Release Details

Company Provides Guidance for Full Year 2018

SECAUCUS, N.J. , March 05, 2018 (GLOBE NEWSWIRE) -- Freshpet, Inc. (“Freshpet” or the “Company”) (NASDAQ:FRPT) today reported financial results for its fourth quarter and full year ended December 31, 2017.

Fourth Quarter 2017 Financial Highlights Compared to Prior Year Period

• Net Sales of $40.7 million, up 19.5%
• Net income of $1.5 million compared to a net income of $1.2 million
• Adjusted EBITDA of $6.9 million compared to $6.4 million
• Freshpet Fridges increased 8.4% to 18,004 from 16,609

2017 Financial Highlights Compared to Prior Year

• Net Sales of $156.4 million, up 17.5%
• Net loss of $4.2 million compared to a net loss of $3.2 million
• Adjusted EBITDA of $17.6 million compared to $17.7 million

“We are pleased with our finish to 2017.  Our fourth quarter results demonstrate continued strong volume growth as a result of our Feed the Growth strategy.  We believe this financial performance validates the ‘stickiness’ of the Freshpet brand and our confidence in our growth prospects,” said Billy Cyr, Freshpet’s Chief Executive Officer.  “In 2018 we will leverage our key brand and marketing strengths which we expect to fuel an accelerated rate of growth and position us to achieve our longer term 2020 financial objectives.” 

Fourth Quarter 2017

Fourth quarter of 2017 net sales increased 19.5% to $40.7 million compared to $34.1 million for the fourth quarter of 2016. The Company’s core fresh refrigerated product offering grew 21.9% as compared to the same period in the prior year.  Net sales for the quarter were driven by velocity gains and an 8.4% increase in Freshpet Fridges to 18,004 as of December 31, 2017, as compared to the prior year period.

Gross profit was $18.9 million, or 46.6% as a percentage of net sales for the fourth quarter of 2017, compared to $15.2 million, or 44.7% as a percentage of net sales, in the same period last year. For the fourth quarter 2017, Adjusted Gross Profit was $20.4 million, or 50.1% as a percentage of net sales, compared to $17.0 million, or 49.9% as a percentage of net sales, in the prior year period. 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 $17.3 million for the fourth quarter of 2017 compared to $13.7 million in the prior year period. As a percentage of net sales, SG&A increased to 42.5% for the fourth quarter of 2017 compared to 40.1% in the fourth quarter of 2016. Adjusted SG&A as a percentage of net sales increased to 39.6% compared to 38.2% in the fourth quarter of 2016. The increase in SG&A is primarily due to the fourth quarter effect of the Company’s planned increased media spend of $6.0 million for the full year 2017. 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 income was $1.5 million for the fourth quarter of 2017 compared to net income of $1.2 million for the prior year period.

Adjusted EBITDA was $6.9 million for the fourth quarter of 2017, compared to $6.4 million in the fourth quarter 2016.  The improvement in Adjusted EBITDA was primarily due to increased net sales and improved gross profit, partially offset by increased media spend. Adjusted EBITDA is a Non-GAAP financial measure defined under “Non-GAAP Measures,” and is reconciled to net earnings in the financial tables that accompany this release.

Full Year 2017

Net sales increased 17.5% to $156.4 million for the full year ended December 31, 2017 compared to $133.1 million for the prior year. The Company’s core fresh refrigerated product offering grew 20.1% as compared to the same period in the prior year. Net sales for the full year 2017 were driven by velocity gains and an increase in Freshpet fridge store locations as compared to the prior year.

Gross profit was $72.4 million, or 46.3% as a percentage of net sales for the full year ended December 31, 2017, compared to $60.4 million, or 45.4% as a percentage of net sales, last year. For the full year ended December 31, 2017, Adjusted Gross Profit was $78.2 million, or 50.0%, as a percentage of net sales, compared to $66.0 million, or 49.6% as a percentage of net sales, in the prior year. 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.

SG&A expenses were $75.2 million for the full year ended December 31, 2017 compared to $62.6 million in the prior year.  As a percentage of net sales, SG&A increased to 48.1% for the full year ended December 31, 2017 compared to 47.0% last year. Adjusted SG&A as a percentage of net sales increased to 45.3% for the full year ended December 31, 2017 compared to 43.1% in the prior year. The increase in SG&A is primarily due to the Company’s planned increased media spend of $6.0 million compared to the prior year period. 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 $4.3 million for the full year ended December 31, 2017 compared to net loss of $3.2 million for the prior year. The higher net loss was primarily related to the planned increased media spend, partially offset by increased net sales and improved gross profit.

Adjusted EBITDA was $17.6 million for the full year ended December 31, 2017, compared to $17.7 million in the prior year.  The decrease in Adjusted EBITDA was primarily related to the planned increased media spend, partially offset by increased net sales and improved gross profit. Adjusted EBITDA is a Non-GAAP financial measure defined under “Non-GAAP Measures,” and is reconciled to net earnings in the financial tables that accompany this release.

Cash and Net Debt

As of December 31, 2017, the Company had cash and cash equivalents of $2.2 million, no debt outstanding and $30.0 million of availability from our $30.0 million revolving credit facility that matures in September 2020 and includes the ability to increase the revolving credit facility by an additional $10.0 million. 

