Freshpet, Inc. · NASDAQ:FRPT
Freshpet — Investor Day (August 2018)
88 slides from Freshpet's investor day presentation, Aug 8, 2018
Slide 1: Investor Day August 8, 2018
Investor Day August 8, 2018 Exhibit 99.1
Slide 2: Katie Turner, ICR
Katie Turner ICR freshpet
Slide 3: Safe Harbor Forward Looking Statements
Safe Harbor Forward Looking Statements This presentation contains “forward-looking” statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the Company’s results may differ materially from those expressed or imp
Slide 4: Agenda
Agenda Introductions: Katie Turner, ICR Freshpet Story: Scott Morris, Co-founder and COO Feed the Growth: Billy Cyr, CEO Current Kitchens Capabilities: Steve Weise, EVP Kitchens 2.0 Objectives: Billy Cyr, CEO Kitchens 2.0 Plan: Michael Hieger, SVP of Manufacturing Operations Financials: Dick Kassar,
Slide 5: Overview
Overview Strong progress over the past 18 months Growing share in the big, growing pet food market Significant upside potential ahead as HH penetration is low and favorable macro-trends Significant scale benefits Unique business model with significant competitive insulation
Slide 6: Billion Dollar Market with Strong Consumer Fundamentals
26 Billion Dollar Market with Strong Consumer Fundamentals Source: APPA, Publishing Report Date
Slide 7: Scott Morris, Co-Founder & COO
Scott Morris Co-Founder & COO
Slide 8: Fresh food is good food.
Fresh food is good food.
Slide 9: How are we different?
How are we different?
Slide 10: A new ideology to make good simple food for pets
A new ideology to make good simple food for pets
Slide 11: Our Purpose
Our Purpose: To transform the way we nourish our pets with fresh healthy food made in a way that’s best for pets, people, and the planet.
Slide 12: We start with FRESH ingredients & finish with FRESH food
We start with FRESH ingredients & finish with FRESH food. { No preservatives, no additives...only the WHOLE®@ ~ eh NURISHMENT pets need. we t 4 | a
Slide 13: Pets should be eating better than kibbles or cans
We realized that pets should be eating better than kibbles or cans, They should have fresh food like us with simple, less processed ingredients you can pronounce We worked with pet and human food experts to develop new ways to make fresh, healthy food for pets Our fresh food is good for weeks, not y
Slide 14: The First company to make real food for pets
The First company to make real food for pets
Slide 15: How you do it is as important as what you do
How you do it is as important as what you do pets. people. planet. The power of fresh natural & simple foods that are Less processed Acts of kindness Our team Our partners Our families Efficient conservation Renewable energy Sustainable practices Carbon footprint offset At Freshpet, we have a single
Slide 16: Our commitment to the environment
fréeshpet our commitment to the environment landfill free pol soe : colar by wind emissions offset 25,000+ trees planted
Slide 17: Commitment to our People & Family
Commitment to our People & Family
Slide 18: Commitment to our Retailer Partners
Commitment to our Retailer Partners TL pet aisle is growing +2x faster when Freshpet is present 24%of shoppers were NEW for retailer 40% Larger basket and High % of fresh items Freshpet draws most coveted consumer demos into pet aisle Shortest purchase cycle in the pet aisle!! 71% Repeat rates Categ
Slide 19: Commitment to our Consumers
Category leading palatability Source: Summit ridge kennels paired feeding study 76% of consumers report health difference Source: Russell research attitude and usage study Freshpet n= 980 Category leading product satisfaction Top Two (Extremely or Very Satisfied) Source: Russell research attitude an
Slide 20: Slide 20
Slide 21: A fresh take on pet food
freshpet a fresh take on pet food
Slide 22: Billy Cyr, CEO
Billy Cyr CEO freshpet
Slide 23: Potential to change the way people feed their pets
We fundamentally believe that Freshpet has the potential to change the way people feed their pets . . . forever
Slide 24: A Potent Business Model
A Potent Business Model High Brand Loyalty Alignment with deep pet parent emotional motivations Differentiated Innovative forms, technologies, and appearance Manufacturing Proprietary technology, processes, and infrastructure Freshpet Fridge Branded, company-owned real estate Supply Chain Only refri
Slide 25: Day Review Conclusion: Significant Potential to Grow
100 Day Review Conclusion: Significant Potential to Grow . . . but we have underinvested in marketing Expansion complete New lines running at parity Major investment in technical capability Strong focus on quality Significant capacity to support growth High repeat & brand passion Low awareness Low P
Slide 26: Feed the Growth
Freshpet FEED THE Ve GROWTH /
Slide 27: In 2017, We Launched Our New Strategy
In 2017, We Launched Our New Strategy . . .
