GlobeNewswire Inc | Nov 2, 2020 04:05PM EST

November 02, 2020

Announces that Freshpet Kitchens 2.0 is Now Online - Expanding Capacity to Meet Strong Demand

SECAUCUS, N.J., Nov. 02, 2020 (GLOBE NEWSWIRE) -- Freshpet, Inc. (Freshpet or the Company) (NASDAQ: FRPT) today reported financial results for its third quarter and nine months ended September 30, 2020.

Third Quarter 2020 Financial Highlights Compared to Prior Year Period

-- Net sales of $84.2 million, an increase of 29.0% -- Net income of $3.5 million, compared with prior year net income of $3.1 million -- Adjusted EBITDA of $17.0 million, compared to $12.0 million, an increase of 42.2%1

Despite capacity limitations and the COVID pandemic, Freshpet continued to deliver incredibly strong and consistent growth on the top line and even stronger growth on the bottom line in the third quarter. Clearly, our strategies are working," commented Billy Cyr, Freshpet's Chief Executive Officer. "More importantly, our engineering team was able to complete construction and start-up our Kitchens 2.0, which will provide the capacity to support continued strong growth in 2021 and beyond. We now have the ability to change the way so many more families will feed their pets - forever.

Third Quarter 2020

Third quarter of 2020 net sales increased 29.0% to $84.2million compared to $65.3million for the thirdquarter of 2019. Net sales for the third quarter of 2020 were driven by velocity, innovation, and distribution gains.

Gross profit was $36.7 million, or 43.5% as a percentage of net sales, for the thirdquarter of 2020, compared to $30.7million, or 47.0% as a percentage of net sales, in the same period last year. For the third quarter 2020, Adjusted Gross Profit was $41.5million, or 49.3% as a percentage of net sales, compared to $32.5million, or 49.8% 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 processing cost, and increased beef input cost, partially offset by higher sales price realization and a shift in sales mix, as well as plant cost efficiencies. 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 $32.9million for the thirdquarter of 2020 compared to $27.2million in the prior year period. As a percentage of net sales, SG&A decreased to 39.1% for the thirdquarter of 2020 compared to 41.6% in the thirdquarter of 2019. Adjusted SG&A for the thirdquarter of 2020 was $24.5million, or 29.1% as a percentage of net sales, compared to $20.5million, or 31.4% as a percentage of net sales, in the prior year period. The decrease inAdjusted SG&A as a percentage of net sales was a result of 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 incomewas $3.5 million for the thirdquarter of 2020 compared to net income of $3.1million for the prior year period. The increase in net income was due to higher net sales and increased gross profit, partially offset by increased SG&A.

Adjusted EBITDA was $17.0million, or 20.2% as a percentage of net sales, for the thirdquarter of 2020, compared to $12.0million, or 18.4% as a percentage of net sales, in the thirdquarter of 2019. The increase in Adjusted EBITDA was a result of higher net sales, increased Adjusted Gross Profit, partially offset by increased Adjusted SG&A expense. 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.

1Adjusted EBITDA, as well as certain other measure 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 measure to the closet comparable GAAP measures.

First NineMonths of 2020

Net sales increased 30.1% to $234.3million for the first ninemonths of 2020 compared to $180.1million for the first ninemonths of 2019. Growth in net sales for the first ninemonths of 2020 wasdriven by velocity, innovation, and distribution gains.

