10q10k10q10k.net

What changed in Freshpet, Inc.'s 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of Freshpet, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+243 added−231 removedSource: 10-K (2025-02-20) vs 10-K (2024-02-26)

Top changes in Freshpet, Inc.'s 2024 10-K

243 paragraphs added · 231 removed · 203 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

40 edited+6 added−2 removed38 unchanged
Biggest changeOur portfolio of products consists of dog food, cat food, and dog treats. All Freshpet products are made according to our nutritional philosophy of fresh, nutritional ingredients and minimal processing. Our proprietary recipes include real, fresh meat and varying combinations of vitamin-rich vegetables, leafy greens and antioxidant rich fruits, without the use of preservatives or additives.
Biggest changeOur proprietary recipes include real, fresh meat and poultry products and varying combinations of vitamin-rich vegetables, leafy greens and antioxidant rich fruits, without the use of preservatives or additives. Our unique product attributes appeal to diverse consumer needs across multiple classes of retail where Freshpet is sold.
Ingredients and Packaging: Our products are made with natural and fresh ingredients including meat, vegetables, fruits, whole grains, vitamins and minerals. We believe in building long-term supplier and farmer partnerships to source healthy and sustainable ingredients. We strive to source raw ingredients within a 300-mile radius of the Freshpet Kitchens.
Ingredients and Packaging: Our products are made with natural and fresh ingredients including meat and poultry products, vegetables, fruits, whole grains, vitamins and minerals. We believe in building long-term supplier and farmer partnerships to source healthy and sustainable ingredients. We strive to source raw ingredients within a 300-mile radius of the Freshpet Kitchens.
Our total chiller fleet at retailers covers over 1.7 million cubic feet of space. 9 Marketing and Advertising Our marketing strategy is designed to educate consumers about the benefits of fresh refrigerated pet food and build awareness of the Freshpet brand.
Our total chiller fleet at retailers covers over 1.7 million cubic feet of space. Marketing and Advertising Our marketing strategy is designed to educate consumers about the benefits of fresh refrigerated pet food and build awareness of the Freshpet brand.
We position our brand to benefit from mainstream trends of growing pet humanization and consumer focus on health and wellness. We price our products to be accessible to the average consumer, providing us with broad demographic appeal and allowing us to penetrate multiple classes of retail, including grocery, mass, club, pet specialty, natural and digital.
We position our brand to benefit from mainstream trends of growing pet humanization and consumer focus on health and wellness. We price our products to be accessible to the average consumer, providing us with broad demographic appeal and allowing us to penetrate multiple classes of retail, including grocery, mass, international, digital, pet specialty, and club.
Due to the continued growth of our fresh pet food sales, we plan to continue expanding our manufacturing capacity via operational efficiency improvements at our current facilities and via future expansion of our physical features. In 2023, approximately 99.1% of our product volume was manufactured with Freshpet owned equipment.
Due to the continued growth of our fresh pet food sales, we plan to continue expanding our manufacturing capacity via operational efficiency improvements at our current facilities and via future expansion of our physical features. In 2024, approximately 99.1% of our product volume was manufactured with Freshpet owned equipment.
ITEM 1. BUSINESS Overview Freshpet, Inc. (“Freshpet,” the “Company,” "we" or "our") is disrupting the over $52.0 billion United States pet food industry by driving consumers to reassess conventional dog and cat food offerings that have remained essentially unchanged for decades.
ITEM 1. BUSINESS Overview Freshpet, Inc. (“Freshpet,” the “Company,” "we" or "our") is disrupting the over $54.0 billion United States pet food industry by driving consumers to reassess conventional dog and cat food offerings that have remained essentially unchanged for decades.
The service areas for our Pennsylvania and Texas DC locations are in a continual progression towards growing distribution out of Texas to serve the central and western US in tandem with the scale up of the Ennis Kitchen; and the Pennsylvania DC will principally service the eastern US and our international businesses.
The service areas for our Pennsylvania and Texas DC locations are in a continual progression towards growing distribution out of Texas to serve the central and western US in tandem with the scale up of the Ennis Kitchen; and the Pennsylvania DC principally services the eastern US and our international businesses.
And, we are committed to doing so in ways that are good for Pets, People, and Planet. Pets Our pets are members of our family and deserve to eat the kind of fresh, healthy food that we do. Freshpet's carefully selected ingredients and gentle cooking process ensures best-in-class bioavailable nutrition.
And, we are committed to doing so in ways that are good for Pets, People, and Planet. 5 Table of Contents Pets Our pets are members of our family and deserve to eat the kind of fresh, healthy food that we do. Freshpet's carefully selected ingredients and gentle cooking process ensures best-in-class bioavailable nutrition.
We deploy a broad set of marketing tools across television, digital and public relations to reach consumers through multiple touch points and increase product trials. Our network of fridges at approximately 26,777 retail locations within blue-chip retailers helps to introduce consumers to our brand and instantly distinguish Freshpet from traditionally merchandised pet food.
We deploy a broad set of marketing tools across television, digital and public relations to reach consumers through multiple touch points and increase product trials. Our network of fridges at approximately 28,141 retail locations within blue-chip retailers helps to introduce consumers to our brand and instantly distinguish Freshpet from traditionally merchandised pet food.
We support renewable energy by matching the electricity used in Freshpet Kitchens and offices as well as our refrigerators in over 26,000 retail locations with Green-E Certified renewable energy certificates from North American based projects. Freshpet's chiller fleet efficiency continues to improve with our latest units using 91% less electricity than older units.
We support renewable energy by matching the electricity used in Freshpet Kitchens and offices as well as our refrigerators in over 28,000 retail locations with Green-E Certified renewable energy certificates from North American based projects. Freshpet's chiller fleet efficiency continues to improve with our latest units using up to 90% less electricity than older units.
Consumers are increasingly purchasing fresh, natural and organic food products. We believe consumers are seeking simple, fresh and easy to understand food products from brands they trust and made with ingredients that are transparently sourced. The pet food purchasing decision is underpinned by higher brand loyalty than many other consumer packaged goods categories.
Increasing consumer focus on health & wellness. Consumers are increasingly purchasing fresh, natural and organic food products. We believe consumers are seeking simple, fresh and easy to understand food products from brands they trust and made with ingredients that are transparently sourced. The pet food purchasing decision is underpinned by higher brand loyalty than many other consumer packaged goods categories.
We also offer fresh treats across all classes of retail under the Dognation and Dog Joy labels. 6 Our Product Innovation As the first manufacturer of fresh, refrigerated pet food distributed across North America, product innovation is core to our strategy.
We also offer fresh treats across all classes of retail under the Dognation and Dog Joy labels. 7 Table of Contents Our Product Innovation As the first manufacturer of fresh, refrigerated pet food distributed across North America, product innovation is core to our strategy.
In order to incentivize and engage our workforce, Freshpet provides: ● Industry-leading compensation, including stock compensation for every employee ● Industry-leading healthcare offered equitably for every employee ● Annual equity grants and Key Talent awards to employees identified by the Executive Leadership team and the Board ● Competitive perquisites, including pet insurance, tuition reimbursement, paid parental leave, free healthy snack room and catered lunches ● 401(k) matching for every employee ● Rigorous focus on Diversity & Inclusion to create an inclusive culture to attract, engage and retain our diverse talent As of December 31, 2023, we had 1,083 employees located primarily in Bethlehem, PA, Ennis, TX, Secaucus, NJ and Europe.
In order to incentivize and engage our workforce, Freshpet provides: ● Industry-leading compensation, including stock compensation for every employee ● Industry-leading healthcare offered equitably for every employee ● Annual equity grants and Key Talent awards to employees identified by the Executive Leadership team and the Board ● Competitive perquisites, including pet insurance, tuition reimbursement, paid parental leave, free healthy snack room and catered lunches ● 401(k) matching for every employee ● Rigorous focus on creating an inclusive culture to attract, engage and retain our diverse talent As of December 31, 2024, we had 1,296 employees located primarily in Bethlehem, PA, Ennis, TX, Bedminster, NJ and Europe.
As volume grows, we will continue to leverage our distribution network to continuously improve customer service levels and decrease certain distribution costs. For certain retailers, we use national and regional distributors. 7 Our Product Quality and Safety We go to great lengths to ensure product quality, consistency and safety from ingredient sourcing to finished product.
As volume grows, we will continue to leverage our distribution network to continuously improve customer service levels and decrease certain distribution costs. For certain retailers, we use national and regional distributors. 8 Table of Contents Our Product Quality and Safety We go to great lengths to ensure product quality, consistency and safety from ingredient sourcing to finished product.
As of December 31, 2023, we are in approximately 26,777 stores, with approximately 22% of stores having second and third Freshpet Fridge placements. We sell our products through the following classes of retail: grocery, mass, club, pet specialty, natural, and digital. Our customers determine whether they wish to purchase our products directly from us or through a third-party distributor.
As of December 31, 2024, we are in approximately 28,141 stores, with approximately 22% of stores having second and third Freshpet Fridge placements. We sell our products through the following classes of retail: grocery, mass, international, digital, pet specialty, and club. Our customers determine whether they wish to purchase our products directly from us or through a third-party distributor.
As of December 31, 2023, our household penetration within the U.S. was approximately 11.5 million, with a target of 20 million households by 2027. Additionally, we believe that there are opportunities to expand our network into international markets as demonstrated by our recent initiatives in the U.K. market.
As of December 31, 2024, our household penetration within the United States was approximately 13.5 million, with a target of 20 million households by 2027. Additionally, we believe that there are opportunities to expand our network into international markets as demonstrated by our recent initiatives in the U.K. market.
According to Packaged Facts, 92-96% of U.S. pet owners view their pets as members of the family. As pets are increasingly viewed as companions, friends and family members, pet owners are being transformed into “pet parents” who spare no expense for their loved ones, driving premiumization across pet categories. This trend is reflected in food purchasing decisions.
According to Numerator, 89% of United States dog parents view their pets as members of the family. As pets are increasingly viewed as companions, friends and family members, pet owners are being transformed into “pet parents” who spare no expense for their loved ones, driving premiumization across pet categories. This trend is reflected in food purchasing decisions.
Hundreds of customer testimonials each year underscore Freshpet's support of a long and healthy life. Further, since founding Freshpet, we have donated over seventeen million fresh meals to pets via shelters, charitable organizations, and humane societies, including St Hubert's Animal Welfare Center, Pennsylvania SPCA and 4 Paws for Ability. People People include our team members, pet parents, and our partners.
