Freshpet, Inc. · NASDAQ:FRPT
Freshpet — Investor Presentation (May 2019)
67 slides from Freshpet's investor presentation, May 21, 2019
Slide 1: Investor Presentation: May 2019
Investor Presentation:May 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: 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 at the Intersection of Two 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 >$240 IYA (117) (127) (>124) Adj. EBITDA ($ millions) $17.6 $20.3 >$28 IYA (99) (115) (>138) *Excluding incremental investments in Canada/UK an
Slide 11: Accelerating consumption growth
11 Accelerating consumption growth Nielsen measured $ consumption for 4 week periods ending 4/20/19 19.3% 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 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35
Slide 12: Growing 20+ pts. faster than category in all classes of trade
12 Growing 20+ pts. faster than category in all classes of trade Nielsen $ Volume through 4/20/19 – 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 2.3 1.7 0.6
Slide 13: Driven by strong velocity gains
13 Driven by strong velocity gains Nielsen Mega-Channel for 4 week periods 4/23/16 through 4/20/19 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% 0% 5% 10% 15% 20% 25% 4 W/E 04/23/16 4 W/E 05/21/16 4 W/E 06
Slide 14: 2018 Same Store Sales Growth by Vintage
14 18.0% 17.8% 20.1% 28.2% 31.5% 2018 Same Store Sales Growth by Vintage Representative Customer Original2013201420152016 Y T D % C H G 19.4% 21.5% 21.6% 22.4% 24.1% 23.9% 30.8% 2018 Same Store Sales Growth by Vintage Representative Customer Original201120122013201420152016 Y T D % C H G Customer A
Slide 15: Growing distribution (ACV) and depth (TDP) with room to grow
15 Growing distribution (ACV) and depth (TDP) with room to grow Nielsen Mega-Channel 4 week periods 1/30/16 through 4/20/19 4 W/E 01/30/16 4 W/E 03/26/16 4 W/E 05/21/16 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
Slide 16: Strategy: Grow with winning players in fresh e-commerce
16 Strategy: Grow with winning players in fresh e-commerce Curbside Online Fresh Retail Home Delivery Doubled e-commerce sales vs. YA to 2.2% of brand in Q1 2019 >80% of e-commerce sales utilize Freshpet Fridge With growth potential in fresh e-commerce
Slide 17: Increased total Freshpet penetration & buying rate
$83.06 $70.85 $92.14 $97.37 $113.31 2015 2016 2017 2018 2019 TTL FP RFG: (L52 Weeks Ending) Buy Rate 17 Increased total Freshpet penetration & buying rate Total Freshpet Buying Rate, Penetration and Repeat Rate Penetration 1.46 1.55 1.58 1.83 2.01 Repeat 65 66 68 69 70 Nielsen HH Panel Data for 52 W
Slide 18: Gaining SG&A leverage and reinvesting for growth
Gaining SG&A leverage and reinvesting for growth SG&A Leverage FY 2017 FY 2018 Y-o-Y Change Adj. SG&A % Excluding Media 31.0% 28.5% 2.4% Media% 8.9% 11.1% -2.2% Total Adj. SG&A % 39.9% 39.7% 0.2%
Slide 19: FY19 Adj. EBITDA Guidance
FY19 Adj. EBITDA Guidance Contribution on $60mm of Additional Net Sales to get to $300MM Reduced int’l investment/l oss Adjusted Gross Margin Increase from 50% to 52% on $300MM net sales Increased Fixed SG&A of 4% Logistics & Brokerage Efficiencies (1/2%) FY20 Adj. EBITDA Plan Increased scale/effici
Slide 20: 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 21: 7.5 million prime prospect households by 2025
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 22: International growth opportunities beyond 2020
With international growth opportunities beyond 2020 Currently testing in:
Slide 23: Dig Deeper 2019
fréshpet DIG DEEPER 2019
Slide 24: Freshpet 2019 growth priorities
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 gain
Slide 25: 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 26: Homestyle Creations – Custom Dog Meals
Homestyle Creations – Custom Dog Meals Multi-Protein Roll Innovation that attracts new users Expand the Freshpet consumer franchise
Slide 27: Strong velocity growth is driving increased retailer interest
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 28: Good Better Best
Good Better Best With aspirations to change the category forever
Slide 29: 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 30: 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 31: $2 Million Investment to Drive Establishment in Canada & UK
