Freshpet, Inc. Reports Second Quarter 2019 Financial Results

08.05.2019
Company Raises Full Year 2019 Outlook

SECAUCUS, N.J., Aug. 05, 2019 (GLOBE NEWSWIRE) -- Freshpet, Inc. (“Freshpet” or the “Company”) (NASDAQ: FRPT) today reported financial results for its second quarter and six months ended June 30, 2019.

Second Quarter 2019 Financial Highlights Compared to Prior Year Period

  • Net sales of $60.1 million, an increase of 26.1%
  • Net loss of $5.7 million compared to net loss of $3.5 million
  • Adjusted EBITDA of $1.2 million compared to $2.5 million1

“Our second quarter results demonstrate continued momentum behind our Feed the Growth strategy. Our strategic advertising investment drove our strongest gains in household penetration and retail availability in several years, giving us tremendous confidence that Freshpet is still in the puppy stage – with significant growth ahead,” commented Billy Cyr, Freshpet’s Chief Executive Officer. “Based on the strength of our first half results, we are raising our net sales and adjusted EBITDA guidance for the year.  We continue to believe that we are on track to deliver our 2020 goals and the momentum we have generated positions us well to fulfill our mission of providing more pets with fresh, all-natural foods that enrich their lives and the relationships with their pet parents.”

Second Quarter 2019

Second quarter of 2019 net sales increased 26.1% to $60.1 million compared to $47.6 million for the second quarter of 2018.  Growth in net sales for the second quarter of 2019 was driven by velocity, innovation, and distribution gains.

Gross profit was $27.3 million, or 45.5% as a percentage of net sales, for the second quarter of 2019, compared to $22.9 million, or 48.0% as a percentage of net sales, in the same period last year. The increase in gross profit was driven by higher net sales. For the second quarter of 2019, Adjusted Gross Profit was $29.1 million, or 48.5% as a percentage of net sales, compared to $24.5 million, or 51.4% as a percentage of net sales, in the prior year period. The decrease in Adjusted Gross Profit as a percentage of net sales was primarily due to increased production and processing cost, and higher ingredient and inbound freight cost, partially offset by higher sales price realization and a shift in sales mix to higher margin items.  Adjusted Gross Profit is a Non-GAAP financial measure defined under “Non-GAAP Measures,” and is reconciled to gross profit in the financial tables that accompany this release.

Selling, general and administrative expenses (“SG&A”) were $32.7 million for the second quarter of 2019 compared to $26.3 million in the prior year period. The second quarter of 2019 included a planned increase in media spend of $4.8 million compared to the prior year period, or an additional 4.2% as a percentage of net sales.  As a percentage of net sales, SG&A decreased to 54.4% for the second quarter of 2019 compared to 55.2% in the second quarter of 2018. Adjusted SG&A for the second quarter of 2019 was $27.9 million, or 46.4% as a percentage of net sales, compared to $22.0 million, or 46.2% as a percentage of net sales, in the prior year period. The slight increase in Adjusted SG&A as a percentage of net sales was primarily a result of the planned increase in media spend, partially offset by increased expense leverage on higher net sales.  Adjusted SG&A is a Non-GAAP financial measure defined under “Non-GAAP Measures,” and is reconciled to SG&A in the financial tables that accompany this release.

Net loss was $5.7 million for the second quarter of 2019 compared to net loss of $3.5 million for the prior year period. The increase in net loss was a result of a planned increase in media spend, partially offset by higher gross profit and increased leverage on SG&A.

Adjusted EBITDA was $1.2 million, or 2.0% as a percentage of net sales, for the second quarter of 2019, compared to $2.5 million, or 5.3% as a percentage of net sales, in the second quarter of 2018. The decrease in Adjusted EBITDA was a result of a planned increase in media spend, partially offset by higher gross profit and increased leverage on SG&A. Adjusted EBITDA, Adjusted Gross Profit and Adjusted SG&A are Non-GAAP financial measures defined under “Non-GAAP Measures,” and are reconciled to the closest comparable GAAP measures in the financial tables that accompany this release.

First Six Months of 2019

Net sales increased 26.5% to $114.8 million compared to $90.8 million for the first six months of 2018.  Growth in net sales for the first six months of 2019 was driven by velocity, innovation, and distribution gains.