Hundreds of customer testimonials each year underscore Freshpet's support of a long and healthy life. Further, since founding Freshpet, we have donated over twenty-one million fresh meals to pets via shelters, charitable organizations, and humane societies, including St Hubert's Animal Welfare Center, Pennsylvania SPCA, StrayDog Inc. and 4 Paws for Ability.
We monitor changes in these laws and believe that we are in material compliance with applicable laws. 11
We monitor changes in these laws and believe that we are in material compliance with applicable laws. 12 Table of Contents
Team Members & Human Capital Resources At Freshpet we always want to build a fair, healthy and safe workplace, while creating work environment policies that promote diversity, equality and inclusion for our valued employees.
Team Members & Human Capital Resources At Freshpet we always want to build a fair, healthy and safe workplace, while creating work environment policies that help us attract, develop and retain our valued employees.
Our unique product attributes appeal to diverse consumer needs across multiple classes of retail where Freshpet is sold. Consequently, our brand resonates across a broad cross-section of pet parent demographics. Our products are sold under the Freshpet brand name, with ingredients, packaging, and labeling customized by different classes of trade and are available in multiple forms.
Consequently, our brand resonates across a broad cross-section of pet parent demographics. 6 Table of Contents Our products are sold under the Freshpet brand name, with ingredients, packaging, and labeling customized by different classes of trade and are available in multiple forms.
None of our employees are represented by a labor union or by any collective bargaining arrangements with respect to his or her employment with us. 10 Our Corporate Information We were incorporated in Delaware in November 2004 and currently exist as a Delaware corporation. Our principal executive offices are located at 400 Plaza Drive, 1st Floor, Secaucus, New Jersey 07094.
None of our employees are represented by a labor union or by any collective bargaining arrangements with respect to his or her employment with us. Our Corporate Information We were incorporated in Delaware in November 2004 and currently exist as a Delaware corporation.
In 2022 we opened our state-of-the-art Kitchens in Ennis, TX. This facility has been designed to be our most sustainable yet, incorporating on-site solar power and battery micro-grid, wastewater recycling, and advanced heating / cooling technology.
In 2022, we opened our state-of-the-art Kitchens in Ennis, TX. This facility has been designed to incorporate sustainable technologies such as wastewater recycling, and advanced heating / cooling technology. On-site solar power and a battery micro-grid is planned for future development.
Our commitment to our values helps us engage with consumers, motivate our team members, and attract strong partners, which allows us to fulfill our mission of delivering the best nutritional product choices to improve the well-being of our pets, enrich pet parents’ lives, and contribute to communities. 5 Our Products Freshpet's business operates in a single segment: the manufacturing, marketing and distribution of pet food and pet treats for dogs and cats.
Our commitment to our values helps us engage with consumers, motivate our team members, and attract strong partners, which allows us to fulfill our mission of delivering the best nutritional product choices to improve the well-being of our pets, enrich pet parents’ lives, and contribute to communities.
Website Information The address of our corporate website is www.freshpet.com. Our annual reports, annual proxy statements and related proxy cards are made available on our website at the same time they are mailed to stockholders, as required by applicable law.
Our principal executive offices are located at 1545 US-206, 1st Floor, Bedminster, New Jersey 07921. 11 Table of Contents Website Information The address of our corporate website is www.freshpet.com. Our annual reports, annual proxy statements and related proxy cards are made available on our website at the same time they are mailed to stockholders, as required by applicable law.
As a result, consumers are searching for higher quality, less processed food for their dogs’ and cats’ meals that measure up to today’s sensibilities of what actually constitutes “good food.” Freshpet was specifically designed to address this growing need with affordable offerings accessible to the average consumer. 4 Our Mission and Values We started Freshpet with a single-minded mission—to bring the power of real, fresh food to our dogs and cats.
As a result, consumers are searching for higher quality, less processed food for their dogs’ and cats’ meals that measure up to today’s sensibilities of what actually constitutes “good food.” Freshpet addresses this growing need with affordable offerings accessible to the average consumer.
Our original Freshpet Kitchens Bethlehem, located in Bethlehem, Pennsylvania, is a 240,000 square foot facility, built to United States Department of Agriculture standards and currently houses six production lines customized to produce fresh, refrigerated food. In 2020, we began making investments at a manufacturing facility called Freshpet Kitchens South.
We own and operate what we believe to be the first fresh, refrigerated pet food manufacturing network in North America. Our original Freshpet Kitchens Bethlehem, located in Bethlehem, Pennsylvania, is a 240,000 square foot facility, built to United States Department of Agriculture standards and currently houses six production lines customized to produce fresh, refrigerated food.
The Freshpet Fridge provides a highly-visible merchandising platform, allowing us to control how our brand is presented to consumers at point-of-sale and represents a significant point of differentiation from other pet food competitors.
We believe our attractive value proposition to retailers and pet parents will allow us to continue penetrating store locations of existing and new customers. The Freshpet Fridge provides a highly-visible merchandising platform, allowing us to control how our brand is presented to consumers at point-of-sale and represents a significant point of differentiation from other pet food competitors.
Moreover, to ensure quality, cleanliness and appropriate in-stock levels, we employ brokerage partners to conduct a physical audit of the Freshpet Fridge network on an ongoing basis, with photographic results of our Freshpet Fridges transmitted back to Freshpet for review by members of our sales team.
Moreover, to ensure quality, cleanliness and appropriate in-stock levels, we employ brokerage partners to conduct a physical audit of the Freshpet Fridge network on an ongoing basis, with photographic results of our Freshpet Fridges transmitted back to Freshpet for review by members of our sales team. 9 Table of Contents We currently estimate less than 12-month cash-on-cash payback for the average Freshpet Fridge installation, calculated by comparing our total current costs for a refrigerator (including installation) to our current margin on net revenues.
Planet We are committed to minimizing our environmental impact while providing the healthiest, tastiest pet food possible. Freshpet Kitchens Bethlehem is a landfill-free facility thanks to state-of-the-art recycling, digesting, and waste-to-energy processes.
Additionally, we strive to be good partners with customers, distributors, and suppliers by conducting business with honesty and transparency knowing that we cannot grow without their support. Planet We are committed to minimizing our environmental impact while providing the healthiest, tastiest pet food possible. Freshpet Kitchens Bethlehem is a landfill-free facility thanks to state-of-the-art recycling, digesting, and waste-to-energy processes.
In addition, we compete with many regional niche brands in individual geographic markets, as well as the launch of new direct-to-consumer frozen brands. Given a North American retail landscape dominated by large retailers, with limited shelf space and a significant number of competing products, competitors actively support their brands through marketing, advertising, promotional spending and discounting.
Given a North American retail landscape dominated by large retailers, with limited shelf space and a significant number of competing products, competitors actively support their brands through marketing, advertising, promotional spending and discounting.
We expect that new product innovation and the introduction of new cooking techniques will continue to delight our consumers and drive growth going forward. Our Supply Chain Manufacturing: All of our products are manufactured in the United States. We own and operate what we believe to be the first fresh, refrigerated pet food manufacturing network in North America.
We expect that new product innovation and the introduction of new cooking techniques will continue to delight our consumers and drive growth going forward. Our Supply Chain Manufacturing: All of our products are manufactured in the United States, except select products produced in the European Union ("EU") for our European customers.
Freshpet Kitchens South currently has three production lines with the space for additional production lines in the future. The construction of Freshpet Kitchens Ennis, located in Ennis, Texas, began in 2020. The first production line was commissioned in Q4 of 2022, and two more lines were successfully commissioned in 2023, completing 1 of 3 construction phases for the site.
The first production line was commissioned in Q4 of 2022, with two more lines successfully commissioned in 2023, completing 1 of 3 construction phases for the site.
We reach consumers across multiple digital and social media platforms including websites, blogs and online reviews, as well as with tailored messaging on popular digital hubs including Instagram, Facebook, X, TikTok and YouTube. Our marketing strategy has allowed us to drive new consumers to our brand and develop a highly engaged community of users who actively advocate for Freshpet.
We reach consumers across multiple digital and social media platforms including websites, blogs and online reviews, as well as with tailored messaging on popular digital hubs including Instagram, Facebook, X, TikTok and YouTube.
We treat our team members with respect and are committed to helping them develop professionally and personally. These efforts have contributed to an employee net promoter score of 8.2. Additionally, we strive to be good partners with customers, distributors, and suppliers by conducting business with honesty and transparency knowing that we cannot grow without their support.
People Our people include our team members, pet parents, and our partners. We treat our team members with respect and are committed to helping them develop professionally and personally. These efforts have contributed to an employee net promoter score of 8.2.
We believe the following trends are driving growth in our industry: Pet ownership. There are currently approximately 86.9 million pet owning households in the United States, which represents approximately 66% of total households, and over 111.6 million dogs and cats in the United States, according to the American Pet Products Association. Pet humanization .
We believe the following trends are driving growth in our industry: Pet ownership. There are currently approximately 95.0 million pet food buying households in the United States, which represent approximately 75% of total households having a dog and/or cat, according to Numerator. Pet humanization .
All of our suppliers are well-established companies that have the scale to support our growth. For every ingredient, we either use multiple suppliers or have identified alternative sources of supply that meet our quality and safety standards. Distribution: Outbound transportation from our distribution center ("DC") facilities is managed by third-party refrigerated freight brokers.
All of our suppliers are well-established companies that we believe have the scale to support our growth. For raw materials, we strategically source from multiple suppliers and identify alternative sources of supply that meet our quality and safety standards.
Competition Pet food is a highly competitive industry. We compete with some of the largest pet food manufacturers such as Nestlé Purina Pet Care, the J.M. Smucker Company, Hill's Pet Nutrition, Mars Pet Care, General Mills Pet, and Post Consumer Brands.
Our marketing strategy has allowed us to drive new consumers to our brand and develop a highly engaged community of users who actively advocate for Freshpet. 10 Table of Contents Competition Pet food is a highly competitive industry. We compete with some of the largest pet food manufacturers such as Nestlé Purina Pet Care, the J.M. Smucker Company U.S.
In 2023, our largest distributor by net sales, Animal Supply Co., accounted for 9.0% of our net sales and our largest customer, Walmart, accounted for 23.4% of our net sales. 8 The Freshpet Fridge We sell our products through a growing network of company-owned branded refrigerators, the Freshpet Fridges.
