Freshpet, Inc. Q2 FY2025 earnings call

• Ennis plant has become the most profitable plant, expected to provide over 50% of production volume in the next 2 years. - Developed new production technologies for bag products, with a new scale line to start in Q4 2025 and a light version for existing lines to be tested in H1 2026. - Reduced CapEx by at least $100 million in 2025-2026 due to operational improvements and new technologies. - Second quarter net sales driven by volume growth, adjusted gross margin improved, adjusted EBITDA increased. - Household penetration and MVP growth noted, with MVPs representing a significant portion of sales.

The primary segment is dog food. Second quarter net sales were $264.7 million, up 12.5% year-over-year. Adjusted gross margin in the second quarter was 46.9% compared to 45.9% in the prior year period. Adjusted EBITDA in the second quarter was $44.4 million, up approximately $9 million or 26% year-over-year. Household penetration as of June 29 was 14.4 million households, up 11% year-over-year, and MVPs (most valuable pet parents) totaled 2.2 million households, up 18% year-over-year, representing 70% of sales in the latest 12 months.

• Net sales guidance revised to 13%-16% year-over-year (previously 15%-18%). - Adjusted EBITDA guidance remains in the range of $190 million to $210 million, back half weighted. - CapEx projected to be approximately $175 million in 2025, down from previous guidance. - Removed the $1.8 billion net sales target for 2027, confident in achieving 48% adjusted gross margin and 22% adjusted EBITDA margin with mid-teen sales growth.

• Macro environment uncertainties affecting dog food category demand, including consumer hesitancy to trade up, housing costs, and return to office mandates. - Tariffs impacting vegetables sourced from Europe and spare parts, with efforts to mitigate. - Potential slowdown in dog adoptions due to generational and economic factors.

Q: So curious on the path to 22% in 2027. It sounds like from a top line perspective, you kind of preempted that question, which is, I guess, it's a 13% to 16% that you're going to do this year in top line growth. If you do that, that's still sufficient to support 22%. My question is, are there -- can you help us with maybe the SG&A buckets like what underlies that 22% within your OpEx? And is there any kind of a timing step-up maybe with the new technologies that would make the path there maybe heavier in '27 versus '26, just conceptually, not looking for specific guidance, but that's my question.

A: Todd and Billy discuss SG&A leverage, gross margin leverage, and new tech benefits. Todd mentions gross margin leverage from operating performance and new tech, while Billy amplifies on operating performance driving confidence in 48% margin and new tech not factored into target.

Q: So maybe just a clarifying point here. Is the expectation that you removed the net sales target, but you're sticking with the gross margin and EBITDA margin targets is predicated on, it sounds like, I guess, low to mid-teen growth. So is that generally where you're directionally guiding the market towards or how you expect to be judged through this cycle through '27?

A: Todd states confidence in hitting 22% EBITDA margin with low to mid-teen growth, noting lack of G&A leverage at lower growth, and confidence in double-digit growth but not specific guidance.