GlobeNewswire Inc | Nov 8, 2021 04:06PM EST

November 08, 2021

Estimates Full Year Net Sales of ~$445 millionSupply Chain Headwinds and Accelerating Inflation Reduce Adjusted EBITDA Guidance

SECAUCUS, N.J., Nov. 08, 2021 (GLOBE NEWSWIRE) -- Freshpet, Inc. (Freshpet or the Company) (Nasdaq: FRPT) today reported financial results for its third quarter ended September 30, 2021.

Third Quarter 2021Financial Highlights Compared to Prior Year Period

-- Net sales of $107.6 million, an increase of 27.8% -- Net loss of $2.1million, compared with prior year net incomeof $3.5million -- Adjusted EBITDA of $14.6million, compared to prior year of $17.0million 1

"Despite unprecedented supply chain challenges, Freshpet's long-term growth model remains intact," commented Billy Cyr, Freshpet's Chief Executive Officer. "Like everyone else,we are facing extraordinarylabor and material shortages, and accelerating inflation that have modestly delayed the start-up of new capacity and increased our costs more rapidly than we anticipated -- causing short-term challenges that we are addressing. However, the long-term trends driving Freshpet's growth remain strong, and - thanks to our aggressive capacity expansion initiatives and the investments we made in maintenance, training and automation in Q3 -- we have never been better positioned to fulfill our mission of 'changing the way people nourish their pets forever' than we are today."

Third Quarter 2021

Net sales increased 27.8% to $107.6million for the third quarter of 2021 compared to $84.2million for the thirdquarter of 2020. Net sales for the thirdquarter of 2021were driven by velocity, distribution gains, and innovation.

Gross profit was $41.5million, or 38.6% as a percentage of net sales, for the thirdquarter of 2021, compared to $36.7million, or 43.5% as a percentage of net sales, in the prior year period. For the thirdquarter of 2021, Adjusted Gross Profit was $47.4million, or 44.0% as a percentage of net sales, compared to $41.5million, or 49.3% as a percentage of net sales, in the prior year period. The decrease in gross profit as a percentage of net sales and Adjusted Gross Profit as a percentage of net sales was primarily due to increased cost at our Freshpet Kitchens as a result of our wage increase plan, investments as we grow into capacity, inflation of ingredient cost and higher costs at our Freshpet Kitchens South partner. 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$42.4million for the thirdquarter of 2021compared to $32.9million in the prior year period. As a percentage of net sales, SG&A increased to 39.4% for the thirdquarter of 2021compared to 39.1% in the prior year period. Adjusted SG&A for the thirdquarter of 2021was $32.8million, or 30.4% as a percentage of net sales, compared to $24.5million, or 29.1% as a percentage of net sales, in the prior year period. The increase in SG&A as a percentage of net sales and Adjusted SG&A as a percentage of net sales was a result of increased logistics costs, including freight costs, and higher employee-related costs,offset by general and administrative expense leverage due to higher net sales and decreased media as a percentage of 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 losswas $2.1million for the thirdquarter of 2021compared to net incomeof $3.5million for the prior year period. The decrease in net incomewas due to increased SG&Apartially offset by higher net sales and increased gross profit.

Adjusted EBITDA was $14.6million, or 13.6% as a percentage of net sales, for the thirdquarter of 2021, compared to $17.0million, or 20.2% as a percentage of net sales, in the prior year period. The decrease in Adjusted EBITDA was a result of increased Adjusted SG&A expensepartially offset by higher net sales andAdjusted Gross Profit.Adjusted EBITDA is a non-GAAP financial measure defined under Non-GAAP Measures, and is reconciled to net loss in the financial tables that accompany this release.

1 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.

First NineMonths of 2021

Net sales increased 32.2% to $309.6million for the first ninemonths of 2021 compared to $234.3million in the prior year period. Net sales for the first ninemonths of 2021 were driven by velocity, distribution gains, and innovation.

Gross profit was $120.9million, or 39.1% as a percentage of net sales, for the first ninemonths of 2021, compared to $102.4million, or 43.7% as a percentage of net sales, in the prior year period. For the first ninemonths of 2021, Adjusted Gross Profit was $141.1million, or 45.6% as a percentage of net sales, compared to $115.4million, or 49.3% as a percentage of net sales, in the prior year period. The decrease in gross profit as a percentage of net sales and Adjusted Gross Profit as a percentage of net sales was primarily due to increased cost at our Freshpet Kitchens as a result of our wage increase plan, investments as we grow into capacity, inflation of ingredient cost and higher costs at our Freshpet Kitchens South partner. 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 $138.0million for the first ninemonths of 2021 compared to $101.3million in the prior year period. As a percentage of net sales, SG&A increased to 44.6% for the first ninemonths of 2021 compared to 43.2% in the prior year period. Adjusted SG&A for the first ninemonths of 2021 was $107.9million, or 34.8% as a percentage of net sales, compared to $81.5million, or 34.8% as a percentage of net sales, in the prior year period. The increasein SG&A expenses was a result of increased logistics costs, including freight costs, higher employee-related costs, and non-cash share-based compensation. Adjusted SG&A as a percentage of net sales remainedunchanged from the prior year in the same period asa result of general and administrative expense leverage on higher net sales and decreased media spend as a percentage of net salesoffset by increased logistics costs as a percentage of 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 $20.4million for the first ninemonths of 2021 compared to a net incomeof $0.1million for the prior year period. The decrease in net incomewas due to increased SG&Apartially offset by higher net sales and increased gross profit.