In 2024, our largest distributor by net sales, Animal Supply Co., accounted for 7.9% of our net sales and our largest customer, Walmart, accounted for 24.5% of our net sales. We are currently considering the manner in which we provide products to the pet specialty channel, which is primarily serviced by Animal Supply Co. through a distributor arrangement.
Phase 2 is expected to commence production on its first line at the end of Q3 of 2024, with the balance of Phase 2 and Phase 3 to be completed over the next several years.
Phase 2 commissioning was initiated in 2024 with the most successful start-ups to date on two additional lines, with the balance of Phase 2 and Phase 3 planned for completion over the next several years.
Removed
According to an American Pet Products Association's Pulse Study, 48% of pet parents feel they are closer/more bonded with their pet due to the COVID-19 pandemic. We believe that pet owners' closer bond to their pets aligns with recent trends, which the COVID-19 pandemic has further accelerated. Increasing consumer focus on health & wellness.
Added
Our Mission and Values Our mission is to elevate the way we feed our pets with fresh food that nourishes all.
Removed
We currently estimate less than 12-month cash-on-cash payback for the average Freshpet Fridge installation, calculated by comparing our total current costs for a refrigerator (including installation) to our current margin on net revenues. We believe our attractive value proposition to retailers and pet parents will allow us to continue penetrating store locations of existing and new customers.
Added
Our Products Freshpet's business operates in a single segment: the manufacturing, marketing and distribution of fresh dog food, cat food, and dog treats. All Freshpet products are made according to our nutritional philosophy of fresh, nutritional ingredients and minimal processing.
Added
In 2020, we began making investments at a manufacturing facility called Freshpet Kitchens South. Freshpet Kitchens South currently has three production lines in operation with a fourth planned for early 2025 and space for additional production lines in the future. The construction of Freshpet Kitchens Ennis, located in Ennis, Texas, began in 2020.
Added
Distribution: Outbound transportation from our distribution center ("DC") facilities is managed through an integrated transportation management system, with carriage provided by a network mostly comprised of refrigerated asset-based carriers, with limited use of refrigerated freight brokers.
Added
We are considering alternative approaches to distribution of products within the pet specialty channel to help increase our market share, including but not limited to establishing a replacement distribution partner in that channel. The Freshpet Fridge We sell our products through a growing network of company-owned branded refrigerators, the Freshpet Fridges.
Added
Retail Pet Foods, Colegate-Palmolive Pet Nutrition, Mars Petcare, General Mills North America Pet, and Post Consumer Brands. In addition, we compete with many regional niche brands in individual geographic markets, as well as the launch of new direct-to-consumer frozen brands.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

74 edited+20 added−7 removed107 unchanged
Biggest changeA significant shift in consumer demand away from our products or a decline in pet ownership could reduce our sales or the prestige of our brand, which would harm our business, financial condition and results of operations.
Biggest changeA significant shift in consumer demand away from our products, including as a result of perceived or actual product costs or widespread recession, or a decline in pet ownership could reduce our sales or the prestige of our brand, which would harm our business, financial condition and results of operations. 14 Table of Contents A key element of our growth strategy depends on our ability to develop and market new products and improvements to our existing products that meet our standards for quality and appeal to consumer preferences.
We expect to need capital in the future for business development, and we may not be able to generate sufficient cash flow or raise capital on acceptable terms to meet our needs. Developing our business has in the past required and will continue in the future to require significant capital.
We expect to need capital in the future for business development, and we may not be able to generate sufficient cash flow or raise capital on acceptable terms to meet our needs. Developing our business has in the past required and will in the future continue to require significant capital.
Our ability to effectively implement price increases or otherwise raise prices for our products can be affected by a number of factors, including competition, our competitors’ pricing and marketing, aggregate industry supply, category limitations, market demand and economic conditions, including inflationary and interest rate pressures.
Our ability to effectively implement price increases or otherwise raise prices for our products can be affected by a number of factors, including competition, our competitors’ pricing and marketing, aggregate industry supply, category limitations, market demand and economic conditions, including inflationary and interest rate pressures or recession.
As we expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our operations outside of the United States and Canada. 20 Risks Related to Environmental Regulation and Environmental Risks We are subject to environmental regulation and environmental risks, which may adversely affect our business.
As we expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our operations outside of the United States and Canada. Risks Related to Environmental Regulation and Environmental Risks We are subject to environmental regulation and environmental risks, which may adversely affect our business.
Such actions, if successful in whole or in part, may affect our ability to compete or could materially adversely affect our business, financial condition and results of operations. 19 Risks Related to Intellectual Property If we are not successful in protecting our intellectual property rights, our business, financial conditions and results of operations may be harmed.
Such actions, if successful in whole or in part, may affect our ability to compete or could materially adversely affect our business, financial condition and results of operations. Risks Related to Intellectual Property If we are not successful in protecting our intellectual property rights, our business, financial conditions and results of operations may be harmed.
As we continue to expand our business into new countries, we may encounter regulatory, personnel, technological and other difficulties that increase our expenses or delay our ability to become profitable in such countries. This may have an adverse effect on our business.
As we continue to expand our business into new countries, we may encounter tariffs, regulatory, personnel, technological and other difficulties that increase our expenses or delay our ability to become profitable in such countries. This may have an adverse effect on our business.
As a result, we cannot predict or estimate the amount, timing or nature of our future offerings, and purchasers of our common stock in this offering bear the risk of our future offerings reducing the market price of our common stock and diluting their ownership interest in our company. 23
As a result, we cannot predict or estimate the amount, timing or nature of our future offerings, and purchasers of our common stock in this offering bear the risk of our future offerings reducing the market price of our common stock and diluting their ownership interest in our company.
In that event, the price of our common stock would likely decrease. 22 The price of our common stock has been and may continue to be volatile and you may lose all or part of your investment.
In that event, the price of our common stock would likely decrease. The price of our common stock has been and may continue to be volatile and you may lose all or part of your investment.
In the future, we may attempt to increase our capital resources by making offerings of debt securities or additional offerings of equity securities. Upon bankruptcy or liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock.
In the future, we may attempt to increase our capital resources by making offerings of debt securities or additional offerings of equity securities. Upon bankruptcy or liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings would receive a distribution of our available assets prior to the holders of our common stock.
If our sales of products to one or more of our significant customers are reduced, this reduction could have a material adverse effect on our business, financial condition and results of operations. 14 If we are unable to maintain or increase prices for our products, our results of operations may be adversely affected.
If our sales of products to one or more of our significant customers or distributors are reduced, this reduction could have a material adverse effect on our business, financial condition and results of operations. If we are unable to maintain or increase prices for our products, our results of operations may be adversely affected.
Failure to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, failure to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our business, financial condition and results of operations.
In recent years, we have expanded our global footprint by entering into new markets and may expand into additional markets in the future. For example, we currently do business with four retailers in the United Kingdom, where our products are selling in approximately 544 stores.
In recent years, we have expanded our global footprint by entering into new markets and may expand into additional markets in the future. For example, we currently do business with four retailers in the United Kingdom, where our products are selling in approximately 608 stores.
Our ability to increase awareness, consumer trial and adoption of our products, and to implement this growth strategy depends, among other things, on our ability to: ● implement our marketing strategy; ● expand and maintain brand loyalty; ● partner with customers to secure space for our Freshpet Fridges; ● develop new product lines and extensions; ● partner with distributors to deliver our products to customers; ● continue to compete effectively in multiple classes of retail, including grocery, mass, club, pet specialty, natural, and digital; and ● build capacity to meet demands, including the timely expansion of certain of our Freshpet Kitchens.
Our ability to increase awareness, consumer trial and adoption of our products, and to implement this growth strategy depends, among other things, on our ability to: • implement our marketing strategy; • expand and maintain brand loyalty; • partner with customers to secure space for our Freshpet Fridges; • develop new product lines and extensions; • partner with distributors to deliver our products to customers; • continue to compete effectively in multiple classes of retail, including grocery, mass, international, digital, pet specialty, and club; and • build capacity to meet consumer demand, including the timely expansion of certain of our Freshpet Kitchens.
The growing use of social and digital media by consumers increases the speed and extent that information and opinions can be shared. Negative posts or comments about us or our brands or products on social or digital media could damage our brands and reputation.
The widespread use of social and digital media by consumers increases the speed and extent that information and opinions can be shared. Negative posts or comments about us or our brands or products on social or digital media could damage our brands and reputation.
Any compromise or breach of our security could result in a violation of applicable privacy and other laws, including federal and state law, as well as the General Data Protection Regulation ("GDPR"), which could result in significant legal and financial exposure, and a loss of confidence in our security measures, which could have an adverse effect on our business, financial condition and results of operations. 21 Risks Related to our NOLs We may be unable to use some or all of our net operating loss carryforwards, which could adversely affect our financial results.
Any compromise or breach of our security could result in a violation of applicable privacy and other laws, including federal and state law, as well as the General Data Protection Regulation ("GDPR"), which could result in significant legal and financial exposure, and a loss of confidence in our security measures, which could have an adverse effect on our business, financial condition and results of operations. 24 Table of Contents Risks Related to our NOLs We may be unable to use some or all of our net operating loss carryforwards, which could adversely affect our financial results.
If outbreaks of mad cow disease, foot-and-mouth disease, bird flu or any other animal disease or the regulation or publicity resulting therefrom impacts the cost of the protein-based ingredients we use in our products, or the cost of the alternative protein-based ingredients necessary for our products as compared to our current costs, we may be required to increase the selling price of our products to avoid margin deterioration.
If outbreaks of mad cow disease, foot-and-mouth disease, avian flu or any other animal disease or the regulation or publicity resulting therefrom impacts the cost or availability of the protein-based ingredients we use in our products, or the cost of the alternative protein-based ingredients necessary for our products as compared to our current costs, we may be required to increase the selling price of our products to avoid margin deterioration.
Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent Developments." If our growth exceeds our expectations, we may not be able to increase our own manufacturing capacity to, or obtain contract manufacturing capacity at, a level that meets demand for our products, which could prevent us from meeting increased customer demand and harm our business.
Management's Discussion and Analysis of Financial Condition and Results of Operations." If our growth exceeds our expectations, we may not be able to increase our own manufacturing capacity to, or obtain contract manufacturing capacity at, a level that meets demand for our products, which could prevent us from meeting increased customer demand and harm our business or reputation.
In addition, if the cost savings initiatives we have implemented to date, or any future cost-savings initiatives, do not generate expected cost savings, our business, financial condition and results of operations could be adversely affected. Our manufacturing capacity and expansion plans could have a material adverse effect on our business, financial condition and results of operations.