Gross profit was $53.2 million, or 46.4% as a percentage of net sales, for the first six months of 2019, compared to $43.0 million, or 47.4% as a percentage of net sales, in the same period last year. The increase in gross profit was driven by higher net sales. For the first six months of 2019, Adjusted Gross Profit was $56.7 million, or 49.4% as a percentage of net sales, compared to $46.1 million, or 50.8% as a percentage of net sales, in the prior year period. The decrease in Adjusted Gross Profit as a percentage of net sales was primarily due to increased production and processing cost, and higher ingredient and inbound freight cost, partially offset by higher sales price realization and a shift in sales mix to higher margin items. 

SG&A was $61.9 million for the first six months of 2019 compared to $49.8 million in the prior year period. The first six months of 2019 included a planned increase in media spend of $7.9 million compared to the prior year period, or an additional 3.4% as a percentage of net sales.  As a percentage of net sales, SG&A decreased to 53.9% for the first six months of 2019 compared to 54.9% in the prior year period. Adjusted SG&A for the first six months of 2019 was $52.8 million, or 45.9% as a percentage of net sales, compared to $41.9 million, or 46.1% as a percentage of net sales, in the prior year period. The slight decrease in Adjusted SG&A as a percentage of net sales was primarily a result of increased expense leverage on higher net sales, partially offset by a planned increase in media spend. 

Net loss was $9.1 million for the first six months of 2019 compared to net loss of $7.0 million for the prior year period. The increase in net loss was a result of a planned increase in media spend, partially offset by higher gross profit and increased leverage on SG&A.

Adjusted EBITDA was $4.0 million, or 3.5% as a percentage of net sales, for the first six months of 2019, compared to $4.3 million, or 4.8% as a percentage of net sales, in the prior year period. The decrease in Adjusted EBITDA was a result of the planned increase in media spend, partially offset by higher gross profit and increased leverage on SG&A.

Cash and Net Debt

In May 2019, the Company amended and restated its $90 million senior secured credit facility (the “New Credit Facility”).  This New Credit Facility includes a $55.0 million delayed draw term loan facility and a $35.0 million revolving loan facility that replaces the Company’s prior $30.0 million revolver. The Company will have the ability to increase the New Credit Facility by up to an additional $75.0 million, subject to certain conditions. The New Credit Facility will mature on May 15, 2024.  The New Credit Facility reduces the Company’s interest rate for borrowings by 25 basis points, compared to its prior facility.

As of June 30, 2019, the Company had cash and cash equivalents of $4.8 million.  During the six months ended June 30, 2019, the Company drew $28.5 million on its credit facility in connection with the Kitchens 2.0 project, planned increased media investment, and funding of working capital. The Company expects to fund the $100 million Kitchens 2.0 manufacturing expansion through its New Credit Facility and cash from operations.

Outlook

For full year 2019, the Company increased its net sales and Adjusted EBITDA outlook compared to the prior year. The Company now expects the following results for the year ending December 31, 2019:

  • To exceed net sales of $244 million, an increase greater than 26% from 2018, and reflects an increase from prior guidance of $240 million

  • To exceed Adjusted EBITDA of $29 million, an increase greater than 43% from 2018, and reflects an increase from prior guidance of $28 million

The Company is unable to provide guidance for net income or a reconciliation of forecasted Adjusted EBITDA to net income because certain items that are excluded from Adjusted EBITDA are inherently uncertain and cannot be predicted without unreasonable effort due to the unavailability of reliable estimates for certain items.

Conference Call and Webcast

The Company will host a conference call and webcast with the executive management team to discuss these results with additional comments and details today at 4:30 p.m. ET. The conference call webcast will be available live over the Internet through the “Investors” section of the Company’s website at www.freshpet.com. To participate on the live call listeners in North America may dial (877) 407-0792 and international listeners may dial (201) 689-8263.

A replay of the conference call will be archived on the Company’s website and telephonic playback will be available from 7:30 p.m. ET today through August 19, 2019. North American listeners may dial (844) 512-2921 and international listeners may dial (412) 317-6671. The passcode is 13692609.

About Freshpet

Freshpet’s mission is to improve the lives of dogs and cats through the power of fresh, real food. Freshpet foods are blends of fresh meats, vegetables and fruits farmed locally and made at our Kitchens in Bethlehem, PA.  We thoughtfully prepare our foods using natural ingredients, cooking them in small batches at lower temperatures to preserve the natural goodness of the ingredients. Freshpet foods and treats are kept refrigerated from the moment they are made until they arrive at Freshpet Fridges in your local market.

Our foods are available in select mass, grocery (including online), natural food, club, and pet specialty retailers across the United States, Canada and Europe. From the care, we take to source our ingredients and make our food, to the moment it reaches your home, our integrity, transparency and social responsibility are the way we like to run our business. To learn more, visit www.freshpet.com.

