Freshpet, Inc. · NASDAQ:FRPT
Freshpet — Investor Presentation (November 2019)
68 slides from Freshpet's investor presentation, Nov 6, 2019
Slide 1: Investor Presentation: November 2019
Investor Presentation:November 2019 Exhibit 99.1
Slide 2: 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 3: We fundamentally believe Freshpet has the 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 3
Slide 4: Freshpet Lives at the Intersection of Two Very Powerful Macro-Trends in CPG
4 Freshpet Lives at the Intersection of Two Very Powerful Macro-Trends in CPG Humanization of Pets Fresh, Wholesome, All-Natural Foods
Slide 5: Until Freshpet, dogs' choices were really limited
5 Until Freshpet, dogs’ choices were really limited Dry Kibble Canned Mystery Meat
Slide 6: A totally different approach to nourishing our pets
A totally different approach to nourishing our pets 6
Slide 7: We Operate Differently
7 We Operate Differently Delighting consumers with fresh food & our company ideology pets. The power of fresh natural & simple foods Less processed Acts of kindness people. Our team Our partners Our families planet. Renewable energy Carbon footprint offset Conservation – land fill free Sustainable p
Slide 8: A Difficult Business to Replicate
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 refrigerated pet food network
Slide 9: In 2017, we launched our Feed the Growth strategic plan
In 2017, we launched our Feed the Growth strategic plan
Slide 10: Freshpet Financial Performance
Delivered strong net sales growth and increasing scale benefits Freshpet Financial Performance 2017 2018 2019 Guidance* Net Sales ($ millions) $152.4 $193.2 >$244 IYA (117) (127) (>126) Adj. EBITDA ($ millions) $17.6 $20.3 >$29 IYA (99) (115) (>143) *Excluding incremental investments in Canada/UK an
Slide 11: Strong velocity gains driving accelerating distribution gains
Strong velocity gains driving accelerating distribution gains % 3% 3% 3% 3% 3 4% 6% 5% 6% 6% 5% 8% 11% 12% 14% 15% 15% 14%13% 12% 14% 13% 15% 16%16%16% 17%17% 18% 21%21%21% 22% 21%21% 19%19%19%19%19% 17% 16%16% 15% 13%13% 0% 5% 10% 15% 20% 25% 4 W/E 04/23/16 4 W/E 05/21/16 4 W/E 06/18/16 4 W/E 07/16
Slide 12: Gaining SG&A leverage and reinvesting for growth
Gaining SG&A leverage and reinvesting for growth Freshpet SG&A Leverage FY 2016 FY 2017 FY 2018 9 Months Ended 2019 YTD 2019 vs. FY 2016 Change Adj. SG&A % Excluding Media 31.2% 31.0% 28.5% 25.3% +590 bps Media % 6.3% 8.9% 11.1% 15.3% -900 bps Total Adj. SG&A % 37.5% 39.9% 39.7% 40.7% -320 bps
Slide 13: Freshpet Growth Potential
0.00% 0.50% 1.50% 1.00% 2.00% 2.50% 3.00% 4.00% 3.50% 4.50% 5.00% $- $200.0 $400.0 $600.0 $800.0 $1,000.0 $1,200.0 2016 2019 2020 2025 Freshpet Growth Potential 20172018 Media Spending ($ millions) Buying Rate 20212022 Revenue ($ million) 20232024 Core Dog HH Penetration $500M Run Rate With growth p
Slide 14: By 2025, there will be 7.5 million HH's with top 2 box purchase interest
By 2025, there will be 7.5 million HH’s who have expressed top 2 box purchase interest in the Freshpet idea – and we have reached <2 million so far Prime Prospects With Top 2 Box Purchase Interest in Freshpet Concept PP’s with Positive Interest (53%) 14% Positive Purchase Intent Super Premium & Prem
Slide 15: With international growth opportunities beyond 2020