In addition, if the cost savings initiatives we have implemented to date, or any future cost-savings initiatives, do not generate expected cost savings, our business, financial condition and results of operations could be adversely affected. 17 Table of Contents Our manufacturing capacity and expansion plans could have a material adverse effect on our business, financial condition and results of operations.
Such increased marketing spending may significantly offset the benefits, if any, of any price increase and negatively impact our business, financial condition and results of operations. If we do not manage our supply chain effectively, including inventory levels, our business, financial condition and results of operation may be adversely affected.
Such increased marketing spending may significantly offset the benefits, if any, of any price increase and negatively impact our business, financial condition and results of operations. 18 Table of Contents If we do not manage our supply chain effectively, including inventory levels, our business, financial condition and results of operation may be adversely affected.
Failure to protect our intellectual property could harm our business, financial condition and results of operations. Our brand names and trademarks are important to our business, and we have registered or applied to register many of these trademarks. We cannot assure you that our trademark applications will be approved.
Failure to protect our intellectual property could harm our business, financial condition and results of operations. 22 Table of Contents Our brand names and trademarks are important to our business, and we have registered or applied to register many of these trademarks. We cannot assure you that our trademark applications will be approved.
We expect that a significant portion of our revenues will continue to be derived from a small number of customers; however, these customers may not continue to purchase our products in the same quantities as they have in the past. Our customers are not contractually obligated to purchase from us.
We expect that a significant portion of our revenues will continue to be derived from a small number of customers and distributors; however, these customers or distributors may not continue to purchase our products in the same quantities as they have in the past. Our customers are not contractually obligated to purchase from us.
Further, our brand value could diminish significantly due to a number of factors, including consumer perception that we have acted in an irresponsible manner, adverse publicity about our products (whether or not valid), our failure to maintain the quality of our products, product contamination, the failure of our products to deliver consistently positive consumer experiences, or the products becoming unavailable to consumers.
Further, our brand value could diminish significantly due to a number of factors, including consumer perception that we have acted in an irresponsible manner, adverse publicity about our products (whether or not valid), our failure to maintain the quality of our products, product contamination, the failure of our products to deliver consistently positive consumer experiences, including with respect to product costs or perceived value, or the products becoming unavailable to consumers.
Our future success depends, in large part, on our ability to implement our growth strategy by attracting new consumers to our brand, expanding distribution through the timely expansion of certain of our Freshpet Kitchens, the installation of new Freshpet Fridges, and launching new products.
Our future success depends, in large part, on our ability to implement our growth strategy by retaining existing customers, attracting new consumers to our brand, expanding distribution through the timely expansion of certain of our Freshpet Kitchens, the installation of new Freshpet Fridges, and launching new products.
Disruptions in the worldwide economy may adversely affect our business, results of operations, and financial condition. Adverse and uncertain economic conditions may impact distributor, customer, and consumer demand for our products. In addition, our ability to manage normal commercial relationships with our suppliers, contract manufacturers, distributors, customers, consumers, and creditors may suffer.
Disruptions in the U.S. and international economy may adversely affect our business, results of operations, and financial condition. Adverse and uncertain economic conditions may impact distributor, customer, and consumer demand for our products. In addition, our ability to manage normal commercial relationships with our suppliers, contract manufacturers, distributors, customers, consumers, and creditors may suffer.
Changes in our customers’ strategies, including a reduction in the number of brands they carry, shipping strategies, a shift of shelf space to or increased emphasis on private label products (including “store brands”), a reduction in shelf space for pet food items or a reduction in the space allocated for our Freshpet Fridges may adversely affect our sales.
Changes in our customers’ strategies, including a reduction in the number of brands they carry, shipping strategies, a shift of shelf space to or increased emphasis on private label products (including “store brands”), a reduction in shelf space for pet food items or a reduction in the space allocated for our Freshpet Fridges, or the failure of our customers to increase the volume of Freshpet Fridges may adversely affect our sales.
If we fail to maintain the favorable perception of our brands, our business, financial condition and results of operations could be negatively impacted. The loss of a significant customer, certain actions by a significant customer or financial difficulties of a significant customer could adversely affect our results of operations.
If we fail to maintain favorable perception of our brands, our business, financial condition and results of operations could be negatively impacted. 15 Table of Contents The loss of a significant customer or distributor, certain actions by a significant customer or distributor, or financial difficulties of a significant customer or distributor could adversely affect our results of operations.
Additionally, from time to time, a co-packer may experience financial difficulties, bankruptcy or other business disruptions, which could disrupt our supply of finished goods or require that we incur additional expense by providing financial accommodations to the co-packer or taking other steps to seek to minimize or avoid supply disruption, such as establishing a new co-packing arrangement with another provider.
Additionally, from time to time, a co-packer or distributor may experience labor shortages, financial difficulties, bankruptcy or other business disruptions, which could disrupt our supply of finished goods or our ability to deliver finished goods to our customers, or require that we incur additional expense by providing financial accommodations to the co-packer or distributor or taking other steps to seek to minimize or avoid supply disruption, such as establishing a new arrangement with another provider.
If we are unable to compete effectively, our results of operations could be adversely affected. The pet food product category in which we participate is highly competitive.
Risks Related to Competition in Our Industry The pet food product category in which we participate is highly competitive. If we are unable to compete effectively, our results of operations could be adversely affected. The pet food product category in which we participate is highly competitive.
To meet our capital needs, we expect to continue to rely on our cash flow from operations, as well as cash received from our Convertible Notes (as defined below), and other third-party financing. Third-party financing in the future may not, however, be available on terms favorable to us, or at all.
To meet our capital needs, we expect to continue to rely on our cash flow from operations, as well as amounts previously raised through the issuance of the Convertible Notes (as defined below), and other third-party financing. Third-party financing in the future may not, however, be available on terms favorable to us, or at all.
Our business is also affected by import and export controls and similar laws and regulations, both in the United States and elsewhere. Issues such as national security or health and safety, which slow or otherwise restrict imports or exports, could adversely affect our business.
Our business is also affected by import and export controls and similar laws and regulations, both in the United States and elsewhere. Issues such as national fiscal policy, national security or health and safety, which can impose or excise tariffs upon, slow or otherwise restrict imports or exports, could adversely affect our business.
In addition, the modification of existing laws or regulations or the introduction of new laws or regulations could require us to make material expenditures or otherwise adversely affect the way that we have historically operated our business.
In addition, the modification or reinterpretation of existing laws or regulations or the introduction of new laws or regulations, including but not limited to executive orders, could require us to make material expenditures or otherwise adversely affect the way that we have historically operated our business.
Our success depends on our network of company-owned branded refrigerators, known as Freshpet Fridges. If the operating capacity of our Freshpet Fridges is harmed by external factors, such as adverse weather or energy supply, or internal factors, such as faulty manufacturing or insufficient maintenance, our products contained in those fridges may be damaged and need to be discarded.
If the operating capacity of our Freshpet Fridges is harmed by external factors, such as adverse weather or energy supply, or internal factors, such as faulty manufacturing or insufficient maintenance, our products contained in those fridges may be damaged and need to be discarded.
The failure for any reason of a co-packer to fulfill its obligations under the applicable agreements with us or the termination or renegotiation of any such co-packing agreement could result in disruptions to our supply of finished goods and have an adverse effect on our results of operations.
The failure for any reason of any such party to fulfill its obligations under the applicable agreements with us or the termination or renegotiation of any such agreement could result in disruptions to our supply of finished goods or our ability to deliver finished goods to our customers, and have an adverse effect on our reputation, business and results of operations.
Failure to implement such initiatives could adversely affect our results of operations. Because our ability to effectively implement price increases for our products can be affected by factors outside of our control, our profitability and growth depend significantly on our efforts to control our operating costs.
Because our ability to effectively implement price increases for our products can be affected by factors outside of our control, our profitability and growth depend significantly on our efforts to control our operating costs.
If mad cow disease or other animal diseases, such as foot-and-mouth disease or highly pathogenic avian influenza, also known as “bird flu,” impacts the availability of the protein-based ingredients we use in our products, we may be required to locate alternative sources for protein-based ingredients.
If mad cow disease or other animal diseases, such as foot-and-mouth disease or HPAI impacts the availability of the protein-based ingredients we use in our products, we may be required to locate alternative sources for protein-based ingredients.
To the extent customers seek to reduce their usual or customary inventory levels or change their practices regarding purchases in excess of consumer consumption, our sales and results of operations could be adversely impacted in that period.
See "Note 10 - Commitments and Contingencies - Legal Obligations." To the extent customers or distributors seek to reduce their usual or customary inventory levels or change their practices regarding purchases in excess of consumer consumption, our sales and results of operations could be adversely impacted.
The ingredients that we use in the production of our products (including, among others, meat, vegetables, fruits, carrageenans, whole grains, vitamins and minerals) are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, frosts, fires, earthquakes, tornadoes and pestilences. Adverse weather conditions may be impacted by climate change and other factors.
The ingredients that we use in the production of our products (including, among others, meat and poultry products, vegetables, fruits, carrageenans, whole grains, vitamins and minerals) are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, frosts, fires, earthquakes, tornadoes, livestock disease such as avian influenza and pestilences.
As of December 31, 2023, we had federal net operating loss (“NOLs”) carryforwards of approximately $420.3 million and state NOLs of approximately $312.8 million that we may use to offset against taxable income for U.S. federal and state income tax purposes, respectively.
As of December 31, 2024, we had federal net operating loss (“NOLs”) carryforwards of approximately $391.5 million and state NOLs of approximately $278.4 million that we may use to offset taxable income for U.S. federal and state income tax purposes, respectively.
Prolonged unfavorable economic conditions may have an adverse effect on our sales and profitability. 18 Our ability to meet our workforce needs, particularly for staffing our Freshpet Kitchens, is crucial We rely on the existence of an available, qualified workforce to efficiently execute our operations and manufacture our products.
Our ability to meet our workforce needs, particularly for staffing our Freshpet Kitchens, is crucial We rely on the existence of an available, qualified workforce to efficiently execute our operations and manufacture our products.
Increased costs for ingredients or other inputs could also adversely affect our business, financial condition and results of operations as described in “—The inputs, commodities and ingredients that we require are subject to price increases and shortages that could adversely affect our results of operations.” Additionally, adverse weather conditions, natural disasters or other natural conditions, including global or local pandemics, such as COVID-19, affecting our operating activities or major facilities could cause an interruption or delay in our production or delivery schedules and loss of inventory and/or data or render us unable to accept and fulfill customer orders in a timely manner, or at all.
