Freshpet, Inc. earnings

Management highlights

- Off to a strong start to the year and well-positioned in the growing fresh pet food market. - Built on manufacturing scale, fridge network, and first mover advantage. - Shifted commercial model with changes in media mix, messaging, and distribution. - Marketing model based on advertising driving household growth. - New campaign 'Kitchen Conversations' launched. - Manufacturing technology breakthroughs with new lines starting up and plans for more conversions. - Strong growth in household penetration, buy rate, and MVPs. - Retail footprint with 30,435 stores and 25% of stores having multiple fridges.

Guidance

- Raised net sales guidance range from 7%-10% growth to 8%-11% growth year-over-year. - Reiterated adjusted EBITDA guidance of 205-215 million. - Expect capital expenditures to be approximately $150 million this year. - Adjusted EBITDA dollars and margin expected to improve sequentially for the remainder of the year. - Media as a percent of sales still expected to be roughly in line with 2025 at ~12.5% of net sales and front half weighted. - Elevated logistics costs expected for remainder of the year due to increased fuel costs. - Confident in achieving net sales growth well in excess of U.S. dog food category growth, at least 48% adjusted gross margin, and adjusted EBITDA margin of 20-22% for fiscal year 2027.

Segment performance

First quarter net sales were 297.6 million, up 13.1% year over year, primarily driven by volume. Adjusted gross margin in the first quarter was 46.9% compared to 45.7% in the prior year period. Adjusted EBITDA in the first quarter was 37.9 million, up 2.4 million year-over-year. Year-to-date, household penetration was 16.1 million households, up 8% year over year, and total buy rate was approximately $114, up 6% year over year. MVPs are 2.5 million households, up 13% year-over-year, and have an average buy rate of $513. Digital orders grew 43% and accounted for 16.1% of total business, up from 14.6% in the fourth quarter.

Risks & headwinds

- Macro environment is volatile, which could impact consumer buying habits and the business. - Potential shifts in consumer willingness to trade up need to be watched. - Input cost pressures, such as on logistics and packaging, need to be monitored and addressed. - Uncertainty around the impact of new competition entering the market. - Risks associated with forward-looking statements, including actual results differing from expectations.

Analyst Q&A

• Q: Talk about competitive environment and performance in stores with new competition, and innovation plans.

  A: Broad portfolio and distribution insulate from competition.

• Q: Expand on media leverage signs.

  A: Changes in messaging, CAC down, ROAS up, growth from millennials and MVPs.

• Q: Top-line guidance informed by better-than-expected 1Q, visibility on balance of year.

  A: Guidance informed by Nielsen data, household panel, and macro factors.

• Q: Consumption acceleration factors and pet category outlook.

  A: Fundamentals like advertising, household penetration, buy rate; category still pressured but online growing.

• Q: EBITDA margin target for 2027 and staffing/costs.

  A: Can get leverage on staffing, new tech capital costs depreciated.

• Q: Decision-making on expediting new manufacturing technology.

  A: Factors include yield, throughput, quality, return on invested capital.

• Q: Logistics cost environment and impact.

  A: Fuel costs embedded, weather events caused driver shortages.

• Q: Omnichannel unit economics and distribution gain outlook.

  A: Omnichannel focuses on MVPs, e-commerce through fridge network; distribution gain with retail lifestyle expansion.

• Q: Pricing and manufacturing scale advantage.

  A: Comfortable with current pricing, manufacturing scale and R&D give advantage.

• Q: Light version new technology and club fridge expansion.

  A: Light version benefits in 2027, club fridges open opportunity.

• Q: Omni-channel growth fridge capacity and retailer interest.

  A: Interest in multiple fridges, retailers seeking to maximize holding capacity.

• Q: SG&A cadence and omnichannel investment.

  A: Media front half-weighted, other G&A generally flat sequentially.

• Q: Technology impact on product range and forms in pet food.

  A: New tech enables wider product range and innovation; fresh frozen remains gold standard.

• Q: Omnichannel unit economics with Tractor Supply and new tech bagged capacity.

  A: Tractor Supply go-to-market strategy similar, new tech bagged capacity low currently and ramp not linear.