Adjusted EBITDA was $33.2million, or 10.7% as a percentage of net sales, for the first ninemonths of 2021, compared to $34.0million, or 14.5% as a percentage of net sales, in the prior year period. The decrease in Adjusted EBITDA was a result of increased Adjusted SG&A expense, partially offset by increased Adjusted Gross Profit. Adjusted EBITDA is a non-GAAP financial measure defined under "Non-GAAP Measures," and is reconciled to net loss in the financial tables that accompany this release.

Balance Sheet

As of September30, 2021, the Company had cash and cash equivalents of $170.8million with no debt outstanding.

Outlook

For full year 2021, the Company updated its guidance. The Company expects the following results:

-- Net sales of ~$445million, an increase of ~40% from 2020, from previous guidance of >$445million -- Adjusted EBITDA of ~$50million, an increase of ~7% from 2020, from previous guidance of >$61 million

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 components of net income and the respective reconciliations, including the timing of and amount of costs of goods sold and selling, general and administrative expenses. These items are not within the Companys control and may vary greatly between periods and could significantly impact future financial results.

Conference Call & Earnings Presentation Webcast Information As previously announced, today, November 8, 2021, the Company will host a conference call beginning at 4:30 p.m. Eastern Time with members of its leadership team. 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. Eastern Time today through November 22, 2021. North American listeners may dial (844) 512-2921 and international listeners may dial (412) 317-6671; the passcode is 13723899.

About FreshpetFreshpets 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 Freshpet Kitchens.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://www.tiktok.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'scurrent opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results. These forward-looking statements, including our updated guidance, 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 and its quarterly reports on Form 10-Q 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 beforedepreciation expense, plant start-up expense,non-cash share-based compensationand COVID-19 expenses.

Adjusted SG&A Expenses: Freshpet defines Adjusted SG&A as SG&A expenses before depreciation and amortization, non-cash share-based compensation, launch expense, fees related to equity offerings of our common stock, implementation and other costs associated with the implementation of an enterprise resource planning ("ERP") system,losson disposal of equipment andCOVID-19 expenses.

EBITDA and Adjusted EBITDA: EBITDA represents net income (loss) plus interest expense, income tax expense and depreciation and amortization expense, and Adjusted EBITDA represents EBITDA plus losson equity method investment, non-cash share-based compensation expense, launch expenses, fees related to equity offerings, plant start-up expense, implementation and other costs associated with the implementation of an ERP system,loss on disposal of equipment and COVID-19 expenses.

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 Companys operations and, when considered with both the Companys GAAP results and the reconciliation to the most comparable GAAP measures, provide a more complete understanding of the Companys 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 Companys 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.

Certain of these measures represent the Company's guidance for fiscal year 2021. The Company is unable to reconcile these forward-looking non-GAAP financial measures to the most directly comparable GAAP measures without unreasonable efforts because the Company is currently unable to predict with a reasonable degree of certainty the type and impact of certain items, including the timing of and amount of cost of goods sold and selling, general and administrative expenses, that would be expected to impact GAAP measures for these periods but would not impact the non-GAAP measures. The unavailable information could significantly impact our financial results. These items are not within the Company's control and may vary greatly between periods. Based on the foregoing, the Company believes that providing estimates of the amounts that would be required to reconcile these forecasted non-GAAP measures to forecasted GAAP measures would imply a degree of precision that would be confusing or misleading to investors for the reasons identified above.