Gross profit was $102.4million, or 43.7% as a percentage of net sales, for the first ninemonths of 2020, compared to $83.9million, or 46.6% as a percentage of net sales, in the same period last year. For the first ninemonths of 2020, Adjusted Gross Profit was $115.4million, or 49.3% as a percentage of net sales, compared to $89.2million, or 49.5% as a percentage of net sales, in the prior year period. The slight decrease in Adjusted Gross Profit as a percentage of net sales was primarily due to increased processing cost, and increased beef input cost, partially offset by higher sales price realization and a shift in sales mix. 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 $101.3million for the first ninemonths of 2020 compared to $89.1million in the prior year period. As a percentage of net sales, SG&A decreased to 43.2% for the first ninemonths of 2020 compared to 49.5% in the prior year period. Adjusted SG&A for the first ninemonths of 2020 was $81.5million, or 34.8% as a percentage of net sales, compared to $73.2million, or 40.7% as a percentage of net sales, in the prior year period. The decrease in SG&A andAdjusted SG&A as a percentage of net sales was a result of increased expense and media 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 incomewas $0.1million for the first ninemonths of 2020 compared to net lossof $6.0million for the prior year period. The improvementin net income (loss)was due to higher net salesand increased gross profit, partially offset by increasedSG&A expenses.

Adjusted EBITDA was $34.0million, or 14.5% as a percentage of net sales, for the first ninemonths of 2020, compared to $16.0 million, or 8.9% as a percentage of net sales, in the prior year period. The increase in Adjusted EBITDA was a result of increased Adjusted Gross Profit, partially offset byincreased AdjustedSG&A expense. 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 and Cash Flow

In February 2020, the Company raised $252.1 million in net proceeds from common stock issued in a primary offering. The Company utilized a portion of the proceeds to pay down $76.0 million of the outstanding balance of its credit facilities as well as partially fund the $77.0 million capital expansion project spend incurred during the ninemonths ended September 30, 2020. Further, on September 2, 2020 the Company made a $26.6million minority interest investment in a privately held company.

As of September30, 2020, the Company had cash and cash equivalents of $84.2 million and short-term certificates of deposits of $10.0 million, with no debt outstanding. The Company has an available $130.0 million delayed draw term loan facility and a $35.0 million revolving loan facility.

Outlook

For full year 2020, the Company reiterated its guidance. The Company continues to expect the following results:

-- To exceed net sales of $320.0 million, an increase greater than 30% from 2019 -- To exceed Adjusted EBITDA of $46.0 million, an increase greater than 57% from 2019

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 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 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 16, 2020. North American listeners may dial (844) 512-2921 and international listeners may dial (412) 317-6671; the passcode is 13711364.

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 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://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 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, COVID-19 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 equity offerings of our common stock, losson disposal of equipment, COVID-19 expenses and implementation and other costs associated with the implementation of an ERP system.

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 disposal of equipment, non-cash share-based compensation expense, launch expenses, fees related to equity offerings, plant start-up expenses, COVID-19 expenses and implementation and other costs associated with the implementation of an ERP system.

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.

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



FRESHPET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, December 31, 2020 2019 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 84,184,714 $ 9,471,676 Short-term investments 10,000,000 ? Accounts receivable, net of allowance for 21,644,451 18,580,840 doubtful accountsInventories, net 17,510,839 12,542,269 Prepaid expenses 3,411,293 3,275,992 Other current assets 730,596 10,452,990 Total Current Assets 137,481,893 54,323,767 Property, plant and equipment, net 242,299,147 165,287,597 Deposits on equipment 5,669,151 3,600,931 Operating lease right of use assets 8,192,272 9,154,234 Equity method investment 27,749,501 ? Other assets 4,550,532 3,759,058 Total Assets $ 425,942,496 $ 236,125,587 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 10,742,536 $ 18,667,729 Accrued expenses 11,958,320 22,132,928 Current operating lease liabilities 1,269,380 1,185,058 Total Current Liabilities 23,970,236 41,985,715 Long term debt ? 54,466,099 Long term operating lease liabilities 7,483,060 8,409,252 Total Liabilities $ 31,453,296 $ 104,861,066 STOCKHOLDERS' EQUITY: Common stock ? voting, $0.001 par value,200,000,000 shares authorized, 40,645,047issued and 40,630,878 outstanding onSeptember 30, 2020, and 36,162,433 issued 40,645 36,162 and36,148,264 outstanding on December 31,2019Additional paid-in capital 597,368,593 334,299,172 Accumulated deficit (202,625,523 ) (202,735,417 )Accumulated other comprehensive income (38,289 ) (79,170 )(loss)Treasury stock, at cost ? 14,169 shareson September 30, 2020 and on December 31, (256,226 ) (256,226 )2019Total Stockholders' Equity 394,489,200 131,264,521 Total Liabilities and Stockholders' $ 425,942,496 $ 236,125,587 Equity

