Transcription
Investor PresentationMarch 2021
Forward Looking Statements & Non-GAAP MeasuresForward-Looking StatementsCertain statements in this presentation constitute “forward-looking” statements, which include any statements related to the novel coronavirus ("COVID-19"),the Freshpet Kitchens Expansion, and the Company's general operating and economic environment. These statements are based on management's currentopinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results. These forward-looking statements areonly predictions, not historical fact, and involve certain risks and uncertainties, as well as assumptions. Actual results, levels of activity, performance,achievements and events could differ materially from those stated, anticipated or implied by such forward-looking statements. While Freshpet believes that itsassumptions are reasonable, it is very difficult to predict the impact of known factors, and, of course, it is impossible to anticipate all factors that could affectactual results. There are many risks and uncertainties that could cause actual results to differ materially from forward-looking statements made hereinincluding, most prominently, the risks discussed under the heading “Risk Factors” in the Company's latest annual report on Form 10-K and quarterly reports onForm 10-Q filed with the Securities and Exchange Commission. Such forward-looking statements are made only as of the date of this presentation. Freshpetundertakes no obligation to publicly update or revise any forward-looking statement because of new information, future events or otherwise, except asotherwise required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates withrespect to those or other forward-looking statements.Non-GAAP MeasuresFreshpet uses certain non-GAAP financial measures, including EBITDA, Adjusted EBITDA, Adjusted EBITDA as a % of net sales, Adjusted Gross Profit, AdjustedGross Profit as a % of net sales (Adjusted Gross Margin), Adjusted SG&A and Adjusted SG&A as a % of net sales. These non-GAAP financial measures should beconsidered as supplements to GAAP reported measures, should not be considered replacements for, or superior to, GAAP measures and may not becomparable to similarly named measures used by other companies.Freshpet defines EBITDA as net income (loss) plus interest expense, income tax expense and depreciation and amortization expense, and Adjusted EBITDA asEBITDA plus gain (loss) on disposal of equipment, plant start-up expenses, non-cash share-based compensation, launch expense, fees related to equityofferings, COVID-19 expenses, and fees associated with due diligence of new enterprise resource planning ("ERP") software.2
Forward Looking Statements & Non-GAAP Measures (cont.)Freshpet defines Adjusted Gross Profit as gross profit before depreciation expense, plant start-up costs, COVID-19 expenses and non-cash share-basedcompensation, and Adjusted SG&A as SG&A expenses before depreciation and amortization expense, non-cash share-based compensation, launch expense,gain (loss) on disposal of equipment, fees related to equity offerings, and fees associated with due diligence of new ERP software.Management believes that the non-GAAP financial measures are meaningful to investors because they provide a view of the Company with respect to ongoingoperating results. Non-GAAP financial measures are shown as supplemental disclosures in this presentation because they are widely used by the investmentcommunity for analysis and comparative evaluation. They also provide additional metrics to evaluate the Company’s operations and, when considered withboth the Company’s GAAP results and the reconciliation to the most comparable GAAP measures, provide a more complete understanding of the Company’sbusiness than could be obtained absent this disclosure. Adjusted EBITDA is also an important component of internal budgeting and setting managementcompensation. The non-GAAP measures are not and should not be considered an alternative to the most comparable GAAP measures or any other figurecalculated in accordance with GAAP, or as an indicator of operating performance. The Company’s calculation of the non-GAAP financial measures may differfrom methods used by other companies. Management believes that the non-GAAP measures are important to an understanding of the Company's overalloperating results in the periods presented. The non-GAAP financial measures are not recognized in accordance with GAAP and should not be viewed as analternative to GAAP measures of performance.Certain of these measures present the company’s guidance for fiscal year 2020, for which the Company has not yet completed its internal or external auditprocedures. The Company does not provide guidance for the most directly comparable GAAP measure and similarly cannot provide a reconciliation to suchmeasure without unreasonable effort due to the unavailability of reliable estimates for certain items. These items are not within the Company’s control andmay vary greatly between periods and could significantly impact future financial results.3
