiscal year 2024, we spent approximately $187.1 million of capital to meet our capacity needs as well as recurring capital expenditures. In fiscal year 2025, we expect to spend approximately $250.0 million.

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 fiscal year 2025, we spent approximately $148.2 million of capital to meet our capacity needs as well as recurring capital expenditures. In fiscal year 2026, we expect to spend approximately $150.0 million.

Previous wording

Our primary cash needs, in addition to our plant expansions, are for purchasing ingredients, operating expenses, marketing expenses and capital expenditures to procure Freshpet Fridges. We believe that cash and cash equivalents, expected cash flow from operations, amounts previously raised through the issuance of the Convertible Notes and our ability to access the capital markets, if appropriate, are adequate to fund our debt service requirements, operating and finance lease obligations, capital expenditures and working capital obligations for the foreseeable future. We believe our sources of liquidity and capital will be sufficient to finance our continued operations, growth strategy and additional expenses we expect to incur for at least the next twelve months. However, our ability to continue to meet these requirements and obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow from operations and our ability to manage costs and working capital successfully. Additionally, our cash flow generation ability is subject to general economic factors at the international, national and regional levels, including but not limited to increased interest rates and inflation, tariffs, trade wars, recession, financial, competitive, legislative and regulatory factors and other factors that are beyond our control, including government or regulatory shutdowns or defunding, or disruptions with or increased costs imposed by our key suppliers or others within our supply chain. We cannot assure you that our business will generate cash flow from operations in an amount sufficient to enable us to fund our liquidity needs. Expanding certain of our Freshpet Kitchens primarily comprises our material future cash requirement. However, our capital requirements, including our cash requirements, may vary materially from those currently planned if, for example, our revenues do not reach expected levels, or we have to incur unforeseen capital expenditures and make investments to maintain our competitive position. If this is the case, we may seek alternative financing, such as issuing additional debt or equity securities, and we cannot assure you that we will be able to do so on favorable terms, if at all. Moreover, if we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity or if the Convertible Notes are converted to common shares, existing stockholders may experience dilution, and such new securities could have rights senior to those of our common stock. These factors may make the timing, amount, terms and conditions of additional financing unattractive. Our inability to raise capital could impede our growth or otherwise require us to forego growth opportunities and could materially adversely affect our bus…

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Current wording

Our primary cash needs, in addition to our plant expansions, are for purchasing ingredients, operating expenses, marketing expenses and capital expenditures to procure Freshpet Fridges. We believe that cash and cash equivalents, expected cash flow from operations, amounts previously raised through the issuance of the Convertible Notes and our ability to access the capital markets, if appropriate, are adequate to fund our debt service requirements, operating and finance lease obligations, capital expenditures and working capital obligations for the foreseeable future. We believe our sources of liquidity and capital will be sufficient to finance our continued operations, growth strategy and additional expenses we expect to incur for at least the next twelve months. However, our ability to continue to meet these requirements and obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow from operations and our ability to manage costs and working capital successfully.

Previous wording

Working capital consists of current assets net of current liabilities. Working capital remained consistent at $338.1 million at both December 31, 2024 and 2023. Working capital remained consistent as the increases consisting of an increase of $17.6 million in inventories, net, an increase of $11.7 million in accounts receivable, and an increase of $8.4 million in prepaid expenses were fully offset by a decrease of $28.2 million in cash and cash equivalents, an increase of $6.4 million in accrued expenses due to timing, and an increase of $3.1 million in accounts payable as a result of timing.

Current wording

Working capital consists of current assets net of current liabilities. Working capital increased $19.0 million to $357.1 for the year ended December 31, 2025 compared to working capital of $338.1 million for the year ended December 31, 2024, primarily as a result of an increase of $9.3 million in cash and cash equivalents, an increase of $4.3 million in other current assets, and a decrease of $24.7 million in accrued expenses as a result of decreased variable compensation accrual. The increase was partially offset by a decrease of $4.7 million in accounts receivable, a decrease of $4.0 million in inventories, net, a decrease of $6.2 million in prepaid expenses, an increase of $3.3 million in accounts payable, and an increase of $1.1 million in lease liabilities.

Previous wording

As of December 31, 2023, our capital resources consisted primarily of $296.9 million of cash and cash equivalents on hand.

Current wording

As of December 31, 2025, our capital resources consisted primarily of $278.0 million of cash and cash equivalents on hand.

Previous wording

Net cash provided by operating activities consists primarily of net income (loss) adjusted for certain non-cash items (i.e., provision for loss (gains) 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).

Current wording

Net cash provided by operating activities consists primarily of net income 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, amortization of deferred financing costs, change in operating lease right of use asset, change in deferred income taxes, and gain on equity investment).

Previous wording

•$61.7 million of net income adjusted for reconciling non-cash items, which excludes $95.3 million of non-cash items primarily related to $58.5 million of depreciation and amortization, $24.9 million of share-based compensation including amortization of warrants, $4.3 million of loss on disposal of property, plant and equipment, $4.1 million of write-off and amortization of deferred financing costs and loan discount, $1.9 million of loss on equity method investment, and $1.5 million of change in operating lease right of use asset.

Current wording

•$192.8 million of net income, adjusted for reconciling non-cash items, which excludes $53.7 million of non-cash items related to $68.8 million of deferred income tax benefit, $89.7 million of depreciation and amortization, $12.1 million of provision for loss on accounts receivable, $13.9 million of share-based compensation, $2.2 million of amortization of deferred financing costs, $2.2 million of loss on disposal of property, plant and equipment, and $2.3 million of change in operating lease right of use asset.

Previous wording

•$14.3 million increase due to changes in operating assets and liabilities. The increase was primarily due to the change in accounts receivable, accounts payable and accrued expenses, primarily offset by the change in inventories, prepaid expenses and other current assets, other assets and operating lease liability.