With international growth opportunities beyond 2020 Currently testing in:
Slide 16: 2019 Q3 Results
fréshpet DIG DEEPER 2019 Q3 Results
Slide 17: Freshpet Q3 Financial Results
17 Freshpet Q3 Financial Results Q3 2018 Q3 2019 Net Sales ($ millions) $50.8 $65.3 vs YA +27% +28% Adj. EBITDA ($ millions) $6.7 $12.0 vs YA +20% +78% 2019 Results:Continued strong top line results driving bottom line gains Freshpet YTD Financial Results (Sept 30) 2018 2019 Net Sales ($ millions) $
Slide 18: Continued strong consumption growth
18 Continued strong consumption growth Nielsen measured $ consumption for 4 week periods ending 10/5/19 15.3% 19.3% 17.4% 20.1% 21.8% 23.7% 22.7%22.3%21.8% 20.4% 23.3% 22.0% 23.6%24.1% 24.8%25.1% 27.0%26.6% 28.1% 31.0% 30.3%30.0% 31.9% 30.1%30.1% 27.4% 27.2% 27.7% 29.5% 29.2% 27.0% 26.0% 25.9% 25.8%
Slide 19: Strong growth across all classes of trade
19 Nielsen measured $ consumption for 13 weeks ending 9/28/19 and 9/29/18 compared to the same period prior year Strong growth across all classes of trade Freshpet Consumption Growth vs YA Q3 2018 Q3 2019 Mega- Channel +31% +25% XAOC +33% +29% Food +38% +34% Big Box Pet +23% +11%
Slide 20: Growing 12+ pts. faster than category in all classes of trade
20 Growing 12+ pts. faster than category in all classes of trade Nielsen $ Volume through 10/5/19 – Growth vs YA % Change vs YA by Class of Trade Dog Food Wet+Dry (wo FRS/FRZ) Freshpet Total RFG $ % Change YA $ % Change YA L4 Wks L13 Wks L52 Wks L4 Wks L13 Wks L52 Wks Total xAOC+Pet+WFM 2.2 3.3 2.5
Slide 21: Freshpet 2019 growth priorities
21 Freshpet 2019 growth priorities Expand the Freshpet consumer franchise Increase HH penetration Expand buying rate Strengthen Freshpet’s retail presence Increase ACV and TDP’s Upgrade Fridges Install 2nd Fridges Strengthen Gross Margin/Adjusted EBITDA Margin Pricing Product Innovation Efficiency g
Slide 22: 21% growth in total Freshpet HH penetration vs. YA
22 21% growth in total Freshpet HH penetration vs. YA; 4% increase in buying rate Total Freshpet Buying Rate, Penetration and Repeat Rate Penetration 1.47 1.54 1.77 2.02 2.45 Repeat 67 68 69 70 70 Nielsen HH Panel Data for 52 Week Periods ending September 2019; Buying Rate is internal calculation ba
Slide 23: 31% growth in Core Dog HH penetration vs YA
31% growth in Core Dog HH penetration vs YA; flat buying rate Penetration 0.93 1.01 1.15 1.44 1.89 Repeat 69 70 71 71 71 Nielsen HH Panel Data for 52 Week Periods ending September 2019; Buying Rate is internal calculation based on company sales data $105.82 $112.66 $119.41 $123.96 $122.58 2015 2016
Slide 24: "Fresh First" is driving strong distribution gains
“Fresh First” is driving strong distribution gains Freshpet Distribution Gains Q3 2018 Q3 2019 Store Count 19,107 20,779 vs YA +8% +9% Upgraded Fridges (Cum.) 761 1,342 YTD Increase - 537 2nd Fridges (Cum.) NA 778 % ACV 45.1% 49.4% vs YA +7% +9% Total Distribution Points (Change vs YA) +12% +9%
Slide 25: Growing distribution (ACV) and depth (TDP) with room to grow
25 Growing distribution (ACV) and depth (TDP) with room to grow Nielsen Mega-Channel 4 week periods 7/16/16 through 10/5/19 4 W/E 07/16/16 4 W/E 09/10/16 4 W/E 11/05/16 4 W/E 12/31/16 4 W/E 02/25/17 4 W/E 04/22/17 4 W/E 06/17/17 4 W/E 08/12/17 4 W/E 10/07/17 4 W/E 12/02/17 4 W/E 01/27/18 4 W/E 03/24
Slide 26: Strong velocity growth regardless of how long the fridge has been in place