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Today’s Objectives Brief Intro to Freshpet 2025 Goals and Plans to Achieve Them How Freshpet is ideally positioned for the coming generational shift Update on Q1 Production and Consumption Capacity Addition Progress and Plans5
Mission: Awaken the world to a better way of feeding pets6
We operate differently:A healthier happier world where pets people and planet thrivepets.people.planet.The power of freshOur teamRenewable energynatural & simple foodsOur partnersCarbon footprint offsetLess processedOur familiesConservation – land fill freeActs of kindnessSustainable practices7
30 billion industry stuck in 19508
Dogs had a different place in families in 1950’s9
Dogs are now part of our family10
Zooeyia (Zoo-ey-ah)The positive benefits to human health from interacting with mentCatalyzeSocialInteractionsSupportCoping &RecoveryMotivateRegularExercise11
First major innovation since dry kibble in 19561956200612
Freshpet Fresh from the Kitchen is a giant leap forwardversus canned dog food1922201513
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Exceptional palatabilityIndustry Standard Palatability Testing urce: Freshpet Palatability Study15
82% of consumers notice a visible difference% Noticed Visible Health Difference01020304050607080Increased energy level72Shinier Coat71Fewer upset stomach episodes68Healthier skin67Fresher breath (less stinky)66Improved muscle tone66Healthier weight64Brighter eyes64Less flatulence64Alleviated allergiesLess tear stainingSource: Freshpet Visible Difference Study 2018Noticed a Visible HealthDifference1882YesNo595416
High quality products at accessible price points 7.18 5.67Approximate daily cost to feed formedium-sized dog 2.03 1.67 18.044.5 lbs. 42.9920 lbs. 39.9924 lbs. 1.43 42.9940 lbs. 19.994.5 lbs. 19.695.5 lbs. 1.61 0.47 1.8910 oz 3.38 2.15 1.19 2.8712.7 oz 4.01 12.896 lbs. 31.9928 lbs. 36.9931 lbs.Medium-sized dog assumed to be approx 30 pounds. Price/day based on recommended serving sizes per brand.Source: Prices are as of 2.15.20 on Target.com./ Petco / Chewy17
22,700 stores with company-owned Freshpet Fridges 55% ACV 1 Fridge in 2,477 stores18Source: Internal company data
Freshpet e-com grew 173% in 2020; accounted for 6.1%of net sales in Q4 20202020 - 4.9%% of total FP salesthrough e-com89% of Salescontribute to brick& mortare-com businessmodel establishedwith strong returns11%34%OnlineFresh DeliveryLast MileDelivery55%Click & Collect2021 will see 3x marketinginvestments2021 - majorexpansion withpartners1919
“Feed the Growth” creates scale and leverage throughaccelerated growth rate20
2020: Fourth consecutive year of accelerating growthFreshpet Net Sales( millions) 318.8 30%25% CAGR 245.9 193.2 152.4 129.3 27.3% 26.7% 18% 14%2016201720182019202021
Strong, sustained growth in HH penetrationFreshpet Penetration GrowthTotal HH’s3,960,9714,000,000 500,0003,188,8823,169,113 25% 28%2,472,440 17%2,166,989 32%1,878,786 13% 33%1,410,933 11%1,000,0002017Total Penetration2018Core Dog PenetrationSource: Nielsen HH Panel for the period ending late December 2016-20202019Total Penetration Trendline2020Core Dog Penetration Trendline22
Growing buying rate despite dilution from new HH’sFreshpet Buying Rate 140.00 134.38 130.00 128.82 128.94 127.64 11%-%-1% 120.00 110.00 100.00 98.84 108.14 109.35 9% 1% 5% 116.94 7% 7% 90.00 80.00 70.00 60.0020172018Total Buying Rate20192020Core Dog Buying Rate23Source: Nielsen HH Panel for the period ending late December 2017, 2018, 2019, 2020 and company internal data
Benefits of scale are flowing through to the bottom lineFreshpet Adjusted EBITDA( millions) 46.9 61% 29.1 43% 17.6-1%2017 20.3 15%20182019202024
Exceptional consumer experience creates a loyal consumerfranchise and competitive insulationLoyaluserBroadlyavailableGood value70% repeat rate andgrowing buying rateAvailable in 22,700 stores 90% agree “Completely” or“Somewhat” that Freshpet isa good valueHigh satisfaction 96% rate their experience as“Extremely” or “Very Satisfied”Noticeable physical difference82% of consumers notice aphysical difference in their dogPreferred palatabilityDemonstrated preference inindustry-standard palatabilitytesting25