Current wording

•$32.2 million decrease due to changes in operating assets and liabilities. The decrease was primarily due to the change in accounts receivable, prepaid expenses and other current assets, other assets, accrued expenses, and operating lease liability, partially offset by the change in inventories and accounts payable.

Previous wording

•$168.0 million of net income, adjusted for reconciling non-cash items, which excludes $121.0 million of non-cash items related to $73.6 million of depreciation and amortization, $51.8 million of share-based compensation including amortization of warrants, $2.1 million of write-off and amortization of deferred financing costs and loan discount, $1.4 million of change in operating lease right of use asset, $1.3 million of loss on disposal of property, plant and equipment, $0.3 million of a reserve for inventory obsolescence, $0.5 million of provision for loss on accounts receivable, partially offset by $9.9 million of gain on equity investment.

Current wording

•$168.0 million of net income, adjusted for reconciling non-cash items, which excludes $121.0 million of non-cash items related to $73.6 million of depreciation and amortization, $51.8 million of share-based compensation including amortization of warrants, $2.1 million of amortization of deferred financing costs, $1.4 million of change in operating lease right of use asset, $1.3 million of loss on disposal of property, plant and equipment, $0.3 million of a reserve for inventory obsolescence, $0.5 million of provision for loss on accounts receivable, partially offset by $9.9 million of gain on equity investment.

Previous wording

•$239.1 million of capital expenditures related to Freshpet Kitchens, plant recurring capital expenditures, expenditures relating to investment in fridges, and other capital spend.

Current wording

•$148.2 million of capital expenditures related to Freshpet Kitchens, plant recurring capital expenditures, expenditures relating to investment in fridges, and other capital spend.

Previous wording

•$1.4 million for tax withholdings related to net share settlements of restricted stock units.

Current wording

•$3.0 million for tax withholdings related to net share settlements of restricted stock units.

Previous wording

•$1.1 million for principal payments under finance lease obligations.

Current wording

•$2.1 million for principal payments under finance lease obligations.

Previous wording

•$4.5 million cash proceeds from the exercise of stock options.

Current wording

•$2.1 million cash proceeds from the exercise of stock options.

Previous wording

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or ("U.S. GAAP"). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenue and expenses incurred during the reported periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Changes in estimates and policies are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions.

Current wording

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or ("U.S. GAAP"). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenue and expenses incurred during the reported periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions.

Previous wording

Share-based Compensation—The Company recognizes share-based compensation based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. The Company estimates grant date fair value of its options using the Black-Scholes Merton option-pricing model. Restricted stock units are measured based on the fair market value of the underlying stock on the dates of the grants. Share awards are amortized under the straight-line method over the requisite service period of the entire award. The Company accounts for forfeitures as they occur.

Current wording

Share-based Compensation—The Company recognizes share-based compensation based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. The Company estimates grant date fair value of its options using the Black-Scholes Merton option-pricing model. Service and performance based restricted stock units are measured based on the fair market value of the underlying stock on the dates of the grants whereas market based restricted stock units, such as total shareholder return awards, are measured using the Monte-Carlo simulation. Share awards are amortized under the straight-line method over the requisite service period of the entire award. Certain awards provide for accelerated vesting upon retirement if age and service conditions are met. When an employee is retirement‑eligible (or becomes eligible during the vesting period), the Company recognizes compensation cost for the portion of the award for which the requisite service period has been rendered, resulting in accelerated expense recognition. The Company accounts for forfeitures as they occur.

Previous wording

We have outstanding share-based awards that have performance-based vesting conditions in addition to time-based vesting. Awards with performance-based vesting conditions require the achievement of certain financial criteria as a condition to the vesting. For certain performance-based awards, the quantity of awards received can range based on the level of performance achieved. The performance-based awards with financial criteria either have a Net Sales and/or Adjusted EBITDA target from FY 2023 through FY 2027. We recognize the estimated fair value of performance-based awards as share-based compensation expense over the performance period based upon our determination of whether it is probable that the performance targets will be achieved. At each reporting period, we reassess the probability of achieving the performance criteria and the performance period required to meet those targets. Determining whether the performance criteria will be achieved involves judgment, and the share-based compensation expense may be revised periodically based on changes in the probability of achieving the performance criteria. Revisions are reflected in the period in which the probability assessment is changed. If performance goals are not met, no share-based compensation expense is recognized for the cancelled shares, and, to the extent share-based compensation expense was previously recognized for those cancelled shares, such share-based compensation expense is reversed.

Current wording

We have certain outstanding share-based awards with performance-based vesting conditions that require the achievement of certain Adjusted EBITDA margins, Adjusted EBITDA and/or Net Sales targets as a condition of vesting, with such target periods through fiscal year 2027. We recognize the estimated fair value of performance-based awards as share-based compensation expense over the performance period based upon our determination of whether it is probable that the performance targets will be achieved. At each reporting period, we reassess the probability of achieving the performance criteria and the performance period required to meet those targets. When the probability of achieving such performance conditions changes, the compensation cost previously recorded is adjusted as needed. When such performance conditions are deemed to be improbable of achievement, the compensation cost previously recorded is reversed. Determining whether the performance criteria will be achieved involves judgment, and the share-based compensation expense may be revised periodically based on changes in the probability of achieving the performance criteria. Revisions are reflected in the period in which the probability assessment is changed.

Previous wording

We have determined we operate in one segment: the manufacturing, marketing and distribution of fresh dog food, cat food, and dog treats.

Current wording

The Company operates in one consolidated operating and reportable segment: the manufacturing, marketing and distribution of fresh dog food, cat food, and dog treats.