Slide 28: Growth Goal: $300 Million Net Sales as Soon as 2020
Growth Goal: $300 Million Net Sales as Soon as 2020 Future Economic Model FY 2016 FY 2020 Growth Rate 15% 15-20% Stores 16,609 23,000 Adj. Gross Margin 50.9% 53.9% Adj. EBITDA Margin 13% 20+% Media Investment ~6% of sales ~9% of sales Advertising Payback 1.5 yrs. -- Free Cash Flow -$13.9M ~15% of sa
Slide 29: And the Growth Accelerated
And the Growth Accelerated… Nielsen Mega-Channel: XAOC + Pet + WFM Sales Growth
Slide 30: Increased Awareness & Penetration
Increased Awareness & Penetration 1.4%
Slide 31: But Still Well Below Our Competitors
But Still Well Below Our Competitors…. Freshpet Rachel Ray Blue Buffalo Purina ONE Cesar Awareness (Aided) 35% 52% 86% 82% 70% Penetration 1.4% 3.6% (dry) ~8% (est) 5.2% (dry) 3.4% (wet)
Slide 32: Strong Velocity Growth
Strong Velocity Growth... 2017 same, Stores Sales Growth By Vintage Representative Customer 35.0% 33.4% 30.0% 29.3% 26.7% 25.0% 20.7% 21.1% 20.0% 19.4% Original S/S mJan-12S/SW eJan-13 $/SW_mJan-14 S/W sJan-18S/SW mw Jan-16 S/SW 15.0% 10.0% 5.0% 0.0% Freshpet FEED THE GROWTH?# a2
Slide 33: Which Helped Freshpet Grow into its Scale in 2017
Which Helped Freshpet Grow into its Scale in 2017… 100 bps reduction *Leverage adjusted to projected inflationary growth of infrastructure By 2020: 900 bps reduction in fixed costs $152 $190
Slide 34: Year II: Bigger and Faster
Freshpet FEED THE Ve GROWTH / YEAR Il: Bigger and Faster
Slide 35: In 2018, We Are Accelerating Fresh Growth
In 2018, We Are Accelerating Fresh Growth… 2018 Fresh-only sales guidance: +26% 20172018% Change Net Sales$152.4>$19025+% Adjusted EBITDA$17.6>$2014+% 2018 Guidance +15% +17.5% >25% >25%
Slide 36: Doubling Down On Media
Doubling Down On… Media: 60% increase for the second year in a row Each quarter will increase vs. YA 70/30 first half vs. second half spending $8.0M $8.5M $13.5M $22M
Slide 37: Doubling Down On Velocity Drivers
Doubling Down On… Velocity drivers: Upgraded fridges Focused innovation After Before Select Roasted Meals Grain Free Select Beef Roasted Meals Premiumization & Added Variety Small Dog Select Roasted Meals Multi-Protein
Slide 38: Growth Potential in Fresh E-commerce
And With Growth Potential in Fresh E-commerce Strategy: Grow with winning players in fresh e-commerce Curbside Online Fresh Retail Home Delivery
Slide 39: And the Growth Has Accelerated Again
And the Growth Has Accelerated Again… Nielsen Mega-Channel: XAOC + Pet + WFM Sales Growth YTD ‘18 fresh consumption +27%
Slide 40: Growing faster than the category in all classes of trade
Growing 25 pts. faster than the category in all classes of trade … Freshpet Total RFG L4W L13W L52W 31.0 28.9 24.8 32.5 30.4 27.4 37.0 33.9 31.3 25.2 24.2 15.7 Total xAOC+Pet+WFM Total US xAOC Total US Food Big Box Pet $ % Chg YA – Week Ending 07/14/18 Nielsen: Freshpet RFG $ Latest 4 Week Data as o
Slide 41: Increased Penetration & Buying Rate
Increased Penetration & Buying Rate Total Freshpet Buying Rate, Penetration and Repeat Rate Dollars per consumer/yr. Source: TTL FP RFG, 52 weeks ending June 6/18, Nielsen HH Panel, Internal Buy Rate Calculation, Repeat NBD-Adj Nielsen HH Panel
Slide 42: Growth is Driven by Advertising that Drives Penetration
Growth is Driven by Advertising that Drives Penetration Nielsen HH Panel date for Freshpet Core Dog – Rolling 52 week penetration data