Increased costs for ingredients or other inputs could also adversely affect our business, financial condition and results of operations as described in “— The inputs, commodities and ingredients that we require are subject to macroeconomic factors, government regulation, and other factors outside of our or our suppliers' control, including but not limited to, price increases, inflationary and interest rate pressures, tariffs, trade wars, product or agricultural industry labor shortages, livestock disease or pestilence, any of which could adversely affect our results of operations .” Additionally, adverse weather conditions, natural disasters or other natural conditions, including global or local pandemics affecting our operating activities or major facilities could cause an interruption or delay in our production or delivery schedules and loss of inventory and/or data or render us unable to accept and fulfill customer orders in a timely manner, or at all.
For additional possible effects of such offerings, see "Future offerings of debt securities, which would rank senior to our common stock upon our bankruptcy or liquidation, and future offerings of equity securities, which may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock." 12 Loss of our key executive officers or personnel, or an inability to attract and retain such management and other personnel, could negatively affect our business.
For additional possible effects of such offerings, see " Future offerings of debt securities, which would rank senior to our common stock upon our bankruptcy or liquidation, and future offerings of equity securities, which may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock.
Prices for these and other items we use may be volatile, and we may experience shortages in these items due to factors beyond our control, such as commodity market fluctuations, availability of supply, increased demand (whether for the item we require or for other items, which in turn impacts the item we require), weather conditions, natural disasters, the effects of climate change, currency fluctuations, inflationary and/or interest rate pressures, governmental regulations (including import restrictions), agricultural programs or issues, energy programs, geopolitical concerns, including the ongoing conflict between Ukraine and Russia, labor strikes and the financial health of our suppliers.
Prices for these and other items we use may be volatile, and we may experience shortages in these items due to factors beyond our control, such as commodity market, availability of supply, increased demand (whether for the item we require or for other items, which in turn impacts the item we require), shortages of agricultural workers (including due to U.S. immigration policies); weather conditions, natural disasters, animal disease outbreaks (such as HPAI), pestilence, operational disruption, financial distress or insolvency of key suppliers or other third parties on whom we or they rely, the effects of climate change, currency fluctuations, tariffs or trade wars, inflationary and/or interest rate pressures, governmental regulations (including import restrictions), sustained government or regulatory shutdowns, regulatory uncertainty or delays, agricultural programs or issues, energy programs, geopolitical concerns, including the ongoing conflict between Ukraine and Russia, labor strikes and the financial health of our suppliers.
Attacks may be targeted at us, our customers and suppliers, or others who have entrusted us with information. Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, provide additional training for employees, and engage third-party experts and consultants.
Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, provide additional training for employees, and engage third-party experts and consultants.
Although none of our employees are currently covered under collective bargaining agreements, any disruption in our employee relationships, including hiring and retaining our employees, could adversely affect our ability to attract and retain qualified employees to meet current or future manufacturing needs at a reasonable cost, or at all.
Although none of our employees are currently covered under collective bargaining agreements, any disruption in our employee relationships, including hiring and retaining our employees, could adversely affect our ability to attract and retain qualified employees to meet current or future manufacturing needs at a reasonable cost, or at all. 21 Table of Contents Risks Related to Government Regulation and Legal Proceedings Government regulation, scrutiny, warnings and public perception could increase our costs of production and increase legal and regulatory expenses.
Additionally, especially during economic downturns, our customers may face financial difficulties, bankruptcy or other business disruptions that may impact their operations and their purchases from us and may affect their ability to pay us for products purchased from us.
Additionally, especially during economic downturns, our customers and/or distributors may face financial difficulties, bankruptcy or other business disruptions that may impact their operations and their purchases from us and may affect their ability to pay us for products purchased from us. In addition, there are a relatively small number of distributors with whom we engage to distribute our products.
Additionally, if this occurs after the affected product has been distributed, we may need to withdraw or recall the affected product and we may experience adverse publicity or product liability claims.
Additionally, if this occurs after the affected product has been distributed, we may need to withdraw or recall the affected product and we may experience adverse publicity or product liability claims. In either case, our business, financial condition and results of operations could be adversely affected.
Global or local pandemics, such as COVID-19, could also have adverse impacts on our business operations. Our results of operations depend upon, among other things, our ability to maintain and increase sales volume with our existing customers, to attract new consumers and to provide products that appeal to consumers at prices they are willing and able to pay.
Our results of operations depend upon, among other things, our ability to maintain and increase sales volume with our existing customers, to attract new consumers and to provide products that appeal to consumers at prices they are willing and able to pay. Prolonged unfavorable economic conditions may have an adverse effect on our sales and profitability.
Additionally, compliance with evolving environmental legislation and regulations, particularly if they are more aggressive than our current sustainability measures used to monitor our emissions and improve our energy efficiency, may increase our costs and adversely affect our results of operations.
Regulations limiting greenhouse gas emissions and energy inputs may also increase in coming years, which may increase our costs associated with compliance. 23 Table of Contents Additionally, compliance with evolving environmental legislation and regulations at the international, national, state and local levels, particularly if they are more aggressive than our current sustainability measures used to monitor our emissions and improve our energy efficiency, may increase our costs and adversely affect our results of operations.
In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, power outages, systems failures, security breaches, physical theft or vandalism, cyber-attacks and viruses. Any such damage or interruption could have a material adverse effect on our business, financial condition and results of operations.
In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including but not limited to fire, natural disasters, power outages, systems failures, security breaches, physical theft or vandalism, unintentional disruptions, cyber-attacks and viruses.
If such losses (also referred to as the elasticity impact) are greater than expected or if we lose distribution due to a price increase (which may result from a customer response or otherwise), our business, financial condition and results of operations could be adversely affected.
If such losses (also referred to as the elasticity impact) are greater than expected or if we lose distribution due to a price increase (which may result from a customer response or otherwise), our business, financial condition and results of operations could be adversely affected. 16 Table of Contents If our products are alleged to cause injury or illness, be mislabeled or misbranded, or fail to comply with governmental regulations, we may suffer adverse public relations, need to recall our products and experience product liability claims.
In either case, our business, financial condition and results of operations could be adversely affected. 17 Restrictions imposed in reaction to outbreaks of animal diseases could have a material adverse effect on our business, financial condition and results of operations.
Outbreaks of animal diseases could have a material adverse effect on our business, financial condition and results of operations.
In such event, customers may choose to discontinue, or not to expand, their use of Freshpet Fridges and our products and consumers may choose to forgo purchasing our products. Any such harm to the operating capacity or reputation of our Freshpet Fridges could adversely affect our business, financial condition and results of operations.
In such event, customers may choose to discontinue, or not to expand, their use of Freshpet Fridges and our products and consumers may choose to forgo purchasing our products.
Security breaches could expose us to a risk of loss or misuse of this information, litigation, and potential liability. We, or third-party service providers on whom we may rely, may not have the resources or technical sophistication to anticipate or prevent rapidly-evolving types of cyber-attacks, including those generated by artificial intelligence.
We, or third-party service providers on whom we may rely, may not have the resources or technical sophistication to anticipate or prevent rapidly-evolving types of cyber-attacks, including those generated by artificial intelligence. Attacks may be targeted at us, our customers and suppliers, or others who have entrusted us with information.
If our marketing and trade spending programs are not successful or if we fail to implement sufficient and effective marketing and trade spending programs, our business, financial condition and results of operations may be adversely affected. 13 Risks Related to our Products and Customers Our business depends on our ability to introduce new products and improve existing products in anticipation of changes in consumer preferences and demographics.
If our marketing and trade spending programs are not successful or if we fail to implement sufficient and effective marketing and trade spending programs, our business, financial condition and results of operations may be adversely affected.
In the future, we may issue additional shares of common stock or other securities if we need to raise additional capital. The number of new shares of our common stock issued in connection with raising additional capital could constitute a material portion of the then outstanding shares of our common stock.
The number of new shares of our common stock issued in connection with raising additional capital could constitute a material portion of the then outstanding shares of our common stock. Any future sales of our common stock, or the perception that such sales may occur, could negatively impact the price of our common stock.
Our business is focused on the development, manufacture, marketing and distribution of pet food products. If consumer demand for our products decreased, our business would suffer. Sales of pet food products are subject to evolving consumer preferences, changing demographics and economic pressures.
Risks Related to our Products and Customers Our business depends on our ability to introduce new products and improve existing products in anticipation of changes in consumer preferences and demographics. Our business is focused on the development, manufacture, marketing and distribution of pet food products. If consumer demand for our products decreased, our business would suffer.
During economic downturns, our co-packers may be more susceptible to experiencing such financial difficulties, bankruptcies or other business disruptions. A new co-packing arrangement may not be available on terms as favorable to us as the existing co-packing arrangement, if at all. Failure by our transportation providers to deliver our products on time or at all could result in lost sales.
A new co-packing or distribution arrangement may not be available on terms as favorable to us as the existing arrangement, if at all. 20 Table of Contents Failure by our transportation providers to deliver our products on time or at all could result in lost sales. We use third-party transportation providers for our product shipments.
Any future sales of our common stock, or the perception that such sales may occur, could negatively impact the price of our common stock. Actions of activist stockholders have in the past and could in the future cause us to incur substantial costs, divert management's attention and resources, and have an adverse effect on our business.
Actions of activist stockholders have in the past and could in the future cause us to incur substantial costs, divert management's attention and resources, and have an adverse effect on our business. We have in the past been, and may in the future be, subject to proposals by stockholders urging us to take certain corporate actions.
In the United States, these aspects of our operations are regulated by the FDA, and various state and local public health and agricultural agencies.
Manufacturing, processing, labeling, packaging, storing and distributing pet products are activities subject to extensive federal, state and local regulation, as well as foreign regulation. In the United States, these aspects of our operations are regulated by the FDA, and various state and local public health and agricultural agencies.
If the ingredients we use in our products are contaminated, alleged to be contaminated or are otherwise rumored to have adverse effects, our results of operations could be adversely affected. We buy our ingredients from third-party suppliers.
Any such harm to the operating capacity or reputation of our Freshpet Fridges could adversely affect our business, financial condition and results of operations. 19 Table of Contents If the ingredients we use in our products are contaminated, alleged to be contaminated or are otherwise rumored to have adverse effects, our results of operations could be adversely affected.