Recasting of 2017 Results for Accounting-Rules – Topic 606

In the first quarter of 2018, the Company is adopting the new revenue recognition standard (“Topic 606”) on a retrospective basis.

The adoption of Topic 606 will result in a shift between Net Sales and Cost of Goods Sold.  The net effect would decrease full year 2017 net sales by approximately 2.6% compared to the previous accounting standard, and increase the Company’s gross margin by approximately 130 basis points. For example, 2017’s net sales of $156.4 million would be reported as $152.4 million, 2017’s gross margin of 46.3% would be reported as 47.5%, and 2017’s adjusted gross margin of 50.0% would be reported as 51.3% under the new accounting standard. The new accounting standard will not impact Net Income, Gross Profit, Adjusted Gross Profit, or Adjusted EBITDA.

Outlook

For full year 2017, the Company expects following results under the new revenue recognition standards compared to the prior year:

The Company does not provide guidance for the most directly comparable GAAP measure, net income, and similarly cannot provide a reconciliation between its forecasted Adjusted EBITDA and net income metrics without unreasonable effort due to the unavailability of reliable estimates for certain items. These items are not within the Company’s control and may vary greatly between periods and could significantly impact future financial results.

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) 413-7208 and international listeners may dial (201) 689-8555.

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 March 19, 2018. North American listeners may dial (844) 512-2921 and international listeners may dial (412) 317-6671. The passcode is 13676201.

About Freshpet

Freshpet has a single-minded mission – to improve the lives of dogs and cats everywhere through the power of fresh, natural food. Packed with vitamins and proteins, our foods offer fresh meats, poultry, and vegetables farmed locally. At our Freshpet Kitchens, we thoughtfully prepare these natural ingredients and everyday essentials, cooking them in small batches at lower temperatures to preserve key nutrients. That way, your pet gets the best. Freshpet refrigerated foods and treats are kept cool from the moment they are made until they arrive at Freshpet Fridges in your local market.

Our foods are available in select mass, grocery, natural food, club, and pet specialty retailers across the United States, Canada and in the United Kingdom. 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 may 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 several 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 (collectively, “the 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 Adjusted SG&A as a % of net sales
• EBITDA
• Adjusted EBITDA

Adjusted Gross Profit: Freshpet defines Adjusted Gross Profit as Gross Profit before plant start-up expenses and processing and plant depreciation expenses.

Adjusted SG&A Expenses: Freshpet defines Adjusted SG&A as SG&A expenses before non-cash items related to share-based compensation, leadership transition expenses, fees related to a secondary offering, and fees related to the litigation of a securities lawsuit.

EBITDA and Adjusted EBITDA: EBITDA represents net loss plus depreciation and amortization, interest expense, and income tax expense, and Adjusted EBITDA represents EBITDA plus loss on disposal of equipment, plant startup expense, share-based compensation, warrant fair valuation, secondary fees, leadership transition expenses, launch expenses, and fees related to the litigation of a securities lawsuit.

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 and provides 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, provides 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.

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

Michael Fox
203-682-8218
Michael.fox@icrinc.com

FRESHPET, INC. AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS
(Unaudited)

FRESHPET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
(Unaudited)

FRESHPET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

FRESHPET, INC. AND SUBSIDIARIES

RECONCILIATION BETWEEN GROSS PROFIT AND ADJUSTED GROSS PROFIT
(Unaudited)

(Amounts in thousands)
Certain totals may not sum due to rounding

(a) Represents non-cash depreciation expense included in Cost of Goods Sold.

(b) Represents additional operating costs incurred in 2016 in connection with the start-up of our new manufacturing lines as part of the Freshpet Kitchens expansion project.

FRESHPET, INC. AND SUBSIDIARIES

RECONCILIATION BETWEEN SG&A EXPENSES AND ADJUSTED SG&A EXPENSES
(Unaudited)

(Amounts in thousands)
Certain totals may not sum due to rounding

(a) Represents non-cash stock based compensation expense.

(b) Represents costs detailed within our former Chief Executive Officer’s separation agreement as well as incremental costs associated with leadership transition.

(c) Represents fees associated with the response to a securities lawsuit, Curran v. Freshpet, Inc. et al, Docket No. 2:16-cv-02263.

FRESHPET, INC. AND SUBSIDIARIES

RECONCILIATION BETWEEN NET INCOME/(LOSS) AND ADJUSTED EBITDA
(Unaudited)

(Amounts in thousands)
Certain totals may not sum due to rounding

(a) 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.

(b) Represents additional operating costs incurred in 2016 in connection with the start-up of our new manufacturing lines as part of the Freshpet Kitchens expansion project.

(c) Represents non-cash stock based compensation expense.

(d) Represents the change of fair value for the outstanding common stock warrants.  All warrants were converted to common stock in the third quarter of 2017.

(e) Leadership Transition Expenses represent costs detailed within our former Chief Executive Officer’s separation agreement as well as incremental costs associated with leadership transition.

(f) Represents fees associated with the response to a securities lawsuit, Curran v. Freshpet, Inc. et al, Docket No. 2:16-cv-02263.

   Source: Freshpet, Inc.