Slide 43: Adding New Buyers Who Behave Like Previous Buyers
Adding New Buyers Who Behave Like Previous Buyers New User Buying Rate: Freshpet Core Dog MY= 52 weeks ending June Nielsen HH Panel date for Freshpet Core Dog – 52 week buying rate data for new users by year
Slide 44: Steady Distribution Growth & Accelerating Velocity
Steady Distribution Growth & Accelerating Velocity Nielsen Mega-Channel ACV and $M/$M ACV for 4 week periods 4/23/16 to 7/14/18
Slide 45: Growing Distribution Towards 50% ACV
Growing Distribution Towards 50% ACV Nielsen Mega-Channel % ACV for 4 week periods 6/22/13 through 7/14/18
Slide 46: Freshpet grew into its scale; plans 9% incremental margin by 2020
Freshpet grew into its scale in 2017 and again in the first half of 2018 and plans to deliver 9% incremental margin by 2020 $ in millions *Leverage growth projected excluding media $152 $190
Slide 47: Structural Profitability Forecast
FY 2017 Forecast FY 2018 Forecast FY 2020 +1.1% +3.6% Reported Structural Profitability Reported Temporary differences* +9.0% *Temporary differences in Forecast FY 2018 represent 130 basis points of raw material cost and 60 basis points related to unabsorbed labor from 7 day operation. Strong struct
Slide 48: Benefits of Scale & Velocity
Benefits of Scale & Velocity Fixed Cost Pick-Up Manuf. overhead absorption G&A overhead absorption Logistics More cases per pallet More pallets per order/full trucks More straight pallets Ultimately, fewer miles per order Retail Presence Lower % sales to service fridges Higher frequency retail cover
Slide 49: Path to 20% Adjusted EBITDA Margin
Contribution Margin* - Represents Adj. Gross Margin excluding Logistics and Brokerage cost. Guidance - FY 2018 Adj. EBITDA Projected FY 2020 Adj. EBITDA Contribution Margin* 40% on additional Net Sales Media Leverage SG&A increase (excluding logistics &brokerage) >$20mm $190m Net Sales +$44mm +$5mm
Slide 50: Further Strengthening Our Barriers to Entry
Further Strengthening Our Barriers to Entry High Brand Loyalty Alignment with deep pet parent emotional motivations Freshpet Fridge Branded, company-owned real estate Supply Chain Only refrigerated pet food network in North America Retailer Partners Delivers benefits in traffic, frequency and retail
Slide 51: Just Scratching the Surface of HH Penetration Potential
Just Scratching the Surface of HH Penetration Potential… Prime Prospects With Top 2 Box Purchase Interest in Freshpet Concept PP’s with Positive Interest (53%) Super Premium & Premium Pet HH’s (50MM) Positive Purchase Intent Prime Prospects Super Premium & Premium Pet HH’s (50MM) By 2025, there will
Slide 52: Business surpassing $500 million by 2023
At existing media efficiencies, we could create a business surpassing $500 million by 2023….and still growing quickly
Slide 53: International expansion
We expect international expansion to meaningfully impact Freshpet’s growth in 2020 and beyond Currently testing in:
Slide 54: Steve Weise, EVP of Manufacturing
Steve Weise EVP of Manufacturing
Slide 55: Development of Freshpet Manufacturing Expertise
Development of Freshpet Manufacturing Expertise Improving Safety, Quality, Value, Customer Delight Quakertown Kitchens
Slide 56: 2012: Original Kitchens
2012: Original Kitchens Building Purchased Converted from dairy to pet food Capability to produce rolls and bags Capacity to support $100-120 million Core team transferred from Quakertown Proprietary formulation, process and packaging Investment in sanitary design