Future sales of our common stock, or the perception that such sales may occur, could depress our common stock price. As of December 31, 2023, we had 48,263,097 shares of common stock outstanding, and our Certificate of Incorporation authorizes us to issue up to 200 million shares of common stock.
As of December 31, 2024, we had 48,701,787 shares of common stock outstanding, and our Certificate of Incorporation authorizes us to issue up to 200 million shares of common stock. In the future, we may issue additional shares of common stock or other securities if we need to raise additional capital.
We use third-party transportation providers for our product shipments. We rely on two primary providers for almost all of our shipments. Transportation services include scheduling and coordinating transportation of finished products to our customers, shipment tracking and freight dispatch services.
Transportation services include scheduling and coordinating transportation of finished products to our customers, shipment tracking and freight dispatch services.
Whether or not a false marketing claim is successful, such assertions could have an adverse effect on our business, financial condition and results of operations, and the negative publicity surrounding them could harm our reputation and brand image. 15 Risks Related to our Manufacturing and Supply Chain We may not be able to successfully implement initiatives to improve productivity and streamline operations to control or reduce costs.
Regardless of their merit, these claims can require significant time and expense to investigate and defend. Whether or not a false marketing claim is successful, such assertions could have an adverse effect on our business, financial condition and results of operations, and the negative publicity surrounding them could harm our reputation and brand image.
We have supply agreements with co-packers that require them to provide us with specific finished products. We rely on co-packers as our sole source for certain products. We also anticipate that we will rely on sole suppliers for future products.
We rely on co-packers as our sole source for certain products and on distributors for exclusive delivery of certain products. We also anticipate that we will rely on sole suppliers and exclusive distributors for future products.
As we operate in a single industry, we are especially vulnerable to these factors to the extent that they affect our industry or our products. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price and we have defended against such lawsuits in the past.
In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price and we have defended against such lawsuits in the past. 25 Table of Contents Future sales of our common stock, or the perception that such sales may occur, could depress our common stock price.
We are subject to cyber security risks and may incur increasing costs in an effort to minimize those risks. Our business employs systems and websites that allow for the secure storage and transmission of proprietary or confidential information regarding our customers, employees, suppliers and others, including personal identification information.
Our business employs systems and websites that allow for the secure storage and transmission of proprietary or confidential information regarding our customers, employees, suppliers and others, including personal identification information. Security breaches could expose us to a risk of loss or misuse of this information, litigation, and potential liability.
Our future success depends to a significant degree on the skills, experience and efforts of our key executive officers.
" 13 Table of Contents Loss of our key executive officers or personnel, or an inability to attract and retain such management and other personnel, could negatively affect our business. Our future success depends to a significant degree on the skills, experience and efforts of our key executive officers.
A relatively limited number of customers account for a large percentage of our net sales. During 2023, ten customers, who purchase either directly from us or through third-party distributors, collectively accounted for approximately 73.1% of our net sales. This percentage may increase if there is consolidation among retailers or if mass merchandisers grow disproportionately to their competition.
Our customers purchase products either directly from us, or through a network of distributors who have purchased product inventory from us. A relatively limited number of customers and distributors account for a large percentage of our net sales. During 2024, ten customers, who purchase either directly from us or through distributors, collectively accounted for approximately 68.1% of our net sales.
The inputs, commodities and ingredients that we require are subject to price increases, inflationary and interest rate pressures, and shortages that could adversely affect our results of operations. The primary inputs, commodities and ingredients that we use include meat, vegetables, fruits, carrageenans, whole grains, vitamins, minerals, packaging and energy (including wind power).
Our business is dependent on our ability to timely source ingredients that comply with our product quality standards. The primary inputs, commodities and ingredients that we use include meat, poultry products, vegetables, fruits, carrageenans, whole grains, vitamins, minerals, packaging and energy (including wind power).
Changes in the availability and cost of freight may affect our supply chain and ultimately the pricing and availability of our products.
Changes in the availability and cost of freight may affect our supply chain and ultimately the pricing and availability of our products. If we are unable to manage our supply chain effectively and ensure that our products are available to meet consumer demand, our operating costs could increase and our profit margins could decrease.
If we are unable to manage our supply chain effectively and ensure that our products are available to meet consumer demand, our operating costs could increase and our profit margins could decrease. 16 Adverse weather conditions, natural disasters, pestilences, global or local pandemics, such as COVID-19 and other natural conditions can disrupt our operations, which can adversely affect our business, financial condition and results of operations.
Adverse weather conditions, natural disasters, livestock disease, pestilences, global or local pandemics and other natural conditions can disrupt our operations, which can adversely affect our business, financial condition and results of operations.
However, we may not be able to charge higher prices for our products without negatively impacting future sales volumes. We rely on co-packers to provide our supply of certain products. Any failure by co-packers to fulfill their obligations or any termination or renegotiation of our co-packing agreements could adversely affect our results of operations.
Any failure by co-packers or distributors to fulfill their obligations or any termination or renegotiation of their agreements could adversely affect our results of operations. We have supply agreements with co-packers that require them to provide us with specific finished products and distribution agreements with distributors to sell certain of our products in select channels.
For example, during Q4 2020, we experienced a delay in our distribution chain due to winter storms in the Northeastern United States, which negatively impacted our results of operations for Q4 2020. If the operating capacity or reputation of our Freshpet Fridges is harmed, our business, financial condition and results of operations may suffer.
If the operating capacity or reputation of our Freshpet Fridges is harmed, our business, financial condition and results of operations may suffer. Our success depends on our network of company-owned branded refrigerators, known as Freshpet Fridges.
If we are unable to maintain or increase prices for our products (or if we must increase promotional activity), our results of operations could be adversely affected. Furthermore, price increases generally result in volume losses, as consumers purchase fewer units.
Furthermore, price increases generally result in volume losses, as consumers purchase fewer units.
Removed
Additionally, we also depend on our ability to attract and retain qualified personnel to efficiently operate and expand our business. If we fail to attract or retain talented new employees, our business and results of operations could be negatively affected. Risks Related to Competition in Our Industry The pet food product category in which we participate is highly competitive.
Added
Additionally, we depend on our ability to attract and retain qualified personnel to efficiently operate and expand our business, and in recent years have rapidly expanded our workforce to support our increased manufacturing capacity.
Removed
A key element of our growth strategy depends on our ability to develop and market new products and improvements to our existing products that meet our standards for quality and appeal to consumer preferences.
Added
Certain specialized and technical knowledge is required to maintain satisfactory operating conditions and food quality standards at our manufacturing facilities, and if employees assigned to such facilities are not adequately trained, able to assimilate into those roles, or adhere to such standards, or if we fail to attract or retain talented new employees, our business and results of operations could be negatively affected.
Removed
If our products are alleged to cause injury or illness, be mislabeled or misbranded, or fail to comply with governmental regulations, we may suffer adverse public relations, need to recall our products and experience product liability claims.
Added
Sales of pet food products are subject to evolving consumer preferences, changing demographics and economic pressures.

… 21 more changes not shown on this page.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

5 edited+1 added−0 removed10 unchanged
Biggest changeThe information security organization has extensive technology security and program management experience including cybersecurity professional certifications such as Certified Information Systems Security Professional ("CISSP"), advanced degrees in Information Assurance, and numerous years' experience assessing and managing cybersecurity risk within the Department of Defense and other public companies.
Biggest changeOur information security organization, led by our Chief Information Officer (our "CIO") who reports to our Chief Financial Officer (our "CFO"), is comprised of both I.T. security leadership and dedicated cybersecurity staff. 26 Table of Contents The information security organization, collectively, has extensive technology security and program management experience including cybersecurity professional certifications such as Certified Information Systems Security Professional ("CISSP"), advanced degrees in Information Assurance, and numerous years' experience assessing and managing cybersecurity risk within the Department of Defense and other public companies.
No less than twice per year, and more frequently as appropriate, our CFO and CIO also provide updates regarding our cybersecurity risk management strategy and related activities to the Audit Committee of our Board of Directors, and provide other information as needed to facilitate the committee's oversight of our cybersecurity risk. 24
No less than twice per year, and more frequently as appropriate, our CFO and CIO also provide updates regarding our cybersecurity risk management strategy and related activities to the Audit Committee of our Board of Directors, and provide other information as needed to facilitate the committee's oversight of our cybersecurity risk.
ITEM 1C. CYBERSECURITY The information technology systems we rely upon to effectively manage our business data, communications, supply chain, order entry and fulfillment, and other business processes are subject to risk from security breaches and other significant disruptions.
ITEM 1C. CYBERSECURITY The information technology systems we rely upon to effectively manage our business data, communications, supply chain, fulfillment, and other business processes are subject to risk from security breaches and other significant disruptions.
These controls are tested by our information security organization and by independent third parties. We actively engage with industry groups for awareness of best practices and our third-party provides for industry benchmarking of critical areas within our cybersecurity posture.
These controls are tested by our information security organization and by independent third parties. We actively engage with industry groups for awareness of best practices and our third-party providers for industry benchmarking of critical areas within our cybersecurity posture.
Risk Factors— We are subject to cyber security risks and may incur increasing costs in an effort to minimize those risks". Our information security organization, led by our Chief Information Officer (our "CIO") who reports to our Chief Financial Officer (our "CFO"), is comprised of both I.T. security leadership and dedicated Cybersecurity staff.
Risk Factors— We are subject to cyber security risks and may incur increasing costs in an effort to minimize those risks".
Added
Additionally, some of our Board members have completed specialized director training on cybersecurity risk.

Item 2. Properties

Properties — owned and leased real estate

4 edited+0 added−1 removed0 unchanged
Biggest changeITEM 2. PROPERTIES Our corporate headquarters, located in Secaucus, New Jersey and consisting of approximately 24,000 square feet of office space, is subject to a lease agreement that expires on June 30, 2024. We own the Freshpet Kitchens Bethlehem ("Kitchens 1.0" and "Kitchens 2.0").
Biggest changeITEM 2. PROPERTIES In August 2023, we entered into a lease arrangement for a to-be constructed office space for our corporate headquarters, which will contribute right of use assets and lease liabilities upon lease commencement, which is currently anticipated to occur by the first half of 2025. We own the Freshpet Kitchens Bethlehem ("Kitchens 1.0" and "Kitchens 2.0").