FRESHPET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended For the Nine Months Ended September 30, September 30, 2020 2019 2020 2019 NET SALES $ 84,189,912 $ 65,265,901 $ 234,267,776 $ 180,110,282 COST OF GOODS 47,535,488 34,560,261 131,890,646 96,163,080 SOLDGROSS PROFIT 36,654,424 30,705,640 102,377,130 83,947,202 SELLING,GENERAL, AND 32,894,793 27,171,138 101,272,838 89,075,672 ADMINISTRATIVEEXPENSESINCOME (LOSS)FROM 3,759,631 3,534,502 1,104,292 (5,128,470 )OPERATIONSOTHER INCOME/ (EXPENSES):Other Income/(Expenses), 24,663 (137,624 ) 69,766 (141,077 )netInterest (215,661 ) (310,465 ) (999,364 ) (688,890 )Expense (190,998 ) (448,089 ) (929,598 ) (829,967 )INCOME (LOSS)BEFORE INCOME 3,568,633 3,086,413 174,694 (5,958,437 )TAXESINCOME TAX 21,600 19,250 64,800 57,750 EXPENSEINCOME (LOSS)ATTRIBUTABLE $ 3,547,033 $ 3,067,163 $ 109,894 $ (6,016,187 )TO COMMONSTOCKHOLDERSOTHERCOMPREHENSIVE INCOME (LOSS):Change inforeign $ 368,492 $ (81,667 ) $ 40,881 $ (143,941 )currencytranslationTOTAL OTHERCOMPREHENSIVE 368,492 (81,667 ) 40,881 (143,941 )INCOME (LOSS)TOTALCOMPREHENSIVE $ 3,915,525 $ 2,985,496 $ 150,775 $ (6,160,128 )INCOME (LOSS)NET INCOME(LOSS) PERSHARE ATTRIBUTABLETO COMMONSTOCKHOLDERS-BASIC $ 0.09 $ 0.09 $ 0.00 $ (0.17 )-DILUTED $ 0.09 $ 0.08 $ 0.00 $ (0.17 )WEIGHTEDAVERAGE SHARESOF COMMONSTOCKOUTSTANDINGUSED IN COMPUTING NETINCOME (LOSS)PER SHAREATTRIBUTABLETO COMMONSTOCKHOLDERS-BASIC 40,560,104 36,079,935 39,451,675 35,894,377 -DILUTED 41,699,862 37,289,478 40,473,290 35,894,377

FRESHPET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 109,894 $ (6,016,187 )Adjustments to reconcile net income (loss)to net cash flows provided by operating activities:Provision for loss/(gains) on accounts (3,826 ) 104,700 receivableLoss on disposal of equipment 1,300,519 138,106 Share-based compensation 7,811,081 5,706,580 Inventory obsolescence 146,830 104,624 Depreciation and amortization 14,945,758 11,707,422 Amortization of deferred financing costs 762,555 125,303 and loan discountChanges in operating assets and liabilities: Accounts receivable (3,059,785 ) (7,278,751 ) Inventories (5,115,400 ) (4,094,386 ) Prepaid expenses and other current 9,587,093 (10,650,214 )assets Operating lease right of use 961,962 125,711 Other assets (221,614 ) (608,060 ) Accounts payable (3,021,045 ) 3,742,265 Accrued expenses (10,299,608 ) 10,396,504 Other lease liabilities (841,870 ) (17,018 ) Net cash flows from operating 13,062,544 3,486,599 activitiesCASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments (20,001,196 ) ? Proceeds from maturities of short-term 10,001,196 ? investmentsInvestments in equity method investment (27,624,501 ) ? Acquisitions of property, plant andequipment, software and deposits on (99,923,887 ) (40,738,346 )equipment Net cash flows used in investing (137,548,388 ) (40,738,346 )activitiesCASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from common shares issued in 252,062,254 ? primary offering, net of issuance costProceeds from exercise of options to 4,663,456 3,841,918 purchase common stockTax withholdings related to net shares (1,636,296 ) (1,252,953 )settlements of restricted stock unitsProceeds from borrowings under Credit 20,933,000 50,620,988 FacilitiesRepayment of borrowings under Credit (76,000,000 ) (15,900,000 )FacilitiesFinancing fees paid in connection with (823,532 ) (406,859 )borrowings Net cash flows provided by financing 199,198,882 36,903,094 activitiesNET CHANGE IN CASH AND CASH EQUIVALENTS 74,713,038 (348,653 )CASH AND CASH EQUIVALENTS, BEGINNING OF 9,471,676 7,554,388 YEARCASH AND CASH EQUIVALENTS, ENDOF PERIOD $ 84,184,714 $ 7,205,735