Slide 57: 2015-2016: Expanded Facility
2015-2016: Expanded Facility Designed to support a $300+ million business on a 7 day week Upgraded technology/continued focus on sanitary design Maximized the build out on the existing site Prioritized product quality and capacity, not labor saving automation
Slide 58: Current Operations
Current Operations 4 lines: 2 bag and 2 rolls Currently operating any 3 lines 5 days per week 24 hours per day Transitioning one line to a 7 day operation on September 9th Ultimately we will staff all 4 lines 7 days per week
Slide 59: Summary of Existing Investment
Summary of Existing Investment Total capital invested to date: $75 million Includes the cost benefit of buying and re-purposing the original building Includes the construction costs typical of 2012 - 2015 Space constraints limit automation Next facility will require more space and more equipment to
Slide 60: Ready to Expand our Capacity & Expertise Again
Ready to Expand our Capacity & Expertise Again… Improving Safety, Quality, Value, Customer Delight Quakertown Kitchens Kitchens 2.0
Slide 61: Billy Cyr, CEO
Billy Cyr CEO freshpet
Slide 62: Freshpet Kitchens 2.0 Objectives
Freshpet Kitchens 2.0 Objectives Expand capacity to support a $500+ million business Drive improvements in quality, safety and cost Build organization capability to support future capacity expansions at a second, geographically-diverse site
Slide 63: Bethlehem: The Right Site for Kitchens 2.0
Bethlehem: The Right Site for Kitchens 2.0 Scale/Operating flexibility benefits > than freight savings opportunity Talented, local engineering team reduces technical risk Highly skilled local operating team reduces start-up and operating risk Opportunity to further develop expertise and talent pool
Slide 64: Kitchens 2.0 Will Deliver ~$540 million total capacity
Freshpet Kitchens 2.0 Will Deliver ~$540 million total capacity ($200+ million increase) that pays for itself within 1.5 years of full capacity utilization Adjusted gross margin increase of 150 bps on the whole business Greater control of quality and enhanced safety Increased scale benefits in purch
Slide 65: Michael Hieger, SVP of Manufacturing
Michael Hieger SVP of Manufacturing
Slide 66: Increased Automation is the Key Enabler
Increased Automation is the Key Enabler Use automation to further improve: Quality Safety Cost
Slide 67: Creating 2nd Production Facility on Site
Creating 2nd Production Facility on Site Existing 100,000 sq. ft. production facility Existing 50,000 sq. ft. innovation center and warehouse renovated to include production and R&D New 90,000 sq. ft. construction Total site: 15.3 acres
Slide 68: Existing Facility
Existing Facility Space constrained areas limit ability to add automation
Slide 69: Kitchens 2.0 Includes
Kitchens 2.0 Includes: New, high speed bag line that drives margin improvement Incremental high capacity roll line that improves throughput Increased automation on raw material & ingredient handling and back-end Automated quality and safety enhancements Critical infrastructure: freezer, cooler, ship
Slide 70: Palletizer Automation
Palletizer Automation Existing Facility New Facility
Slide 71: Raw Material to Finished Product Flow
Raw Material to Finished Product Flow Receiving Dock Shipping Dock Receiving Dock