Kitchens 1.0 is approximately a 100,000 square-foot manufacturing facility, and Kitchens 2.0 is approximately a 140,000 square-foot manufacturing facility, each located in Bethlehem, Pennsylvania (together, the "Freshpet Kitchens Bethlehem"). Additionally we own a second location in Ennis, Texas ("Freshpet Kitchens Ennis"), that will be completed in 3 phases.
Kitchens 1.0 is approximately a 100,000 square-foot manufacturing facility, and Kitchens 2.0 is approximately a 140,000 square-foot manufacturing facility, both located in Bethlehem, Pennsylvania (together, the "Freshpet Kitchens Bethlehem"). Additionally we own a second location in Ennis, Texas ("Freshpet Kitchens Ennis"), that will be completed in 3 phases.
Phase 1 had one line commissioned during 2022 and the remaining two lines were completed during 2023, subsequent to which, the Freshpet Kitchens Ennis facility represents approximately 400,000 square-foot.
Phase 1 had one line commissioned during 2022 and the remaining two lines were completed during 2023, subsequent to which, the Freshpet Kitchens Ennis facility represents approximately 400,000 square-feet. Phase 2 commissioning was initiated in 2024 with the addition of two lines, with the balance of Phase 2 and Phase 3 planned for completion over the next several years.
We believe that our properties have been adequately maintained, are in good condition generally and are suitable and adequate for our business as presently conducted.
At the completion of phase 2 and 3, the Freshpet Kitchens Ennis facility will grow by approximately 400,000 square-feet. 27 Table of Contents We believe that our properties have been adequately maintained, are in good condition generally and are suitable and adequate for our business as presently conducted.
Removed
The first line in phase 2 is planned to be completed by the third quarter of 2024 with the remaining lines to be completed along with phase 3 over the next several years. At the completion of phase 2 and 3, the Freshpet Kitchens Ennis facility will grow by approximately 300,000 and 325,000 square-foot, respectively.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed2 unchanged
Biggest changeRisk Factors” and Note 9 to our Consolidated Financial Statements for a discussion of certain legal proceedings involving the Company.
Biggest changeRisk Factors” and Note 10 - Commitments and Contingencies to our Consolidated Financial Statements for a discussion of certain legal proceedings involving the Company.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+1 added−2 removed2 unchanged
Biggest changeIssuer Purchases of Equity Securities None. 25 Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Freshpet, Inc. under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.
Biggest changeStock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Freshpet, Inc. under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act. 28 Table of Contents The following graph compares our total common stock return with the total return for (i) the NASDAQ Composite Index (the “NASDAQ Composite”) and (ii) the Russell 3000 Index (the “Russell 3000”) for the five-year period ended December 31, 2024.
The graph assumes that $100 was invested on December 31, 2019, in each of our common stock, the NASDAQ Composite and the Russell 3000. The comparisons in the table are required by the SEC and are not intended to forecast or be indicative of possible future performance of our common stock. Date Freshpet, Inc.
The graph assumes that $100 was invested on December 31, 2020, in each of our common stock, the NASDAQ Composite and the Russell 3000. The comparisons in the table are required by the SEC and are not intended to forecast or be indicative of possible future performance of our common stock. Date Freshpet, Inc.
ITEM 5. Market for registrant’s common equity, related stockholder matters and issueR purchases of equity secuRIties Market Information Shares of our common stock are publicly traded on the Nasdaq Global Market under the symbol "FRPT". The number of stockholders of record of our common stock as of February 22, 2024 was approximately 425.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Shares of our common stock are publicly traded on the Nasdaq Global Market under the symbol "FRPT". The number of stockholders of record of our common stock as of February 18, 2025 was approximately 332.
Our ability to pay dividends may also be limited by covenants of any future outstanding indebtedness we or our subsidiaries incur.
Our ability to pay dividends may also be limited by covenants of any future outstanding indebtedness we or our subsidiaries incur. Issuer Purchases of Equity Securities None.
Removed
The following graph compares our total common stock return with the total return for (i) the NASDAQ Composite Index (the “NASDAQ Composite”) and (ii) the Russell 3000 Index (the “Russell 3000”) for the five-year period ended December 31, 2023.
Added
NASDAQ Composite Russell 3000 Dec 31, 2020 $ 100.00 $ 100.00 $ 100.00 Dec 31, 2021 $ 67.10 $ 121.39 $ 124.00 Dec 31, 2022 $ 37.16 $ 81.21 $ 98.61 Dec 31, 2023 $ 61.10 $ 116.47 $ 122.23 Dec 31, 2024 $ 104.31 $ 149.83 $ 150.18
Removed
NASDAQ Composite Russell 3000 31-Dec-19 $ 100.00 $ 100.00 $ 100.00 31-Dec-20 $ 240.29 $ 143.64 $ 118.82 31-Dec-21 $ 161.23 $ 174.36 $ 147.35 31-Dec-22 $ 89.30 $ 116.65 $ 117.17 31-Dec-23 $ 146.83 $ 167.30 $ 145.24 26

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

70 edited+11 added−16 removed34 unchanged
Biggest changeAt December 31, 2023, we had a full valuation allowance against our net deferred tax assets as the realization of such assets was not considered more likely than not. 28 Consolidated Statements of Operations and Comprehensive Loss Twelve Months Ended December 31, 2023 2022 2021 Amount % of Net Sales Amount % of Net Sales Amount % of Net Sales (Dollars in thousands) Net sales $ 766,895 100 % $ 595,344 100 % $ 425,489 100 % Cost of goods sold 516,023 67 409,311 69 263,343 62 Gross profit 250,872 33 186,033 31 162,146 38 Selling, general and administrative expenses 281,318 37 238,016 40 186,809 44 Loss from operations (30,446 ) (4 ) (51,983 ) (9 ) (24,663 ) (6 ) Interest and other income, net 13,029 2 1,710 0 13 0 Interest expense (14,097 ) (2 ) (5,208 ) (1 ) (2,882 ) (1 ) Loss before income taxes (31,514 ) (4 ) (55,481 ) (10 ) (27,532 ) (6 ) Income tax expense 210 0 282 0 162 0 Loss on equity method investment 1,890 0 3,731 1 2,005 0 Net loss $ (33,614 ) (4 )% $ (59,494 ) (10 )% $ (29,699 ) (7 )% Twelve Months Ended December 31, 2023 Compared To Twelve Months Ended December 31, 2022 Net Sales The following table sets forth net sales by class of retail: Year Ended December 31, 2023 2022 Amount % of Net Sales Store Count Amount % of Net Sales Store Count (Dollars in thousands) Grocery, Mass and Club (1) $ 685,307 89 % 21,135 $ 524,971 88 % 19,670 Pet Specialty and Natural (2) 81,588 11 % 5,642 70,373 12 % 5,611 Net Sales $ 766,895 100 % 26,777 $ 595,344 100 % 25,281 (1) Stores at December 31, 2023 and December 31, 2022 consisted of 14,800 and 13,847 grocery and 6,335 and 5,823 mass and club, respectively.
Biggest changeConsolidated Statements of Operations and Comprehensive Income (Loss) Year Ended December 31, 2024 2023 2022 Amount % of Net Sales Amount % of Net Sales Amount % of Net Sales (Dollars in thousands) Net sales $ 975,177 100 % $ 766,895 100 % $ 595,344 100 % Cost of goods sold 579,221 59 % 516,023 67 % 409,311 69 % Gross profit 395,956 41 % 250,872 33 % 186,033 31 % Selling, general, and administrative expenses 357,957 37 % 281,318 37 % 238,016 40 % Income (loss) from operations 37,999 4 % (30,446) (4) % (51,983) (9) % Interest and other income, net 11,868 1 % 13,029 2 % 1,710 — % Interest expense (12,262) (1) % (14,097) (2) % (5,208) (1) % Gain on equity investment 9,918 1 % — — % — — % Income (loss) before income taxes 47,523 5 % (31,514) (4) % (55,481) (10) % Income tax expense 598 — % 210 — % 282 — % Loss on equity method investment — — % 1,890 — % 3,731 1 % Net income (loss) $ 46,925 5 % $ (33,614) (4) % $ (59,494) (10) % 31 Table of Contents Year Ended December 31, 2024 Compared To Year Ended December 31, 2023 Net Sales The following table sets forth net sales by class of retailer: Year Ended December 31, 2024 2023 2022 Amount % of Net Sales Amount % of Net Sales Amount % of Net Sales (Dollars in thousands) Grocery, Mass, International and Digital $ 800,775 82 % $ 642,306 84 % $ 503,753 85 % Pet Specialty and Club 174,402 18 % 124,589 16 % 91,591 15 % Net Sales $ 975,177 100 % $ 766,895 100 % $ 595,344 100 % Effective March 31, 2024, the Company is providing a more meaningful breakout of its sales, which now combines pet specialty and club, as both classes of retailers service a specific consumer through specialized offerings, which include value focused and or premium products.
GAAP measures and may not be comparable to similarly named measures used by other companies. • Adjusted Gross Profit • Adjusted Gross Profit as a percentage of net sales (Adjusted Gross Margin) • Adjusted SG&A expenses • Adjusted SG&A expenses as a percentage of net sales • EBITDA • Adjusted EBITDA • Adjusted EBITDA as a percentage of net sales (Adjusted EBITDA Margin) Such financial measures are not financial measures prepared in accordance with U.S.
GAAP measures and may not be comparable to similarly named measures used by other companies. • Adjusted Gross Profit • Adjusted Gross Profit as a percentage of net sales (Adjusted Gross Margin) • Adjusted SG&A Expenses • Adjusted SG&A Expenses as a percentage of net sales • EBITDA • Adjusted EBITDA • Adjusted EBITDA as a percentage of net sales Such financial measures are not financial measures prepared in accordance with U.S.
EBITDA represents net income (loss) plus interest expense net of interest income, income tax expense and depreciation and amortization.
EBITDA represents net income (loss) plus interest expense net of interest income, income tax expense and depreciation and amortization expense.
For example, the non-GAAP financial measures do not reflect: ● our capital expenditures or future requirements for capital expenditures; ● the interest expense, or the cash requirements necessary to service interest expense or principal payments, associated with indebtedness; ● depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, nor any cash requirements for such replacements; and ● changes in cash requirements for our working capital needs.
For example, the non-GAAP financial measures do not reflect: • our capital expenditures or future requirements for capital expenditures; • the interest expense, or the cash requirements necessary to service interest expense or principal payments, associated with indebtedness; • depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, nor any cash requirements for such replacements; and • changes in our cash requirements for our working capital needs.