Customer A Customer B Strong velocity growth regardless of how long the fridge has been in place 19.3% 17.1% 18.2% 19.0% 19.2% 21.8% 24.5% 37.2% 10.00% 0.00% 20.00% 30.00% 40.00% YTD % chg 2019 Same Store Sales Growth by Vintage Original (56) 2011 (503)2012 (304)2013 (418) 2014 (151)2015 (501)2016 (
Slide 27: Strategy: Grow with winning players in fresh e-commerce
Strategy: Grow with winning players in fresh e-commerce Curbside Online Fresh Retail Home Delivery e-commerce sales grew +93% vs. YA to 2.5% of sales in Q3 2019 >85% of e-commerce sales utilize Freshpet Fridge Continued strong growth in fresh e-commerce
Slide 28: Freshpet Q3 Adjusted Gross Margin Progress
Freshpet Q3 Adjusted Gross Margin Progress Q3 2018 Q3 2019 Adj. Gross Margin 49.7% 49.8% Adjusted gross margin bounced back from Q2 dip and on-track for 50% goal in 2019 Freshpet Q3 Adjusted Gross Margin Progress Q1 2019 Q2 2019 Q3 2019 YTD 2019 Adj. Gross Margin 50.4% 48.5% 49.8% 49.5%
Slide 29: Delivering significant leverage from scale in SG&A
Delivering significant leverage from scale in SG&A Freshpet Q3 SG&A Leverage Q3 2018 Q3 2019 Y-o-Y Change Adj. SG&A % Excluding Media 27.8% 24.6% +320 bps Media % 8.7% 6.8% +190 bps Total Adj. SG&A % 36.5% 31.4% +510 bps Freshpet YTD SG&A Leverage (Sept 30) YTD 2018 Q3 YTD 2019 Q3 Y-o-Y Change Adj.
Slide 30: Kitchens 2.0 construction underway; on track for Q3 2020 start-up
Kitchens 2.0 construction underway; on track for Q3 2020 start-up
Slide 31: Delighting pet parents, pets, shareholders and employees
Delighting pet parents, pets, shareholders and employees . . .
Slide 32: Why haven't you bought any Freshpet yet????
32 Why haven’t you bought any Freshpet yet????
Slide 33: Appendix
Freshpet eS Appendix PUG OFF, PROPYLENE 4 GLYCOL y 4 »
Slide 34: 2019 Plan
fréshpet DIG DEEPER 2019 Plan
Slide 35: Increase US advertising investment to $27 million
Increase US advertising investment to $27 million (11+% of sales) More weeks Higher media weights Expand the Freshpet consumer franchise
Slide 36: Homestyle Creations – Custom Dog Meals
Homestyle Creations – Custom Dog Meals Multi-Protein Roll Innovation that attracts new users Expand the Freshpet consumer franchise
Slide 37: Strengthen Freshpet's retail presence
Strong velocity growth is driving increased retailer interest Add 1500-1600 net new stores to 21,000+ (ACV by 7%) Upgrade another 500 Fridges (beyond 1000 committed in 2018) Install 800 second Fridges Will exceed 21,000 stores in 2019 Upgraded 805 Fridges in 2018 Strengthen Freshpet’s retail presenc
Slide 38: Good Better Best
Good Better Best With aspirations to change the category forever
Slide 39: Strengthen gross margin/adjusted EBITDA margin
Pricing Targeted bag items • +2% pricing impact across total line Effective in mid-Q1 Innovation Increase appeal of rolls Higher margin bag items Begins shipping end of Q1 Manufacturing Efficiency Increase yield/throughput 24/7 on 2 lines in Jan. ‘19 24/3.5 on final line in Q2 Break ground on Kitche
Slide 40: Gaining leverage in SG&A
0 20 260 500 700 0 200 100 300 400 500 700 600 800 2016 (Base) 2017 (Actual) 2018 (Actual) 2019 (Projected) 2020 (Goal) Cumulative SG&A Leverage Progress Basis points Gaining leverage in SG&A
Slide 41: $2 Million Investment to Drive Establishment in Canada & UK