Operational scale and mastery leads to a preferred offeringand loyal franchiseLoyalusersExpandedline-up70% repeat rate and growingbuying rate3 primary forms and expandingline-up tailored to more needsBroad awareness 100 million in advertisingspent over a decade and growingScale in manufacturing& distribution 500 million in production assetsand increasing scale in distributionBroadscale distribution 110 million of Fridges in 22,700 stores and a servicenetwork to support themMastery of product technologyDelivers exceptional taste &nutrition with extended shelf life26
2025 Goals and Building Blocks
2025 Goals: Growth rates consistent with recentperformanceNet Sales ( millions)Adj. EBITDA ( millions) 1,250.0 312.5 318.8 46.920202025 est.20202025 est.29
2025 Goals: Continuing HH penetration and buying rategains at same rate as 2020Total HH Penetration (millions)Buying Rate ( /HH/Year)11.0 162.03 116.943.9620202025 est.20202025 est.30
Generating 1000 bps of Adj. SG&A (excl. media) leverageAdj. SG&A (excluding media) Leverage 1,400.035.0% 1,250.031.2% 1,200.030.0%23.4% 1,000.025.0% 800.020.0% 600.015.0% 200.013.4% 318.8 400.0 129.710.0%5.0% 0.00.0%FY 2016FY 2020Net Sales ( millions)FY 2025 (est.)Adj. SG&A % (Excluding Media)31
Generating strong free cash flow by 2023Free Cash Flow % Net -100%FCF % NSFCF ex Capacity Expansion % NS32
Generational Shift
Freshpet’s Prime Prospects continue to grow; the values ofPrime Prospects are the values of the next generationPrime Prospects are dog food buyers who share similarvalues to current Freshpet buyers on factors such as:Prime Prospects 20MMDog HH’sImportance of fresh, natural and preservative-free foodsWilling to sacrifice their needs to make their dog happyMade with humanely sourced and sustainable ingredientsWilling to pay a premium for good food% of Prime Prospects by Generation54%2.6x7.5MM32%Dog HHs13%20162019Millennial/Gen ZGen XBoomer34
Millennials are driving the pet food industry today35
Millennials: Largest share of the dog food market todayDog HH’s 20192%11%26%34% 30 million dogs in 22 million HH’s26%Gen ZSource: Idexx, 2019 A&U, APPAMillennialsGen XBaby BoomersBuilders36
Millennials are seeking pet foods like FreshpetPurchased pet food with these attributes:Human-grade ingredients19%Non-GMO FoodLocally en XBaby BoomerSource: APPA Generational Report, Volume 3 DebutMillennialGen XBaby BoomerMillennialGen XBaby Boomer37
Share of Millennial HH’s with a pet will plateau in a few years –while GenZ will be on the rapid rise for the next decadeGen Z todayMillennials today38
4 million Gen Z’ers are entering adulthood each year forthe next decade – and having fewer kids60% of Gen Z 11 to 17-year-olds have a dog in their householdSource: APPA Generational Survey39
Gen Z is quickly acquiring pets and will account for a largeshare of category growth over the next decadeProjected Dog HH’s 2025Respondents who got a new pet due toCOVID-19Baby BoomerGen XMillennialGen Z2%2%81% of Gen Z pets are dogs18%27%10%15%22%31%18%Gen ZSource: Idexx, 2019 A&U, APPA 25 million dogs;15 million dogs morethan todayMillennialsGen XBaby BoomersBuilders40
GenZ is choosing Freshpet even more than previousgenerationsFreshpet Latest 12 Month New Buyers(Index vs. Share of Existing 12 Month Buyers)2091691018147Gen Z [ 1996]Millennials [1982-1995]Source: Numerator, Latest 12 Months, 3/6/21Gen X [1965-1981]Boomers [1945-1964]Seniors [ 1945]41
GenZ dogs: Younger and skew towards medium sized dogsGen Z Dog Food Buyers By Age of Dog41%Gen Z Dog Food Buyers by Size of Dog42%38%39%36%32%31%39%32%34%32%23%17%14%11%Puppy ( 1year old)17%12%8%Young (1-3years)Adult (4-7years)% of GenZ Dog Food BuyersSenior (8-11 Geriatric (12 years)years)% of Dog Food BuyersSource: Numerator, Latest 12 Months, Dog Food Dry, Wet, Ref/Frozen Food and Treats, 3/6/214%Toy ( 10 lbs.) Small (11-25 Medium ((26- Large (56-99lbs.)55 lbs.)lbs.)% of GenZ Dog Food Buyers6%Giant (100 lbs.)% of Dog Food Buyers42
Proven Business Model
Business model creates increasing synergy as we scaleAdvertisingVisibility/AvailabilityDrives velocityAmplifies advertisingResult: Improving Customer Acquisition CostResult: More and bigger fridgesInnovationResult: More broadly appealing line-up44
Demonstrated track record of driving HH penetrationgains via media investmentFreshpet HH Penetration & Media Spending 100,000,0003.2R2 .983 90,000,0003 80,000,0002.8 70,000,0002.6 60,000,0002.4 50,000,0002.2 40,000,0002 30,000,000Cumulative Media SpendSource: Nielsen 52-week HH panel through 12/26/20 and internal dataTotal 7Dec-16Nov-16Oct-16Sep-16Jul-16 -Aug-161.6Jun-16 10,000,000May-161.8Apr-16 20,000,0001.4
Retailers respond to strong velocity gains with more FridgeplacementsFreshpet % ACVCOVID 46.244.042.0Source: Nielsen Mega-Channel Data thru 2/20/2146