Contact

ICRJeff Sonnek646-277-1263Jeff.sonnek@icrinc.com

FRESHPET, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except per share data)

September December 30, 31, 2021 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 170,836 $ 67,247 Accounts receivable, net of allowance for doubtful 32,217 18,438 accountsInventories, net 29,305 19,119 Prepaid expenses 3,870 3,378 Other current assets 1,562 914 Total Current Assets 237,790 109,096 Property, plant and equipment, net 471,964 281,073 Deposits on equipment 3,189 3,710 Operating lease right of use assets 6,874 7,866 Equity method investment 26,736 27,894 Other assets 11,774 4,749 Total Assets $ 758,327 $ 434,388 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 12,828 $ 16,452 Accrued expenses 14,556 15,371 Current operating lease liabilities 1,359 1,298 Total Current Liabilities $ 28,743 $ 33,121 Long term operating lease liabilities 6,066 7,098 Total Liabilities $ 34,809 $ 40,219 STOCKHOLDERS' EQUITY: Common stock ? voting, $0.001 par value, 200,000shares authorized, 43,404 issued and 43,390 43 41 outstanding on September 30, 2021, and 40,732issued and 40,718 outstanding on December 31, 2020Additional paid-in capital 949,995 600,388 Accumulated deficit (226,357 ) (205,924 )Accumulated other comprehensive income (loss) 93 (80 )Treasury stock, at cost ? 14 shares on September (256 ) (256 )30, 2021 and on December 31, 2020Total Stockholders' Equity 723,518 394,169 Total Liabilities and Stockholders' Equity $ 758,327 $ 434,388

FRESHPET, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE(LOSS)(In thousands, except per share data)

For the Three Months Ended For the Nine Months Ended September 30, September 30, 2021 2020 2021 2020 NET SALES $ 107,590 $ 84,190 $ 309,620 $ 234,268 COST OF GOODS 66,065 47,535 188,689 131,891 SOLDGROSS PROFIT 41,525 36,654 120,931 102,377 SELLING,GENERAL, AND 42,365 32,895 137,955 101,273 ADMINISTRATIVEEXPENSES(LOSS) INCOME (840 ) 3,760 (17,024 ) 1,104 FROM OPERATIONSOTHER(EXPENSES)/ INCOME:Other(Expenses)/ 2 25 (5 ) 70 Income, netInterest (677 ) (216 ) (2,232 ) (999 )Expense (675 ) (191 ) (2,237 ) (930 )(LOSS) INCOMEBEFORE INCOME (1,515 ) 3,569 (19,261 ) 175 TAXESINCOME TAX 16 22 48 65 EXPENSELOSS ON EQUITYMETHOD 539 - 1,124 - INVESTMENT(LOSS) INCOMEATTRIBUTABLE TO $ (2,070 ) $ 3,547 $ (20,433 ) $ 110 COMMONSTOCKHOLDERSOTHERCOMPREHENSIVE INCOME:Change inforeign $ 4 $ 368 $ 173 $ 40 currencytranslationTOTAL OTHERCOMPREHENSIVE 4 368 173 40 INCOMETOTALCOMPREHENSIVE $ (2,066 ) $ 3,916 $ (20,260 ) $ 150 (LOSS) INCOMENET (LOSS)INCOME PERSHARE ATTRIBUTABLE TOCOMMONSTOCKHOLDERS-BASIC $ (0.05 ) $ 0.09 $ (0.48 ) $ 0.00 -DILUTED $ (0.05 ) $ 0.09 $ (0.48 ) $ 0.00 WEIGHTEDAVERAGE SHARESOF COMMON STOCKOUTSTANDINGUSED INCOMPUTING NET (LOSS) INCOMEPER SHAREATTRIBUTABLE TOCOMMONSTOCKHOLDERS-BASIC 43,373 40,560 42,774 39,452 -DILUTED 43,373 41,700 42,774 40,473

FRESHPET, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS(In thousands)

For the Nine Months Ended September 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (20,433 ) $ 110 Adjustments to reconcile net (loss) income to net cash flows provided by operating activities:Provision for loss (gains) on accounts receivable 15 (4 )Loss on disposal of equipment 284 1,301 Share-based compensation 18,516 7,811 Inventory obsolescence 249 147 Depreciation and amortization 22,489 14,946 Amortization of deferred financing costs and loan 1,013 763 discountChange in operating lease right of use asset 992 962 Loss on equity method investment 1,124 ? Changes in operating assets and liabilities: Accounts receivable (13,794 ) (3,060 )Inventories (10,435 ) (5,115 )Prepaid expenses and other current assets (1,140 ) 9,587 Other assets (5,520 ) (222 )Accounts payable 5,057 (3,021 )Accrued expenses (781 ) (10,300 )Other lease liabilities (971 ) (842 )Net cash flows (used in) provided by operating (3,335 ) 13,063 activitiesCASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments ? (20,001 )Proceeds from maturities of short-term investments ? 10,001 Investments in equity method investment ? (27,625 )Acquisitions of property, plant and equipment, (220,835 ) (99,924 )software and deposits on equipmentNet cash flows used in investing activities (220,835 ) (137,549 )CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from common shares issued in primary 332,172 252,062 offering, net of issuance costProceeds from exercise of options to purchase 2,048 4,664 common stockTax withholdings related to net shares settlements (3,198 ) (1,636 )of restricted stock unitsProceeds from borrowings under Credit Facilities ? 20,933 Repayment of borrowings under Credit Facilities ? (76,000 )Fees paid in connection with financing agreements (3,263 ) (824 )Net cash flows provided by financing activities 327,759 199,199 NET CHANGE IN CASH AND CASH EQUIVALENTS 103,589 74,713 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 67,247 9,472 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 170,836 $ 84,185