$2 Million Investment to Drive Establishment Continue measured development in Canada & UK
Slide 42: Up to $1 Million Investment in Technical Capability
Up to $1 Million Investment in Technical Capability Build capability to support longer-term capacity expansion Process Development & Improvement Site Design & Development Quality & Process Engineering
Slide 43: 2019 quarterly plan to margin target
Q1 Price increases implemented Q2 Benefit of price increases realized Innovations launched Start-up 4th line on 24/3.5 Q3 Benefit of innovations realized Benefit of 24/3.5 staffing realized Q4 51+% Adj. Gross Margin target Fully implemented adjusted gross margin improvement plan
Slide 44: Pricing and Business Model
Freshpet Pricing and Business Model PUG OFF, PROPYLENE | GLYCOL )
Slide 45: Cost to Feed – Grocery & Mass
Cost to Feed – Grocery & Mass $6.86 $5.37 $4.00 $3.30 $3.13 $2.72 $2.40$2.40 $1.95 $1.94 $1.92 $1.71 $1.62 $1.35 $0.69 $0.67 $- $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $7.47 Cost to Feed a 30lb Dog Daily 45 HIGHLY CONFIDENTIAL
Slide 46: Cost to Feed – Pet Specialty
Cost to Feed – Pet Specialty $5.50 $4.50 $4.37 $4.00 $3.98 $3.77 $3.74 $3.70 $3.56 $2.81 $2.72 $2.33 $2.21 $2.12 $2.00 $1.00 $- $3.00 $4.00 $5.00 $6.00 $8.00 $7.18 $7.00 $5.97 Cost to Feed a 30lb Dog Daily 46 HIGHLY CONFIDENTIAL
Slide 47: High Quality Products at Accessible Price Points
High Quality Products at Accessible Price Points HIGHLY CONFIDENTIAL 47 $19.99 30 lbs. $9.29 30 lbs. $9.29 30 lbs. $10.79 30 lbs. $10.99 30 lbs. $12.99 30 lbs. Approximate daily cost to feed for medium-sized dog $4.00 $2.40 $1.94 $1.35 $0.69 Medium-sized dog assumed to be 35 pounds. Price/day based
Slide 48: How We Service Our Customers
Produced in Freshpet Kitchens Shipped to Third Party Warehouse Delivered to Pet Channel Distributor Transported via Third Party Carrier DSD Delivery to Pet Specialty Store Delivered to Grocery, Mass and Club Stores Delivered to Customer’s Warehouse How We Service Our Customers
Slide 49: Capturing significant benefits of scale and velocity
Capturing significant benefits of scale and 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 Highe
Slide 50: Appendix: Consumer Dynamics
APPENDIX:Consumer Dynamics
Slide 51: Reasons to Start Buying Freshpet
Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute. 39 31 28 25 43 27 22 22 21 22 21 27 21 More like real food Wanted to give my dog higher quality nutrition Healthier Made with the freshest ingredients Dog was a picky eater Wanted to give dog something s
Slide 52: Barriers to purchasing Freshpet (among prime prospects)
AWARENESS FP PROPOSITION COMPLACENCY INCONVIENENT AVAILABILITY PRICE/VALUE Source: 2016 FP Brand Tracker, 2016 FP A&U, TTL Aware Non Users/Prime Prospects Main Reason Not Purchasing, Shop-A-longs, n=202 Barriers to purchasing Freshpet (among prime prospects) 43% Aided Awareness Making the Strange, F
Slide 53: Freshpet pet parent segments
Visitors (Use Occasionally) Loyal (Use Exclusively or Most Often) Freshpet pet parent segments Source: Nielsen 2017 NLR Custom Survey, 2016 A&U, Nielsen Demos 2017, 2018 Mini A&U, 31% of FP Buyers 53% of FP $ FP Spend: $167 40% of FP Buyers 15% of FP $ FP Spend: $37 Mixers (Use FP Regularly, but Use
Slide 54: Encouraging franchise longevity