Slide 72: Risk Reduction Benefits of Buildings & Single Site
Risk Reduction Benefits of 2 Buildings & Labor & Inventory Benefit of a Single Site Single Site: Trained experienced resources for start up and ramp up Single Site: Optimized production scheduling as we grow from $300 - $500 million Upgraded Technology: Focus new facility on high volume sku’s to dri
Slide 73: Continuing Commitment to the Environment
Continuing Commitment to the Environment 100% landfill free 100% wind energy Rain water will be collected and used for lawn and landscape irrigation
Slide 74: Costs: Total Cost ~$100 million
Costs Total Cost: ~$100 million (+/- 5%)
Slide 75: Dick Kassar, CFO & Ivan Garcia, VP of Finance
Dick Kassar CFO & Ivan Garcia VP of Finance
Slide 76: Freshpet Kitchens 2.0 Investment
Freshpet Kitchens 2.0 Investment Incremental volume will flow through at a 40% contribution rate At full capacity payback is less than two years. Capex Spend Annual Sales Capacity Contribution $200+mm $80mm $100mm
Slide 77: Kitchens 2.0 Adjusted Gross Margin Growth
Freshpet Kitchens 2.0 Adjusted Gross Margin Growth Safety, quality, and productivity enhancements will improve adjusted gross margin by 100 basis points, with an additional 50 basis points due to scale
Slide 78: Kitchens 2.0 Contribution to FCF
Freshpet Kitchens 2.0 Contribution to FCF Original Freshpet Kitchens Freshpet Kitchens 2.0 Capacity Capacity Free Cash Flow Free Cash Flow $300mm ~$44mm 15% $500mm ~$97mm 19% As we continue to leverage our infrastructure we expect to reap the benefits of scale with our Free Cash Flow increasing by 4
Slide 79: Kitchens 2.0 Financing
Freshpet Kitchens 2.0 Financing FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 Capex Spend $8mm $55mm $37mm $- $- Max Debt Drawdown $- $60mm $55mm $50mm $- Financing: Replace our existing $30 million credit line with a $90 million line in Q4 18 Leverage: Will not exceed 2.5x Adj. EBITDA
Slide 80: Kitchens 2.0 - Recap
Freshpet Kitchens 2.0 - Recap Cost: $100mm plus or minus 5% Financing: Replace our existing $30mm credit line with a $90mm line in Q4 18 Leverage: Will not exceed 2.5x Adj EBITDA Pay Off: We expect to pay off the credit line by 2022 Capacity: Net Sales capacity increases $200mm+ to $500mm+ Payout: A
Slide 81: Billy Cyr, CEO
Billy Cyr CEO freshpet
Slide 82: Timeline
Timeline 2016 2017 2018 2019 2020 2021 2022 2023 Existing Kitchens fully operational Feed the Growth 7 day operations begin Break ground on Kitchens 2.0 Start-up Kitchens 2.0 Next increment of capacity needed* * Timing for next increment of capacity is dependent on growth rate and product mix
Slide 83: Freshpet business model is incredibly robust
We believe that the Freshpet business model is incredibly robust and capable of enabling the category-changing potential of the Freshpet brand
Slide 84: Potential for Continued Growth Beyond 2020
Potential for Continued Growth Beyond 2020 7.5 MM HH’s +10%/year 10% of sales UK and beyond >55% ACV Growth Potential: 2020 and beyond HH Penetration Buying Rate Increased Distribution Geographic Expansion E-commerce
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Slide 86: Delighting Pet Parents, Pets, Shareholders & Employees
Delighting Pet Parents, Pets, Shareholders & Employees... fréshpet ss
Slide 87: Delighting Pet Parents, Pets, Shareholders & Employees
Delighting Pet Parents, Pets, Shareholders & Employees…
Slide 88: Freshpet
freshpet