New fridge placements skew heavily to second fridgesNew Fridge Installations by SizeFreshpet Fridge FleetDistribution by Size(US & Canada)(US & Canada 3%2017SmallMediumLargeSource: Internal company data through December 20202 ChillersSmall14%14%5%11%1%201820192020MediumLarge2 Chillers3 Chillers47
Leading customers are leaning into second fridgesCustomers With At Least 40 Stores With 2 or More Fridges48
Robust innovation program drives HH penetration growthHousehold GrowthRetention RateNew HHs Entering on Innovation% of HHs Repeating on l Dog3,000,0002,000,0001,000,000Fresh From The 2020*HH’s may purchase both new and old items. Total exceeds net HH penetration .49Source: Nielsen HH Panel – 1/23/21
New items launched in the last 5 years account for 30% ofcurrent volumeFreshpet Nielsen Consumption Contribution From Innovation3% 3%11%30% of revenuefrom new itemslaunched overthe last 5 years4%9%70%Pre-20162016201720182019202050Source: Nielsen 52-week Mega-Channel consumption through 2/20/21
2021 innovation increases relevance & impact of the brandLettersAwakening51
Innovation that is highly relevant to GenZ valuesGenZ Natural/OrganicRenewable energyTransparency/ethicalsourcing% of GenZ Dog Food BuyersNon-GMO verified6.5%7.6%Would pay any price "We do not eat meat" Very committed topremim for "green"organic% of Dog Food Buyers52
Product innovation and satisfaction drives increasedbuying ratesFreshpet Core Dog New Buyers - Dollar Buy Rate Evolution(Index vs. 2016 New Buyers)Buying rate continuesto grow for 5 years366335 23%Each new cohort buys twice as much in year 2as they do in year 1 28%297242By year 4, each cohortis buying 3X what theybought in year 1266 263256 135% -1% 104%258 15% 7%294 142%Each new cohort isentering at a 10%higher buying rate thanits predecessor 105%244-5%1631251131002017 Cohort2018 CohortYear 1Year 2Year 3 14% 14% 10% 13%2016 Cohort1432019 CohortYear 42020 CohortYear 553Source: Nielsen New Buyer Analysis, 2020
2021 Progress to Date
2021 Guidance Re-Affirmed20202021% ChangeNet Sales 318.8 430 35%Adjusted EBITDA 46.9 61 30% in Millions ERP Conversion: Tentatively targeted for 10/1/21 COVID Addback: Anticipating 2.0 million in COVID-related costs until broadscale vaccination has occurred55
Steady increases in capacity throughout the yearFreshpet Annualized Production CapacitySuccessfullystarted up rollsin Kitchens 2.0 59024/7 operationon bags inKitchens 2.02021 590Line 2 inKitchens SouthRolls line inKitchens 2.0 to24/7 640 590 590 540 490 390Q1Q2Equipment Capacity ( million/year)Q3Q4Staffed Capacity ( million/year)56
Momentum will build throughout the year as we replenish tradeinventory in Q1 and increase advertising investment in Q2Q1 ExpectationsQ2 Expectations Moderating consumption growthdue to out-of-stocks Net sales in excess of consumptionas we re-fill trade inventory – slightacceleration in growth rate from Q4 Adj. gross margin in line with Q4due to higher staffing levels to drivehigher throughput, beef costs, lostproduction due to storms and mixshift to bags U. S. advertising investmentdelayed to allow for improved instocks– in line with previous year Low new store additions until tradeinventory is replenished in April Accelerating consumption growthbehind improved retail conditionsand strong advertising investment Improving adj. gross margin due toincreased throughput and increasedroll capacity improving mix Heaviest advertising investment ofthe year Resumption of fridge placementsQ3 & Q4 Expectations Very strong consumption growthbehind advertising investment andstrong supply Improving gross margin due toincreased throughput Continued heavy advertisinginvestment Renewed store count growth57
Key Takeaways Strong production performance: On track to re-fill trade inventory by the end of April Capacity additions are on-track: Kitchens 2.0 roll line produced saleable product slightly ahead of schedule On track to add shifts in Q2 Second line in Kitchen South on track for Q3 start-up Strong advertising program: Heavy advertising begins in late April to re-accelerate growth Year-on-year Nielsen consumption comparisons not indicative of shipment performance:Due to out-of-stocks in Q1 and COVID surge/trough in March-June, year-on-yearcomparisons will not be meaningful. Period-to-period Nielsen will be best measure fromJanuary-June. Adj. gross margin progress: Will track with increased throughput58
Consumption continues in tight band due to out-of-stocks anddelay
Mar 03, 2021 · Freshpet defines EBITDA as net income (loss) plus interest expense, income tax expense and depreciation and amortization expense, and Adjusted EBITDA as EBITDA plus gain (loss) on disposal of equipment, plant start-up expenses, non-cash share-based compensation, launch expense, fees related to equity . March 2021 Investor
