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Freshpet, Inc. Reports Second Quarter 2021 Financial Results
Source: Nasdaq GlobeNewswire / 02 Aug 2021 16:05:02 America/New_York
SECAUCUS, N.J., Aug. 02, 2021 (GLOBE NEWSWIRE) -- Freshpet, Inc. (“Freshpet” or the “Company”) (Nasdaq: FRPT) today reported financial results for its second quarter ended June 30, 2021.
Second Quarter 2021 Financial Highlights Compared to Prior Year Period
- Net sales of $108.6 million, an increase of 35.8%
- Net loss of $7.5 million, compared with prior year net income of $0.2 million
- Adjusted EBITDA of $10.9 million, compared to $11.2 million 1
"The acceleration of Freshpet's second quarter growth rate continues to demonstrate the significant potential of the brand and the potency of our Feed the Growth strategy - enabling us to raise our projection for this year's net sales growth rate to 40%," commented Billy Cyr, Freshpet's Chief Executive Officer. "But we are not immune to the inflation being felt across the industry and are taking the necessary steps to address it - ensuring that our growth converts to the sustainable profitability we expect and enabling the capacity investments needed to change the way more people nourish their pets . . . forever."
Second Quarter 2021
Net sales increased 35.8% to $108.6 million for the second quarter of 2021 compared to $80.0 million for the second quarter of 2020. Net sales for the second quarter of 2021 were driven by velocity, distribution gains, and innovation.
Gross profit was $43.1 million, or 39.7% as a percentage of net sales, for the second quarter of 2021, compared to $33.9 million, or 42.4% as a percentage of net sales, in the prior year period. For the second quarter of 2021, Adjusted Gross Profit was $50.1 million, or 46.1% as a percentage of net sales, compared to $39.2 million, or 49.1% as a percentage of net sales, in the prior year period. The decrease in gross profit as a percentage of net sales and Adjusted Gross Profit as a percentage of net sales was primarily due to inflation in beef costs, and increased processing costs as we expand our production capacity at Kitchens Bethlehem and Kitchens South. 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”) was $49.6 million for the second quarter of 2021 compared to $33.7 million in the prior year period. As a percentage of net sales, SG&A increased to 45.6% for the second quarter of 2021 compared to 42.1% in the prior year period. Adjusted SG&A for the second quarter of 2021 was $39.3 million, or 36.1% as a percentage of net sales, compared to $28.1 million, or 35.1% as a percentage of net sales, in the prior year period. The increase in SG&A as a percentage of net sales and Adjusted SG&A as a percentage of net sales was a result of increased logistics costs as a percentage of net sales, offset by general and administrative expense leverage due to 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 loss was $7.5 million for the second quarter of 2021 compared to net income of $0.2 million for the prior year period. The increase in net loss was due to increased SG&A, partially offset by higher net sales and increased gross profit.
Adjusted EBITDA was $10.9 million, or 10.0% as a percentage of net sales, for the second quarter of 2021, compared to $11.2 million, or 14.0% as a percentage of net sales, in the prior year period. The decrease in Adjusted EBITDA was a result of increased Adjusted SG&A expense, partially offset by higher net sales and Adjusted Gross Profit. 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.
1 Adjusted EBITDA, as well as certain other measures 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 measures to the closest comparable GAAP measures.
First Six Months of 2021
Net sales increased 34.6% to $202.0 million for the first six months of 2021 compared to $150.1 million in the prior year period. Net sales for the first six months of 2021 were driven by velocity, distribution gains, and innovation.
