Freshpet, Inc. · NASDAQ:FRPT
Freshpet — Investor Presentation (November 2018)
60 slides from Freshpet's investor presentation, Nov 5, 2018
Slide 1: Investor Presentation: November 2018
Investor Presentation:November 2018 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: 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: Who Is Freshpet?
A disruptive innovation in a huge and growing industry A socially responsible, pet health-centric brand built around the contemporary consumer We are redefining what good pet food is in ways that are intuitive to consumers We deliver a value proposition relevant to the average consumer and every cla
Slide 6: We start with fresh ingredients and finish with fresh food
We start with FRESH ingredients & finish with FRESH food. No preservatives, no additives...only the WHOLE NOURISHMENT pets need. 6
Slide 7: Category leading palatability and product satisfaction
Category leading palatability Source: Summit ridge kennels paired feeding study 84% 80% 95% 94% 72% 96% 16% 20% 5% 6% 29% 5% Competitor Freshpet Select Slice & Serve Rolls 33% 33% 38% 40% 45% 50% 53% 56% 68% Less Allergies Less Flatulence Higher Energy Level Better Muscle Tone Less Upset Stomachs Be
Slide 8: We Operate Differently
We Operate Differently Delighting consumers with fresh food & our company ideology Environmentally Focused Employee Engagement Community & Consumer Engagement
Slide 9: How We Service Our Customers
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
Slide 10: 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 11: Growth Potential in Fresh E-Commerce
With Growth Potential in Fresh E-Commerce Strategy: Grow with winning players in fresh e-commerce Curbside Online Fresh Retail Home Delivery Doubled e-commerce sales vs. YA to 1.5% of brand in FY18 Q3 >70% of e-commerce sales utilize Freshpet Fridge
Slide 12: In 2017, we launched our new strategy
In 2017, we launched our new strategy . . .
Slide 13: Growth Goal: $300 million net sales as soon as 2020
HIGHLY CONFIDENTIAL Growth Goal:$300 million net sales as soon as 2020 13 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 Fl
Slide 14: And the growth accelerated
HIGHLY CONFIDENTIAL 20.9% 18.8% 15.6% 12.8% 12.4%12.0% 11.2%11.4%11.4% 13.7% 16.2% 14.4% 15.4%15.3%15.3% 17.4% 19.2% 20.1% 21.8% 23.7% 22.7%22.3% 21.8% 20.4% 23.3% 22.0% 23.6% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% Dollar Sales % Chg YA Poly. (Dollar Sales % Chg YA) 14 And the growth accelerated .
Slide 15: Increased awareness and penetration
Increased awareness and penetration . . . 15 2016 2017 Penetration 1.8% 2016 2017 +6% Buying Rate +13% 1.4% 2016 2017 Awareness 35% 40%
Slide 16: Still well below our competitors
16 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) 35% 52% 86% 82% 70% 1.4% 3.6% 8.0% 5.2% 3.4% 0% 10% 20% 40% 30% 50% 60% 70% 80% 90% 100% Awareness Penetration But still well below our competitors .
Slide 17: Strong velocity growth
Strong velocity growth . . . 29.3% 20.7% 19.4% 21.1% 26.7% 33.4% 0.0% 15.0% 10.0% 5.0% 20.0% 25.0% 30.0% 35.0% 2017 Same Stores Sales Growth By Vintage Representative Customer Original $/S/W Jan-12 $/S/W Jan-13 $/S/W 1 Jan-14 $/S/W Jan-15 $/S/W Jan-16 $/S/W
Slide 18: Infrastructure as a Percentage of Net Sales
27.0% 25.2% 23.4% 21.6% 19.8% 18.0% 17% 19% 21% 23% 25% 27% 29% $150 $189 $210 $240 $270 $300 Infrastructure as a Percentage of Net Sales* ($ in millions) Which helped Freshpet grow into its scale in 2017. . . 100 bps reduction *Leverage adjusted to projected inflationary growth of infrastructure By
Slide 19: Benefits of scale and velocity
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 Higher frequency retail cov
Slide 20: Year II: Bigger and Faster
Freshpet FEED TED GROWTH/ YEAR II: Bigger and Faster
Slide 21: In 2018, We Are Accelerating Fresh Growth
In 2018, We Are Accelerating Fresh Growth… 100 50 0 150 250 200 300 2015 2016 2018E 2019E Freshpet Net Sales Fresh 2017 Baked 2018 Fresh-only sales guidance: +26% 2018 Guidance 2017 2018 % Change Net Sales $152.4 >$190 25+% Adjusted EBITDA $17.6 >$20 14+% +15% +17.5% >25% >25%
Slide 22: Doubling Down On Media