Connect with Freshpet:

https://www.facebook.com/Freshpet 

https://twitter.com/Freshpet 

http://instagram.com/Freshpet 

http://pinterest.com/Freshpet 

https://plus.google.com/+Freshpet 

https://en.wikipedia.org/wiki/Freshpet 

https://www.youtube.com/user/freshpet400 

Forward Looking Statements

Certain statements in this release constitute “forward-looking” statements. These statements are based on management's current opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results. These forward-looking statements are only 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 its assumptions 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 affect actual results. There are many risks and uncertainties that could cause actual results to differ materially from forward-looking statements made herein including, most prominently, the risks discussed under the heading “Risk Factors” in the Company's latest annual report on Form 10-K filed with the Securities and Exchange Commission. Such forward-looking statements are made only as of the date of this release. Freshpet undertakes no obligation to publicly update or revise any forward-looking statement because of new information, future events or otherwise, except as otherwise required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

Non-GAAP Financial Measures

Freshpet uses the following non-GAAP financial measures in its financial communications. These non-GAAP financial measures should be considered as supplements to the GAAP reported measures, should not be considered replacements for, or superior to, the GAAP measures and may not be comparable to similarly named measures used by other companies.

  • Adjusted Gross Profit
  • Adjusted Gross Profit as a % of net sales (Adjusted Gross Margin)
  • Adjusted SG&A
  • Adjusted SG&A as a % of net sales
  • EBITDA
  • Adjusted EBITDA
  • Adjusted EBITDA as a % of net sales

Adjusted Gross Profit: Freshpet defines Adjusted Gross Profit as gross profit before non-cash depreciation expenses and non-cash share-based compensation.

Adjusted SG&A Expenses: Freshpet defines Adjusted SG&A as SG&A expenses before depreciation and amortization expense, non-cash share-based compensation, launch expense, fees related to secondary offering, and litigation expense.

EBITDA and Adjusted EBITDA: EBITDA represents net loss plus interest expense, income tax expense and depreciation and amortization expense, and Adjusted EBITDA represents EBITDA plus loss on disposal of equipment, non-cash share-based compensation expense, launch expenses, fees related to a secondary offering, and litigation expense.

Management believes that the non-GAAP financial measures are meaningful to investors because they provide a view of the Company with respect to ongoing operating results. The non-GAAP financial measures are shown as supplemental disclosures in this release because they are widely used by the investment community for analysis and comparative evaluation. They also provide additional metrics to evaluate the Company’s operations and, when considered with both the Company’s GAAP results and the reconciliation to the most comparable GAAP measures, provide a more complete understanding of the Company’s business than could be obtained absent this disclosure. The non-GAAP measures are not and should not be considered an alternative to the most comparable GAAP measures or any other figure calculated in accordance with GAAP, or as an indicator of operating performance. The Company’s calculation of the non-GAAP financial measures may differ from methods used by other companies. Management believes that the non-GAAP measures are important to an understanding of the Company's overall operating results in the periods presented. The non-GAAP financial measures are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance.

______________________
Adjusted EBITDA, as well as certain other measures in this release, is a non-GAAP financial measure.  See “Non-GAAP Measures” for how we define these measures and the financial tables that accompany this release for reconciliations of these measures to the closest comparable GAAP measures.

CONTACT
ICR
Katie Turner
646-277-1228
katie.turner@icrinc.com

 
 
FRESHPET, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
  June 30, 2019     December 31,
2018
 
               
ASSETS              
CURRENT ASSETS:              
Cash and cash equivalents $ 4,752,836     $ 7,554,388  
Accounts receivable, net of allowance for doubtful accounts   19,356,428       12,326,703  
Inventories, net   13,225,832       9,317,232  
Prepaid expenses   1,286,692       1,078,232  
Other current assets   650,482       681,550  
Total Current Assets   39,272,270       30,958,105  
Property, plant and equipment, net   122,394,944       102,094,248  
Deposits on equipment   6,437,602       4,730,176  
Operating lease right of use assets   9,763,324        
Other assets   3,314,858       2,182,329  
Total Assets $ 181,182,998     $ 139,964,858  
LIABILITIES AND STOCKHOLDERS' EQUITY              
CURRENT LIABILITIES:              
Accounts payable   15,801,273       9,166,412  
Accrued expenses   9,018,582       9,050,551  
Current operating lease liabilities   1,068,396        
Other current liabilities   200,000        
Total Current Liabilities $ 26,088,251     $ 18,216,963  
Long term debt   28,482,000        
Long term operating lease liabilities   9,020,293        
Other liabilities         273,420  
Total Liabilities $ 63,590,544     $ 18,490,383  
STOCKHOLDERS' EQUITY:              
Common stock   36,089       35,556  
Additional paid-in capital   328,342,507       323,079,437  
Accumulated deficit   (210,436,032 )     (201,352,682 )
Accumulated other comprehensive income   (93,884 )     (31,610 )
Treasury stock, at cost — 14,169 shares on June 30, 2019 and on December 31, 2018   (256,226 )     (256,226 )
Total Stockholders' Equity   117,592,454       121,474,475  
Total Liabilities and Stockholders' Equity $ 181,182,998     $ 139,964,858  
               