Gross profit was $79.4 million, or 39.3% as a percentage of net sales, for the first six months of 2021, compared to $65.7 million, or 43.8% as a percentage of net sales, in the prior year period. For the first six months of 2021, Adjusted Gross Profit was $93.7 million, or 46.4% as a percentage of net sales, compared to $73.9 million, or 49.3% as a percentage of net sales, in the prior year period. The decrease in gross profit as a percentage of net sales and Adjusted Gross Profit as a percentage of net sales was primarily due to inflation in beef costs, and increased processing costs and write-offs as we expand our production capacity at Kitchens Bethlehem and Kitchens South. 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 $95.6 million for the first six months of 2021 compared to $68.4 million in the prior year period. As a percentage of net sales, SG&A increased to 47.3% for the first six months of 2021 compared to 45.6% in the prior year period. Adjusted SG&A for the first six months of 2021 was $75.1 million, or 37.2% as a percentage of net sales, compared to $57.0 million, or 38.0% as a percentage of net sales, in the prior year period. The increase in SG&A as a percentage of net sales was a result of increased logistics costs and non-cash share-based compensation as a percentage of net sales, offset by general and administrative expense leverage due to higher net sales and decreased media spend as a percentage of net sales. The decrease in Adjusted SG&A as a percentage of net sales was a result of general and administrative expense leverage on higher net sales and decreased media spend as a percentage of net sales, offset by increased logistics costs as a percentage of 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 loss was $18.4 million for the first six months of 2021 compared to a net loss of $3.4 million for the prior year period. The increase in net loss was due to increased SG&A, partially offset by higher net sales and increased gross profit.
Adjusted EBITDA was $18.6 million, or 9.2% as a percentage of net sales, for the first six months of 2021, compared to $16.9 million, or 11.3% 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 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.
Balance Sheet
As of June 30, 2021, the Company had cash and cash equivalents of $280.3 million with no debt outstanding.
Outlook
For full year 2021, the Company updated its net sales guidance. The Company expects the following results:
- To exceed net sales of $445.0 million, an increase of ~ 40% from 2020, from previous guidance of > $430 million
- To exceed Adjusted EBITDA of $61.0 million, an increase greater than 30% from 2020, unchanged from previous guidance
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 components of net income and the respective reconciliations, including the timing of and amount of costs of goods sold and selling, general and administrative expenses. These items are not within the Company’s control and may vary greatly between periods and could significantly impact future financial results.
Conference Call & Earnings Presentation Webcast Information
As previously announced, today, August 2, 2021, 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 August 16, 2021. North American listeners may dial (844) 512-2921 and international listeners may dial (412) 317-6671; the passcode is 13720683.
About Freshpet
Freshpet’s 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 Freshpet Kitchens. 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://www.tiktok.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's current opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results. These forward-looking statements, including our updated guidance, 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 before depreciation expense, plant start-up expense, non-cash share-based compensation and COVID-19 expenses.
Adjusted SG&A Expenses: Freshpet defines Adjusted SG&A as SG&A expenses before depreciation and amortization, non-cash share-based compensation, launch expense, fees related to equity offerings of our common stock, implementation and other costs associated with the implementation of an enterprise resource planning ("ERP") system, loss on disposal of equipment and COVID-19 expenses.
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 loss on equity method investment, non-cash share-based compensation expense, launch expenses, fees related to equity offerings, plant start-up expense, implementation and other costs associated with the implementation of an ERP system, loss on disposal of equipment and COVID-19 expenses.
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 Company’s operations and, when considered with both the Company’s GAAP results and the reconciliation to the most comparable GAAP measures, provide a more complete understanding of the Company’s 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 Company’s 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.