Doubling Down On… Media: 60% increase for the second year in a row Each quarter will increase vs. YA 70/30 first half vs. second half spending 5 0 10 15 20 25 2015 2016 2017 2018E Freshpet “Fresh” Media Spending ($ in millions) $8.0M $8.5M $13.5M $22M
Slide 23: Doubling Down On Select Roasted Meals
Doubling Down On… Select Roasted Meals Grain Free Select Beef Roasted Meals Premiumization & Added Variety Select Roasted Meals Multi-Protein Velocity drivers: Upgraded fridges Focused innovation Small Dog
Slide 24: And the Growth Has Accelerated Again
And the Growth Has Accelerated Again… Nielsen Mega-Channel: XAOC + Pet + WFM Sales Growth YTD ‘18 fresh consumption +28% 16.2% 14.4% 15.4%15.3%15.3% 17.4% 19.3% 20.1% 21.8% 23.7% 22.7%22.3%21.8% 20.4% 23.3% 22.0% 23.6%24.1% 27.0%26.6% 24.8%25.1% 28.1% 31.0% 30.2%30.0% 31.9% 8.3% 8.0% 8.0% 7.9% 8.2%
Slide 25: Freshpet is the #1 Fastest Selling Dog Food Brand in US Food
Top Wet & Dry Dog Brands Dollar Velocity Total US Food $561.1 $556.7 $523.5 $449.9 $393.9 $153.5 $0.0 $100.0 $200.0 $300.0 $400.0 $500.0 Freshpet Total RFG Purina ONE Dry Dog Food Rachael Ray Dry Dog Food Purina Beneful Dry Dog Private Label Dry Dog Pedigree Dry Dog Food Cesar Wet Dog Food Blue Buff
Slide 26: Growing Faster Than the Category in All Classes of Trade
26 Growing 25 pts. Faster Than the Category in All Classes of Trade Freshpet Total RFG L4W L13W L52W Total xAOC+Pet+WFM 31.9 30.7 27.0 Total US xAOC 34.2 32.6 29.1 Total US Food 40.1 37.6 33.4 Big Box Pet 23.1 23.0 19.4 $ % Chg YA – Week Ending 10/6/18 Nielsen: Freshpet RFG $ Latest 4 Week Data as o
Slide 27: Increased Penetration & Buying Rate
27 Increased Penetration & Buying Rate Source: TTL FP RFG, 52 weeks ending 10/6/18, Nielsen HH Panel, Internal Buy Rate Calculation, Repeat NBD-Adj Nielsen HH Panel $62.86 $81.73 $88.78 $91.39 $101.36 52 W/E 10/11/14 52 W/E 10/10/15 52 W/E 10/07/17 52 W/E 10/06/18 Total Freshpet Buying Rate, Penetra
Slide 28: Growth is Driven by Advertising that Drives Penetration
Growth is Driven by Advertising that Drives Penetration Nielsen HH Panel data for Freshpet Core Dog (Rolls, Roasted Meals and Fresh from the Kitchen) – Rolling 52 week penetration data $- $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 1 1.1 1.05 1.15 1.2 1.25 1.35
Slide 29: Adding New Buyers Who Behave Like Previous Buyers
Adding New Buyers Who Behave Like Previous Buyers $28.20 $74.48 New in 2016 Retained into 2017 $31.75 $76.64 New in MY 2017 Retained into MY 2018 New User Buying Rate: Freshpet Core Dog MY= 52 weeks ending June $29.13 $86.33 New in 2015 Retained into 2016 Nielsen HH Panel data for Freshpet Core Dog
Slide 30: 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 10/6/18 Freshpet Distribution and Velocity Progress (Growth vs. YA) 25% 20% 15% 10% 5% 0% %ACV IYA$ / $MM ACV IYA
Slide 31: Growing Distribution Reach and Depth With Room to Grow
Growing Distribution Reach (ACV) and Depth (TDP) With Significant Room to Grow Nielsen Mega-Channel % ACV for 4 week periods 6/22/13 through 10/6/18 4 W/E 06/22/13 4 W/E 09/14/13 4 W/E 12/07/13 4 W/E 03/01/14 4 W/E 05/24/14 4 W/E 08/16/14 4 W/E 11/08/14 4 W/E 01/31/15 4 W/E 04/25/15 4 W/E 07/18/15 4
Slide 32: Structural Profitability Improvement
32 FY 2017 Forecast FY 2018 Forecast FY 2020 +1.1% +2.7% 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 str
Slide 33: Path to 20% Adjusted EBITDA Margin
33 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 +$5
Slide 34: Just scratching the surface of HH penetration potential
Just scratching the surface of HH penetration potential . . . 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 In
Slide 35: 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 At existing media efficienci
Slide 36: International expansion
We expect international expansion to meaningfully impact Freshpet’s growth in 2020 and beyond Currently testing in:
Slide 37: Potential for Continued Growth Beyond 2020
Potential for Continued Growth Beyond 2020 HH Penetration Buying Rate Increased Distribution E-commerce Geographic Expansion 7.5 MM HH’s +10%/year >55% ACV 10% of sales UK and beyond Growth Potential: 2020 and beyond
Slide 38: Delighting pet parents, pets, shareholders and employees
Delighting pet parents, pets, shareholders and employees . . .