Source: Visible Difference Survey, September 2018; 2016 FP A&U, green highlight notes statistical difference at least at 80% confidence level Encouraging franchise longevity 1 Dog, 51% 2+ Dogs, 49% Freshpet Number of Dogs in HH Dog Age 10% 11+ yrs old 62% 1-4 yrs old 14% 6-11 mos 5% under 6 mos 36%
Slide 55: Freshpet feeding behavior by size of dog
79% 61% 67% 38% 21% 39% 33% 63% Less than 1010-24 pounds 25-50 pounds pounds Over 50 pounds Freshpet: Meal vs Mixer (1 Dog HHs) As the MealAs a Mixer 71% 36% 31% 12% 29% 64% 69% 88% Less than 10 pounds 10-24 pounds25-50 pounds Over 50 pounds FreshPet Loyalty ExclusiveRegular Freshpet feeding behavio
Slide 56: Freshpet pet parents notice a difference
Freshpet Pet Parents are significantly more likely to have experienced a visible difference in their dog(s) Freshpet Dog Food Feeders Competitive Dog Food Feeders % % Yes 83 62 No 17 38 Source: Visible Difference Study, Sept 2018. green highlight notes statistical difference at 95% confidence level
Slide 57: Appendix: Manufacturing
Freshpet Appendix: Manufacturing E PRESERVATIVES CAN KISS MY MUTT Pi
Slide 58: Freshpet's Human-Quality Pet Food Facility in Bethlehem, PA
Freshpet’s Human-Quality Pet Food Facility in Bethlehem, PA 4 lines: 2 bag and 2 rolls Currently operating any 3 lines 7 days /24 hours per day Adding capability to run 4th line 24 hours /3.5 days per week By early next year, we will staff all 4 lines 7 days per week
Slide 59: Expanding our manufacturing advantage
HIGHLY CONFIDENTIAL Expanding our manufacturing advantage . . . Kitchens Kitchens 2.0 Quakertown Improving Safety, Quality, Value, Customer Delight
Slide 60: By creating Freshpet Kitchens 2.0
By creating Freshpet Kitchens 2.0 . . . Use automation to further improve: Quality Safety Cost
Slide 61: Kitchens 2.0 plan will deliver
Kitchens 2.0 plan will deliver . . . Efficient use of capital: Payback at full capacity in <2 years Strengthened manufacturing expertise advantage: Increased automation delivers improved quality, safety and lower cost – improving gross margins Continued focus on existing gross margin improvement goa
Slide 62: 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 63: 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 64: Freshpet Kitchens 2.0 Investment
Freshpet Kitchens 2.0 Investment Capex Spend Annual Sales Capacity Contribution Incremental volume will flow through at a 40% contribution rate At full capacity payback is less than two years. $200+mm $80mm $100mm
Slide 65: Freshpet Kitchens 2.0 Adjusted Gross Margin Growth
Freshpet Kitchens 2.0 Adjusted Gross Margin Growth 50.6% 51.1% 51.5% 50.2% 52.0% 53.5% 50.0% 48.0% 56.0% 54.0% 52.0% Adjusted Gross Margin Adjusted Gross Margin 2015201620172018 Actual2020 projected 2022 projected Adjusted Gross Margin Safety, quality, and productivity enhancements will improve adju
Slide 66: Freshpet Kitchens 2.0 Contribution to FCF
Freshpet Kitchens 2.0 Contribution to FCF ~$44mm 15% OriginalFreshpet Kitchens 2.0 Freshpet Kitchens $500mm $300mm ~$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%. CapacityFree Cash Flow Free Cash Flow represe
Slide 67: Freshpet 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 Q2 19 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:At
Slide 68: Timeline
Timeline 2016 2019 2020 2021 2022 2023 Existing Kitchens fully operational 20172018 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