FRESHPET, INC. AND SUBSIDIARIES

RECONCILIATION BETWEEN GROSS PROFIT AND ADJUSTED GROSS PROFIT

Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (Dollars in thousands) Gross Profit $ 36,654 $ 30,706 $ 102,377 $ 83,948 Depreciation expense 2,129 1,599 6,422 4,754 Plant start-up expense (a) 1,828 ? 3,020 ? Non-cash share-based 484 174 1,425 508 compensationCOVID-19 expense (b) 395 ? 2,157 ? Adjusted Gross Profit $ 41,490 $ 32,479 $ 115,402 $ 89,210 Adjusted Gross Profit as a % of 49.3 % 49.8 % 49.3 % 49.5 %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 mitigate potential supply chain disruptions during the pandemic, included in cost of goods sold.

FRESHPET, INC. AND SUBSIDIARIES

RECONCILIATION BETWEEN SG&A EXPENSES AND ADJUSTED SG&A EXPENSES

Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (Dollars in thousands) SG&A expenses $ 32,895 $ 27,171 $ 101,273 $ 89,075 Depreciation and amortization 2,923 2,465 8,524 6,953 expenseNon-cash share-based 2,863 2,902 6,386 5,198 compensationLaunch expense (a) 760 1,264 2,403 3,335 Loss on disposal of equipment 1,265 ? 1,301 ? Equity offering expenses (b) ? 50 58 349 Enterprise Resource Planning 428 ? 830 ? (c)COVID-19 expense (d) 187 ? 283 ? Adjusted SG&A Expenses $ 24,468 $ 20,490 $ 81,488 $ 73,240 Adjusted SG&A Expenses as a % 29.1 % 31.4 % 34.8 % 40.7 %of 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 mitigate potential supply chain disruptions during the pandemic, included in SG&A.

FRESHPET, INC. AND SUBSIDIARIES

RECONCILIATION BETWEEN NET INCOME (LOSS) AND ADJUSTED EBITDA

Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (Dollars in thousands) Net income (loss) $ 3,547 $ 3,067 $ 110 $ (6,016 )Depreciation and amortization 5,052 4,064 14,946 11,707 Interest expense 216 310 999 689 Income tax expense 22 19 65 57 EBITDA $ 8,837 $ 7,460 $ 16,120 $ 6,437 Losson disposal of equipment 1,265 137 1,301 138 Non-cash share-based 3,347 3,076 7,811 5,706 compensationLaunch expense (a) 760 1,264 2,403 3,335 Plant start-up expenses (b) 1,828 ? 3,020 ? Equity offering expenses (c) ? 50 58 349 Enterprise Resource Planning 428 ? 830 ? (d)COVID-19 expense (e) 582 ? 2,440 ? Adjusted EBITDA $ 17,048 $ 11,987 $ 33,983 $ 15,965 Adjusted EBITDA as a % of Net 20.2 % 18.4 % 14.5 % 8.9 %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 mitigate potential supply chain disruptions during the pandemic.