$2 Million Investment to Drive Establishment Continue measured development in Canada & UK
Slide 32: Up to $1 Million Investment in Technical Capability
Up to $1 Million Investment in Technical Capability Build capability to support longer-term capacity expansion Process Development & Improvement Site Design & Development Quality & Process Engineering
Slide 33: Dig Deeper 2019 Q1 Results
fréshpet DIG DEEPER 2019 Q1 Results
Slide 34: Freshpet Q1 Financial Results
Freshpet Q1 Financial Results Q1 2018 Q1 2019 Net Sales ($ millions) $43.2 $54.8 IYA (128) (127) Adj. EBITDA ($ millions) $1.8 $2.8 IYA (95) (154) Off to a strong start in 2019: Delivering growth and profitability
Slide 35: Freshpet Consumption Growth vs YA
Freshpet Consumption Growth vs YA Q1 2018 Q1 2019 Mega-Channel +25.0% +27.8% XAOC +27.6% +30.4% Food +32.1% +36.5% Big Box Pet +15.6% +18.3% Nielsen measured $ consumption for 13 weeks ending 3/30/19 and 3/31/18 compared to the same period prior year Significant, accelerating consumption growth acro
Slide 36: Core Dog HH Penetration, Repeat and Buying Rate
$106.10 $92.07 $118.75 $120.81 $135.87 2015 2016 2018 2019 Core Dog HH Penetration, Repeat and Buying Rate 2017 Buy Rate 18% growth in Core Dog HH penetration vs YA Penetration 0.91 1.01 1.04 1.26 1.49 Repeat 67 68 70 70 71 Nielsen HH Panel Data for 52 Week Periods ending March; Buying Rate is inter
Slide 37: Driving strongest distribution gains since Q1 2016
Driving strongest distribution gains since Q1 2016 Freshpet Distribution Gains Q1 2018 Q1 2019 Store Count 18,277 20,053 IYA (107) (109) Upgraded Fridges (Cum.) 495 1,008 Increase - 513 2nd Fridges NA 341 % ACV 43.9% 47.4% IYA (107) (108) Total Dist. Points (IYA) (111) (111)
Slide 38: On track to deliver adjusted gross margin improvement
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 On track to deliver adjusted gross margin improvement Freshpet Adjusted Gross
Slide 39: Delivering significant leverage from scale in SG&A
Delivering significant leverage from scale in SG&A SG&A Leverage Q1 2018 Q1 2019 Y-o-Y Change Adj. SG&A % Excluding Media 30.1% 27.0% 3.1% Media % 16.0% 18.3% -2.4% Total Adj. SG&A % 46.0% 45.4% 0.7%
Slide 40: Breaking ground on $100M Kitchens 2.0 soon
Breaking ground on $100M Kitchens 2.0 soon
Slide 41: Delighting pet parents, pets, shareholders and employees
Delighting pet parents, pets, shareholders and employees . . .
Slide 42: Appendix
Freshpet eS Appendix PUG OFF, PROPYLENE 4 GLYCOL y 4 »
Slide 43: 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 4 3 HIGHLY CONFIDENTIAL
Slide 44: 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 4 4 HIGHLY CONFIDENTIAL
Slide 45: High Quality Products at Accessible Price Points
High Quality Products at Accessible Price Points HIGHLY CONFIDENTIAL 4 $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 o
Slide 46: 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 47: 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 48: Appendix: Consumer Dynamics
APPENDIX:Consumer Dynamics
Slide 49: 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 50: 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 51: 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 52: 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 53: 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 54: 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 55: Appendix: Manufacturing
Freshpet Appendix: Manufacturing E PRESERVATIVES CAN KISS MY MUTT Pi
Slide 56: 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 57: Expanding our manufacturing advantage
HIGHLY CONFIDENTIAL Expanding our manufacturing advantage . . . Kitchens Kitchens 2.0 Quakertown Improving Safety, Quality, Value, Customer Delight
Slide 58: By creating Freshpet Kitchens 2.0
By creating Freshpet Kitchens 2.0 . . . Use automation to further improve: Quality Safety Cost
Slide 59: 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 60: 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 61: 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 62: 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 63: 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 64: 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 represen
Slide 65: 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 66: 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
Slide 67: Freshpet
fréshpet