Contact
ICR
Jeff Sonnek
646-277-1263
Jeff.sonnek@icrinc.comFRESHPET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)June 30, December 31, 2021 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 280,323 $ 67,247 Accounts receivable, net of allowance for doubtful accounts 33,962 18,438 Inventories, net 24,597 19,119 Prepaid expenses 3,940 3,378 Other current assets 1,795 914 Total Current Assets 344,617 109,096 Property, plant and equipment, net 391,934 281,073 Deposits on equipment 3,747 3,710 Operating lease right of use assets 7,205 7,866 Equity method investment 27,276 27,894 Other assets 8,651 4,749 Total Assets $ 783,430 $ 434,388 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 39,159 $ 16,452 Accrued expenses 16,707 15,371 Current operating lease liabilities 1,336 1,298 Total Current Liabilities $ 57,202 $ 33,121 Long term operating lease liabilities 6,417 7,098 Total Liabilities $ 63,619 $ 40,219 STOCKHOLDERS' EQUITY: Common stock — voting, $0.001 par value, 200,000 shares authorized, 43,373 issued
and 43,359 outstanding on June 30, 2021, and 40,732 issued and 40,718 outstanding on
December 31, 202043 41 Additional paid-in capital 944,222 600,388 Accumulated deficit (224,287 ) (205,924 ) Accumulated other comprehensive income (loss) 89 (80 ) Treasury stock, at cost — 14 shares on June 30, 2021 and on December 31, 2020 (256 ) (256 ) Total Stockholders' Equity 719,811 394,169 Total Liabilities and Stockholders' Equity $ 783,430 $ 434,388 FRESHPET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)
(In thousands, except per share data)For the Three Months Ended For the Six Months Ended June 30, June 30, 2021 2020 2021 2020 NET SALES $ 108,616 $ 79,980 $ 202,029 $ 150,078 COST OF GOODS SOLD 65,525 46,047 122,624 84,355 GROSS PROFIT 43,091 33,933 79,405 65,723 SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 49,557 33,702 95,589 68,378 (LOSS) INCOME FROM OPERATIONS (6,466 ) 231 (16,184 ) (2,655 ) OTHER (EXPENSES)/INCOME: Other (Expenses)/Income, net (2 ) 24 (7 ) 45 Interest Expense (654 ) (80 ) (1,556 ) (784 ) (656 ) (56 ) (1,563 ) (739 ) (LOSS) INCOME BEFORE INCOME TAXES (7,122 ) 175 (17,747 ) (3,394 ) INCOME TAX EXPENSE 16 22 32 43 LOSS ON EQUITY METHOD INVESTMENT 337 - 585 - (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (7,475 ) $ 153 $ (18,364 ) $ (3,437 ) OTHER COMPREHENSIVE (LOSS) INCOME: Change in foreign currency translation $ (91 ) $ (387 ) $ 169 $ (328 ) TOTAL OTHER COMPREHENSIVE (LOSS) INCOME (91 ) (387 ) 169 (328 ) TOTAL COMPREHENSIVE (LOSS) $ (7,566 ) $ (233 ) $ (18,194 ) $ (3,765 ) NET (LOSS) INCOME PER SHARE ATTRIBUTABLE TO
COMMON STOCKHOLDERS-BASIC $ (0.17 ) $ 0.00 $ (0.43 ) $ (0.09 ) -DILUTED $ (0.17 ) $ 0.00 $ (0.43 ) $ (0.09 ) WEIGHTED AVERAGE SHARES OF COMMON STOCK
OUTSTANDING USED IN COMPUTING NET (LOSS) INCOME
PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS-BASIC 43,303 40,339 42,470 38,891 -DILUTED 43,303 41,510 42,470 38,891 FRESHPET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)For the Six Months Ended June 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $ (18,364 ) $ (3,437 ) Adjustments to reconcile net (loss) to net cash flows provided by operating activities: Provision for loss on accounts receivable 5 7 Loss on disposal of equipment 106 36 Share-based compensation 12,770 4,464 Inventory obsolescence 253 151 Depreciation and amortization 14,743 9,894 Amortization of deferred financing costs and loan discount 815 691 Change in operating lease right of use asset 661 464 Investments in equity method investment 585 — Changes in operating assets and liabilities: Accounts receivable (15,529 ) (4,077 ) Inventories (5,731 ) (6,302 ) Prepaid expenses and other current assets (1,443 ) 10,181 Other assets (2,156 ) (212 ) Accounts payable 15,494 (3,430 ) Accrued expenses 1,369 (13,147 ) Other lease liabilities (643 ) (401 ) Net cash flows from (used in) operating activities 2,935 (5,118 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments — (20,001 ) Acquisitions of property, plant and equipment, software and deposits on equipment (117,592 ) (73,251 ) Net cash flows used in investing activities (117,592 ) (93,252 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from common shares issued in primary offering, net of issuance