               


FRESHPET, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
 
    For the Three Months
Ended
    For the Six Months Ended  
    June 30,     June 30,  
    2019     2018     2019     2018  
                                 
NET SALES   $ 60,052,179     $ 47,624,956     $ 114,844,381     $ 90,794,557  
COST OF GOODS SOLD     32,725,598       24,747,064       61,602,819       47,788,647  
GROSS PROFIT     27,326,581       22,877,892       53,241,562       43,005,910  
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES     32,672,284       26,287,523       61,904,534       49,825,467  
LOSS FROM OPERATIONS     (5,345,703 )     (3,409,631 )     (8,662,972 )     (6,819,557 )
OTHER INCOME/(EXPENSES):                                
Other Income/(Expenses), net     (20,748 )     26,067       (3,453 )     3,090  
Interest Expense     (275,649 )     (97,923 )     (378,425 )     (166,925 )
      (296,397 )     (71,856 )     (381,878 )     (163,835 )
LOSS BEFORE INCOME TAXES     (5,642,100 )     (3,481,487 )     (9,044,850 )     (6,983,392 )
INCOME TAX EXPENSE     19,250       19,032       38,500       38,064  
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS   $ (5,661,350 )   $ (3,500,519 )   $ (9,083,350 )   $ (7,021,456 )
OTHER COMPREHENSIVE LOSS:                                
Change in foreign currency translation   $ (153,321 )   $ (201,187 )   $ (62,274 )   $ (1,633 )
TOTAL OTHER COMPREHENSIVE LOSS     (153,321 )     (201,187 )     (62,274 )     (1,633 )
TOTAL COMPREHENSIVE LOSS   $ (5,814,671 )   $ (3,701,706 )   $ (9,145,624 )   $ (7,023,089 )
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS                                
-BASIC   $ (0.16 )   $ (0.10 )   $ (0.25 )   $ (0.20 )
-DILUTED   $ (0.16 )   $ (0.10 )   $ (0.25 )   $ (0.20 )
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING USED IN COMPUTING NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS                                
-BASIC     35,930,350       35,241,198       35,800,061       35,189,636  
-DILUTED     35,930,350       35,241,198       35,800,061       35,189,636  
                                 
                                 


FRESHPET, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
 
  For the Six Months Ended  
  June 30,  
    2019       2018  
CASH FLOWS FROM OPERATING ACTIVITIES:              
Net loss $ (9,083,350 )   $ (7,021,456 )
Adjustments to reconcile net loss to net cash flows provided by operating activities:              
Provision for loss/(gains) on accounts receivable   (2,520 )     (17,443 )
Loss on disposal of equipment   684       76,261  
Share-based compensation   2,630,180       2,394,034  
Inventory obsolescence   105,170       69,074  
Depreciation and amortization   7,643,452       6,795,380  
Amortization of deferred financing costs and loan discount   72,294       57,551  
Changes in operating assets and liabilities:              
Accounts receivable   (7,027,205 )     1,618,733  
Inventories   (4,013,770 )     (241,151 )
Prepaid expenses and other current assets   (177,392 )     (262,533 )
Operating lease right of use   (177,249 )      
Other assets   (44,498 )     (14,371 )
Accounts payable   (158,556 )     1,665,187  
Accrued expenses   (31,969 )     (1,964,518 )
Other lease liabilities   229,194       (14,994 )
Other current liabilities   200,000        
Net cash flows provided by (used in) operating activities   (9,835,535 )     3,139,754  
CASH FLOWS FROM INVESTING ACTIVITIES:              
Acquisitions of property, plant and equipment, software and deposits on equipment   (22,888,753 )     (8,932,791 )
Net cash flows used in investing activities   (22,888,753 )     (8,932,791 )
CASH FLOWS FROM FINANCING ACTIVITIES:              
Proceeds from exercise of options to purchase common stock   3,775,548       999,289  
Tax withholdings related to net shares settlements of restricted stock units   (1,252,953 )     (256,226 )
Proceeds from borrowings under Credit Facilities   35,307,000       6,000,000  
Repayment of borrowings under Credit Facilities   (7,500,000 )     (2,000,000 )
Financing fees paid in connection with borrowings   (406,859 )      
Net cash flows provided by financing activities   29,922,736       4,743,063  
NET CHANGE IN CASH AND CASH EQUIVALENTS   (2,801,552 )     (1,049,974 )
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR   7,554,388       2,184,259  
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,752,836     $ 1,134,285  
               