Slide 39: Appendix: Consumer Dynamics
APPENDIX:Consumer Dynamics
Slide 40: Grocery and Mass: Cost to Feed a 30lb Dog Daily
$3.80 $3.30 $2.40 $2.40 $2.14 $1.92 $1.77 $1.73 $1.62 $1.55 $1.28 $0.61 $0.61 $0.49 $- $1.00 $2.00 $3.00 $4.00 $8.00 $7.47 $7.05 $7.00 $6.00 $5.31 $5.00 Grocery and Mass Select is middle of the pack on cost to feed Cost to Feed a 30lb Dog Daily
Slide 41: Pet Specialty: Cost to Feed a 30lb Dog Daily
$4.50 $4.44 $4.37 $4.00 $3.80 $3.77 $3.75 $3.26 $3.09 $2.81 $2.50 $2.42 $2.12 $2.00 $1.00 $- $3.00 $4.00 $8.00 $7.47 $7.00 $6.48 $6.00 $5.50 $5.00 Pet Specialty Vital is an economical choice in Pet Cost to Feed a 30lb Dog Daily Title
Slide 42: 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 43: Barriers to Purchasing Freshpet
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 44: 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 45: 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 46: 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 47: 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 48: Appendix: Kitchens 2.0
Freshpet Appendix: Kitchens 2.0 E PRESERVATIVES CAN KISS MY MUTT Pa
Slide 49: Expanding our manufacturing advantage
HIGHLY CONFIDENTIAL Expanding our manufacturing advantage . . . Kitchens Kitchens 2.0 Quakertown Improving Safety, Quality, Value, Customer Delight
Slide 50: Creating Freshpet Kitchens 2.0
By creating Freshpet Kitchens 2.0 . . . Use automation to further improve: Quality Safety Cost
Slide 51: 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 goals
Slide 52: 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 53: 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 54: 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 55: Kitchens 2.0 Adjusted Gross Margin Growth
Freshpet Kitchens 2.0 Adjusted Gross Margin Growth 50.4% 50.9% 51.3% 50.3% 52.0% 53.5% 50.0% 48.0% 56.0% 54.0% 52.0% 2015 2016 Adjusted Gross Margin Adjusted Gross Margin 20172018 projected 2020 projected 2022 projected Adjusted Gross Margin Safety, quality, and productivity enhancements will improv
Slide 56: 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 57: 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 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:At
Slide 58: 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 59: Index to Charts
Index to Charts HIGHLY CONFIDENTIAL Subject Slide Title Page 2020 Goals Growth Goals: $300 million net sales as soon as 2020 13 Awareness: Competitors But still well below our competitors 16 Awareness: 2017 Increased Awareness and Penetration 15 Barriers to Entry A Difficult Business Model to Replic
Slide 60: Index to Charts
Index to Charts HIGHLY CONFIDENTIAL Subject Slide Title Page Manufacturing: Kitchens 2.0 Payback Freshpet Kitchens 2.0 Investment 54 Manufacturing: Timeline Timeline 58 Manufacturing: Site Plan Creating 2nd Production Facility on Site 52 Media Spending Doubling Down on . . . 22 Media: Driving Penetr