cost 332,172 252,062 Proceeds from exercise of options to purchase common stock 1,740 2,091 Tax withholdings related to net shares settlements of restricted stock units (2,917 ) (1,636 ) Proceeds from borrowings under Credit Facilities — 20,933 Repayment of borrowings under Credit Facilities — (76,000 ) Fees paid in connection with financing agreements (3,262 ) (824 ) Net cash flows provided by financing activities 327,733 196,626 NET CHANGE IN CASH AND CASH EQUIVALENTS 213,076 98,256 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 67,247 9,472 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 280,323 $ 107,728 FRESHPET, INC. AND SUBSIDIARIES
RECONCILIATION BETWEEN GROSS PROFIT AND ADJUSTED GROSS PROFITThree Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 (Dollars in thousands) Gross Profit $ 43,091 $ 33,933 $ 79,405 $ 65,723 Depreciation expense 4,021 2,550 7,821 4,294 Plant start-up expense (a) 1,130 725 2,973 1,192 Non-cash share-based compensation 1,203 493 1,913 941 COVID-19 expense (b) 681 1,546 1,634 1,763 Adjusted Gross Profit $ 50,126 $ 39,248 $ 93,746 $ 73,914 Adjusted Gross Profit as a % of Net Sales 46.1 % 49.1 % 46.4 % 49.3 % (a) Represents additional operating costs incurred in connection with the start-up of our new manufacturing lines as part of the Freshpet Kitchens expansion projects. (b) Represents COVID-19 expenses including (i) costs incurred to protect the health and safety of our employees during the COVID-19 pandemic, (ii) temporary increased compensation expense to ensure continued operations during the pandemic, and (iii) costs related to mitigating 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 EXPENSESThree Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 (Dollars in thousands) SG&A expenses $ 49,557 $ 33,702 $ 95,589 $ 68,378 Depreciation and amortization expense 3,633 2,891 6,922 5,600 Non-cash share-based compensation 5,487 1,793 10,857 3,523 Launch expense (a) 1,018 686 1,749 1,642 Loss on disposal of equipment 46 34 106 36 Equity offering expenses (b) (125 ) — — 58 Enterprise Resource Planning (c) 247 129 850 402 COVID-19 expense (d) — 96 5 96 Adjusted SG&A Expenses $ 39,251 $ 28,073 $ 75,100 $ 57,020 Adjusted SG&A Expenses as a % of Net Sales 36.1 % 35.1 % 37.2 % 38.0 % (a) Represents new store marketing allowance of $1,000 for each store added to 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. (d) Represents COVID-19 expenses including (i) costs incurred to protect the health and safety of our employees during the COVID-19 pandemic, (ii) temporary increased compensation expense to ensure continued operations during the pandemic, and (iii) costs related to mitigating potential supply chain disruptions during the pandemic, included in SG&A. FRESHPET, INC. AND SUBSIDIARIES
RECONCILIATION BETWEEN NET INCOME (LOSS) AND ADJUSTED EBITDAThree Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 (Dollars in thousands) Net (loss) income $ (7,475 ) $ 153 $ (18,364 ) $ (3,437 ) Depreciation and amortization 7,654 5,441 14,743 9,894 Interest expense 654 80 1,556 784 Income tax expense 16 22 32 43 EBITDA $ 849 $ 5,696 $ (2,033 ) $ 7,284 Loss on equity method investment $ 337 $ — $ 585 $ — Loss on disposal of equipment 46 34 106 36 Non-cash share-based compensation 6,690 2,286 12,770 4,464 Launch expense (a) 1,018 686 1,749 1,642 Plant start-up expense (b) 1,130 725 2,973 1,192 Equity offering expenses (c) (125 ) — — 58 Enterprise Resource Planning (d) 247 129 850 402 COVID-19 expense (e) 681 1,642 1,639 1,859 Adjusted EBITDA $ 10,873 $ 11,199 $ 18,639 $ 16,938 Adjusted EBITDA as a % of Net Sales 10.0 % 14.0 % 9.2 % 11.3 % (a) Represents new store marketing allowance of $1,000 for each store added to 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 additional operating costs incurred in connection with the 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. (e) Represents COVID-19 expenses including (i) costs incurred to protect the health and safety of our employees during the COVID-19 pandemic, (ii) temporary increased compensation expense to ensure continued operations during the pandemic, and (iii) costs related to mitigating potential supply chain disruptions during the pandemic. 
- Net sales of $108.6 million, an increase of 35.8%