               


FRESHPET, INC. AND SUBSIDIARIES
 
RECONCILIATION BETWEEN GROSS PROFIT AND ADJUSTED GROSS PROFIT
(Unaudited)
 
    Three Months Ended
    Six Months Ended
    June 30,     June 30,
 
    2019     2018     2019     2018  
                                 
    (Dollars in thousands) (Dollars in thousands)
Gross Profit   $ 27,327     $ 22,878     $ 53,242     $ 43,006  
Depreciation expense (a)     1,589       1,498       3,155       2,989  
Non-cash share-based compensation (b)     186       89       334       153  
Adjusted Gross Profit   $ 29,102     $ 24,465     $ 56,731     $ 46,148  
Adjusted Gross Profit as a % of Net Sales     48.5 %     51.4 %     49.4 %     50.8 %

(a) Represents depreciation expense included in cost of goods sold.
(b) Represents non-cash share-based compensation expense included in cost of goods sold.

 
 
FRESHPET, INC. AND SUBSIDIARIES
 
RECONCILIATION BETWEEN SG&A EXPENSES AND ADJUSTED SG&A EXPENSES
(Unaudited)
 
    Three Months Ended
    Six Months Ended
 
    June 30,     June 30,
 
    2019     2018     2019     2018  
                                 
    (Dollars in thousands)
    (Dollars in thousands)
 
SG&A expenses   $ 32,672     $ 26,288     $ 61,904     $ 49,825  
Depreciation and amortization expense (a)     2,334       1,964     $ 4,486       3,807  
Non-cash share-based compensation (b)     1,244       1,213     $ 2,296       2,241  
Launch expense (c)     948       1,009     $ 2,071       1,662  
Secondary offering expenses (d)     265           $ 299        
Litigation expense (e)           93             228  
Adjusted SG&A Expenses   $ 27,881     $ 22,009     $ 52,752     $ 41,887  
Adjusted SG&A Expenses as a % of Net Sales     46.4 %     46.2 %     45.9 %     46.1 %

(a) Represents non-cash depreciation and amortization expense included in SG&A.
(b) Represents non-cash share-based compensation expense included in SG&A.
(c) Represents new store marketing allowance of $1,000 for each store added to our distribution network, as well as the non-capitalized freight costs associated with Freshpet Fridge replacements. The expense enhances the overall marketing spend to support our growing distribution network.
(d) Represents fees associated with secondary public offerings of our common stock.
(e) Represents fees associated with two securities lawsuits.

FRESHPET, INC. AND SUBSIDIARIES

RECONCILIATION BETWEEN NET LOSS AND ADJUSTED EBITDA
(Unaudited)

    Three Months Ended     Six Months Ended
    June 30,     June 30,
 
    2019     2018     2019
    2018
 
                                 
    (Dollars in thousands) (Dollars in thousands)
Net Loss   $ (5,661 )   $ (3,501 )   $ (9,083 )   $ (7,021 )
Depreciation and amortization     3,923       3,462       7,643       6,796  
Interest expense     276       98       379       167  
Income tax expense     19       19       38       38  
EBITDA   $ (1,443 )   $ 78     $ (1,023 )   $ (20 )
(Gain) loss on disposal of equipment     (7 )     48       1       76  
Non-cash share-based compensation     1,430       1,302       2,630       2,394  
Launch expense (a)     948       1,009       2,071       1,662  
Secondary offering expenses (b)     265             299        
Litigation expense (c)           93             228  
Adjusted EBITDA   $ 1,193     $ 2,531     $ 3,978     $ 4,340  
Adjusted EBITDA as a % of Net Sales     2.0 %     5.3 %     3.5 %     4.8 %

(a) new store marketing allowance of $1,000 for each store added to our distribution network, as well as the non-capitalized freight costs associated with Freshpet Fridge replacements. The expense enhances the overall marketing spend to support our growing distribution network.
(b) Represents fees associated with secondary public offerings of our common stock.
(c) Represents fees associated with two securities lawsuits.

 

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Source: Freshpet, Inc.