FRESHPET, INC. AND SUBSIDIARIESRECONCILIATION BETWEEN GROSS PROFIT AND ADJUSTED GROSS PROFIT

Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 (Dollars in thousands) Gross Profit $ 41,525 $ 36,654 $ 120,931 $ 102,377 Depreciation 4,075 2,129 11,896 6,422 expensePlant start-up 588 1,828 3,561 3,020 expense (a)Non-cashshare-based 1,058 484 2,970 1,425 compensationCOVID-19 expense 119 395 1,753 2,157 (b)Adjusted Gross $ 47,365 $ 41,490 $ 141,111 $ 115,402 ProfitAdjusted GrossProfit as a % of 44.0 % 49.3 % 45.6 % 49.3 %Net Sales

Represents additional operating costs incurred in connection with the(a) start-up of our new manufacturing lines as part of the Freshpet Kitchens expansion projects. Represents COVID-19 expenses including (i) costs incurred to protect the health and safety of our employees during the COVID-19 pandemic, (ii)(b) temporary increased compensation expense to ensure continued operations during the pandemic, and (iii) costs related to mitigating potential supply chain disruptions during the pandemic, included in cost of goods sold.

FRESHPET, INC. AND SUBSIDIARIESRECONCILIATION BETWEEN SG&A EXPENSES AND ADJUSTED SG&A EXPENSES

Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 (Dollars in thousands) SG&A expenses $ 42,365 $ 32,895 $ 137,955 $ 101,273 Depreciation and amortization 3,671 2,923 10,593 8,524 expenseNon-cash share-based 4,688 2,863 15,546 6,386 compensationLaunch expense (a) 562 760 2,311 2,403 Loss on disposal of equipment 412 1,265 518 1,301 Equity offering expenses (b) ? ? ? 58 Enterprise Resource Planning (c) 273 428 1,123 830 COVID-19 expense (d) ? 187 5 283 Adjusted SG&A Expenses $ 32,759 $ 24,468 $ 107,859 $ 81,488 Adjusted SG&A Expenses as a % of 30.4 % 29.1 % 34.8 % 34.8 %Net Sales

Represents new store marketing allowance of $1,000 for each store added to(a) 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 public offerings of our common stock.(c) Represents implementation and other costs associated with the implementation of an ERP system. Represents COVID-19 expenses including (i) costs incurred to protect the health and safety of our employees during the COVID-19 pandemic, (ii)(d) temporary increased compensation expense to ensure continued operations during the pandemic, and (iii) costs related to mitigating potential supply chain disruptions during the pandemic, included in SG&A.

FRESHPET, INC. AND SUBSIDIARIESRECONCILIATION BETWEEN NET INCOME (LOSS) AND ADJUSTED EBITDA

Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 (Dollars in thousands) Net (loss) income $ (2,070 ) $ 3,547 $ (20,433 ) $ 110 Depreciation and amortization 7,746 5,052 22,489 14,946 Interest expense 677 216 2,232 999 Income tax expense 16 22 48 65 EBITDA $ 6,369 $ 8,837 $ 4,336 $ 16,120 Loss on equity method $ 539 ? $ 1,124 ? investmentLoss on disposal of equipment 412 1,265 518 1,301 Non-cash share-based 5,746 3,347 18,516 7,811 compensationLaunch expense (a) 562 760 2,311 2,403 Plant start-up expense (b) 588 1,828 3,561 3,020 Equity offering expenses (c) ? ? ? 58 Enterprise Resource Planning 273 428 1,123 830 (d)COVID-19 expense (e) 119 582 1,758 2,440 Adjusted EBITDA $ 14,608 $ 17,048 $ 33,247 $ 33,983 Adjusted EBITDA as a % of Net 13.6 % 20.2 % 10.7 % 14.5 %Sales

Represents new store marketing allowance of $1,000 for each store added to(a) 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. Represents additional operating costs incurred in connection with the(b) start-up of our new manufacturing lines as part of the Freshpet Kitchens expansion projects.(c) Represents fees associated with public offerings of our common stock.(d) Represents implementation and other costs associated with the implementation of an ERP system. Represents COVID-19 expenses including (i) costs incurred to protect the health and safety of our employees during the COVID-19 pandemic, (ii)(e) temporary increased compensation expense to ensure continued operations during the pandemic, and (iii) costs related to mitigating potential supply chain disruptions during the pandemic.