Freshpet, Inc. Q3 FY2025 earnings call

• Adapting to the economic reality by adjusting media and go-to-market strategy, focusing on reaching and appealing to more households, especially MVPs. - Implementing strategies: best food with new media campaigns, strong value proposition with new products and price adjustments, improved accessibility with fridge islands and increased distribution. - Driving operational efficiency through new technology (testing new bag technology) and pragmatic capacity management. - Third quarter highlights: net sales growth, adjusted EBITDA growth, market share gains, and progress in distribution and household penetration. - CFO search: hired an independent executive search firm, confident in Ivan Garcia and team's capabilities until a permanent successor is found.

Third quarter net sales were $288.8 million, up 14% year-over-year. Adjusted gross margin was 46.0% compared to 46.5% in the prior year period. Adjusted EBITDA was $54.6 million, up approximately $11 million or 25% year-over-year. Freshpet is the #1 dog food brand in U.S. food with a 95% market share within the gently cooked fresh, frozen branded dog food segment. In the nearly $38 billion U.S. dog food and treats segment, Freshpet has increased its market share to 3.9%. Freshpet products are now in 29,745 stores, with 24% of these having multiple fridges. Household penetration was 14.8 million households, up 10% year-over-year, and MVP households (super heavy and ultra-heavy users) were 2.3 million, up 15% year-over-year, representing 70% of sales in the latest 12 months.

• Currently tracking to the lower end of previous net sales and adjusted EBITDA guidance ranges, expecting net sales growth of approximately 13% for the year and adjusted EBITDA between $190 million and $195 million. - Updating CapEx guidance to approximately $140 million. - Expecting to be free cash flow positive for the full year, a year earlier than original 2026 target. - For fiscal 2027, confident in achieving 48% adjusted gross margin and 22% adjusted EBITDA margin if sales volume growth is at least low teens; if high single digits, adjusted EBITDA margin of approximately 20% is achievable.

• Consumer sentiment and economic uncertainty affecting trade-up. - Competitive entrants in the pet food category, including potential impact on market share and pricing. - Tariffs on vegetables sourced from Europe, with efforts to mitigate. - Uncertainty in the duration of consumer uncertainty and its impact on capacity and growth.

Q: On trade promotions and new competitors?

A: Avoid trade promotions as they create inefficiencies. Focus on media as primary growth driver, believing it builds long-term brand equity. Trade promotions drive occasional households, but media is critical for Freshpet's growth.

Q: On CFO transition and sticky changes?

A: Todd brought healthy skepticism and practical discipline. Looking for a strategic, conceptual leader to complement the team's deepened capabilities. Culture built by Todd remains, with focus on finding a complementary leader.

Q: On Q4 and first half of next year, sequential guidance and e-commerce?

A: Q3 to Q4 historically has been a small sequential gain, but Q1 expected to bounce back. E-commerce is a big opportunity, with underpenetration in DTC, focusing on building capabilities, seeing encouraging metrics with incremental households and high buy rates.