Additionally, Adjusted EBITDA (i) excludes non-cash share-based compensation expense, which is and will remain a key element of our overall long-term incentive compensation package, and (ii) certain costs essential to our sales growth and strategy. Adjusted EBITDA also excludes certain cash charges resulting from matters we consider not to be indicative of our ongoing operations.
Additionally, Adjusted EBITDA excludes (i) non-cash share-based compensation expense, which is and will remain a key element of our overall long-term incentive compensation package, and (ii) certain costs essential to our sales growth and strategy. Adjusted EBITDA also excludes certain cash charges resulting from matters we consider not to be indicative of our ongoing operations.
The performance-based awards with financial criteria either have a Net Sales and/or Adjusted EBITDA target from FY 2023 through FY 2026. We recognize the estimated fair value of performance-based awards as share-based compensation expense over the performance period based upon our determination of whether it is probable that the performance targets will be achieved.
The performance-based awards with financial criteria either have a Net Sales and/or Adjusted EBITDA target from FY 2023 through FY 2027. We recognize the estimated fair value of performance-based awards as share-based compensation expense over the performance period based upon our determination of whether it is probable that the performance targets will be achieved.
Adjusted EBITDA is also an important component of internal budgeting and setting management compensation. The non-GAAP financial measures are presented here because we believe they are useful to investors in assessing the operating performance of our business without the effect of non-cash items, and other items as detailed below.
Adjusted EBITDA is also an important component of internal budgeting and setting management compensation. The non-GAAP financial measures are presented here because we believe they are useful to investors in assessing the operating performance of our business without the effect of non-cash items, and other items as detailed herein.
If this is the case, we may seek alternative financing, such as selling additional debt or equity securities, and we cannot assure you that we will be able to do so on favorable terms, if at all.
If this is the case, we may seek alternative financing, such as issuing additional debt or equity securities, and we cannot assure you that we will be able to do so on favorable terms, if at all.
Our business model is difficult for others to replicate, and we see significant opportunity for future growth by leveraging the unique elements of our business, including our brand, product know-how, Freshpet Kitchens, refrigerated distribution, Freshpet Fridge, and culture.
Our business model is difficult for others to replicate and we see significant opportunity for future growth by leveraging the unique elements of our business, including our brand, our product know-how, our Freshpet Kitchens, our refrigerated distribution, our Freshpet Fridges and our culture.
Our investments in marketing and advertising help to drive awareness and trial at each point of sale. ● Increasing penetration of Freshpet Fridge locations in major classes of retail, including Grocery, Mass, Club, Pet Specialty, Natural, and Digital.
Our investments in marketing and advertising help to drive awareness and trial at each point of sale. • Increasing penetration of Freshpet Fridge locations in major classes of retail, including Grocery, Mass, International, Digital, Pet Specialty, and Club.
Other companies in our industry may calculate the non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures. The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net loss, the most directly comparable financial measure presented in accordance with U.S.
Other companies in our industry may calculate the non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures. 34 Table of Contents The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net income (loss), the most directly comparable financial measure presented in accordance with U.S.
For more information regarding our consolidated results and liquidity and capital resources for the year ended December 31, 2022 as compared to the year ended December 31, 2021, refer to "Part II, Item 7.
For more information regarding our consolidated results and liquidity and capital resources for the year ended December 31, 2023 as compared to the year ended December 31, 2022, refer to "Part II, Item 7.
We expect to fund our ongoing operations and obligations with cash and cash equivalents, and cash flow from operations. 35 The following table sets forth, for the periods indicated, our beginning balance of cash, net cash flows provided by operating, investing and financing activities and our ending balance of cash.
We expect to fund our ongoing operations and obligations with cash and cash equivalents, and cash flow from operations. The following table sets forth, for the periods indicated, our beginning balance of cash, net cash flows provided by (used in) operating, investing and financing activities and our ending balance of cash.
We believe that cash and cash equivalents, short-term investments, expected cash flow from operations, amounts previously raised through the issuance of the Convertible Notes and our ability to access the capital markets, if appropriate, are adequate to fund our debt requirements, operating and finance lease obligations, capital expenditures and working capital obligations for the foreseeable future.
We believe that cash and cash equivalents, expected cash flow from operations, amounts previously raised through the issuance of the Convertible Notes and our ability to access the capital markets, if appropriate, are adequate to fund our debt service requirements, operating and finance lease obligations, capital expenditures and working capital obligations for the foreseeable future.
Components of our Results of Operations Net Sales Our net sales are derived from the sale of pet food products that are sold to retailers through broker and distributor arrangements. Our products are sold to consumers through a fast-growing network of company-owned branded refrigerators, known as Freshpet Fridges, located in our customers’ stores.
Components of our Results of Operations Net Sales Our net sales are derived from the sale of fresh pet food products to retailers, through direct sales and distributor arrangements. Our products are sold to consumers through a fast-growing network of company-owned branded refrigerators, known as Freshpet Fridges, located in our customers’ stores.
(f) Represents a true-up to transition costs related to the organization changes designed to support growth, including several changes in organizational structure designed to enhance capabilities and support long-term growth objectives. 33 Liquidity and Capital Resources To meet our capital needs, we issued approximately $402.5 million in convertible notes in March 2023 (the "Convertible Notes"), used $66.2 million of the proceeds to enter into capped call transactions, and used $11.0 million of the proceeds on debt issuance related costs.
(e) Represents a true-up to transition costs related to the organization changes designed to support growth, including several changes in organizational structure designed to enhance capabilities and support long-term growth objectives. 36 Table of Contents Liquidity and Capital Resources To meet our capital needs, we issued approximately $402.5 million in convertible notes in March 2023 (the "Convertible Notes"), used $66.2 million of the proceeds to enter into capped call transactions, and used $11.0 million of the proceeds on debt issuance related costs.
(f) Represents a true-up to transition costs related to the organization changes designed to support growth, including several changes in organizational structure designed to enhance capabilities and support long-term growth objectives. 32 The following table provides a reconciliation of Adjusted Gross Profit to Gross Profit, the most directly comparable financial measure presented in accordance with U.S.
(e) Represents a true-up to transition costs related to the organization changes designed to support growth, including several changes in organizational structure designed to enhance capabilities and support long-term growth objectives. 35 Table of Contents The following table provides a reconciliation of Adjusted Gross Profit to Gross Profit, the most directly comparable financial measure presented in accordance with U.S.
The NOL generated from 2018 through 2023, of approximately $244.9 million, will have an indefinite carryforward period, but can generally only be used to offset 80% of taxable income in any particular year.
The NOLs generated from 2018 through 2023, of approximately $244.8 million, will have an indefinite carryforward period, but can generally only be used to offset 80% of taxable income in any particular year.
We continue to roll out Freshpet Fridges at leading retailers across North America and parts of Europe and have installed Freshpet Fridges in approximately 26,777 retail stores as of December 31, 2023. Our products are sold under the Freshpet brand name with ingredients, packaging and labeling customized by class of retail.
We continue to roll out Freshpet Fridges at leading retailers across North America and parts of Europe and have installed Freshpet Fridges in approximately 28,141 retail stores as of December 31, 2024. Our products are sold under the Freshpet brand name with ingredients, packaging and labeling customized by class of retail.
We expect to make future capital expenditures in connection with the completion of our planned development of Freshpet Kitchens Ennis phase 2 and 3. During fiscal year 2023, we spent approximately $239.1 million of capital to meet our capacity needs as well as recurring capital expenditures. In fiscal year 2024, we expect to spend approximately $210.0 million.
We expect to make future capital expenditures in connection with the completion of our planned development of Freshpet Kitchens Ennis Phase 2 and 3. During fiscal year 2024, we spent approximately $187.1 million of capital to meet our capacity needs as well as recurring capital expenditures. In fiscal year 2025, we expect to spend approximately $250.0 million.
We define Adjusted SG&A as SG&A expenses before depreciation and amortization expense, non-cash share-based compensation, implementation and other costs associated with the implementation of an ERP system, fees related to the Capped Call Transactions, loss on disposal of equipment, and advisory fees related to activism engagement.
We define Adjusted SG&A as SG&A expenses before depreciation and amortization expense, non-cash share-based compensation, implementation and other costs associated with the implementation of an ERP system, fees related to the Capped Call Transactions associated with the sale of our Convertible Notes in 2023, loss on disposal of equipment, advisory fees related to shareholder activism defense engagement, and organizational changes.
Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, see Note 1 (Summary of Significant Accounting Policies) to our audited consolidated financial statements included in this report. Segment We have determined we operate in one segment: the manufacturing, marketing and distribution of pet food and pet treats for dogs and cats. 39
Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, see Note 1 (Summary of Significant Accounting Policies) to our audited consolidated financial statements included in this report. Segment We have determined we operate in one segment: the manufacturing, marketing and distribution of fresh dog food, cat food, and dog treats. 41 Table of Contents
We normally carry three to four weeks of finished goods inventory and less than 30 days of accounts receivable. For the year ended December 31, 2023 our capital resources consisted primarily of $296.9 million of cash and cash equivalents on hand.
We normally carry three to five weeks of finished goods inventory and less than 30 days of accounts receivable. As of December 31, 2024, our capital resources consisted primarily of $268.6 million of cash and cash equivalents on hand. As of December 31, 2023, our capital resources consisted primarily of $296.9 million of cash and cash equivalents on hand.
We have certain outstanding multi-year share-based awards, granted in FY 2020, with performance-based vesting conditions that require the achievement of certain Adjusted EBITDA targets in FY 2024 as a condition to vesting. At each reporting period, we reassess the probability of achieving the performance criteria and the performance period required to meet those targets set in 2020.
We have certain outstanding share-based awards with performance-based vesting conditions that require the achievement of certain Adjusted EBITDA and/or Net Sales targets as a condition of vesting. At each reporting period, we reassess the probability of achieving the performance criteria and the performance period required to meet those targets.
We have certain outstanding multi-year share-based awards, granted in FY 2020, with performance-based vesting conditions that require the achievement of certain Adjusted EBITDA targets in FY 2024 as a condition to vesting. At each reporting period, we reassess the probability of achieving the performance criteria and the performance period required to meet those targets set in 2020.
We have certain outstanding share-based awards with performance-based vesting conditions that require the achievement of certain Adjusted EBITDA and/or Net Sales targets as a condition of vesting. At each reporting period, we reassess the probability of achieving the performance criteria and the performance period required to meet those targets.
This was offset by: ● $54.1 million decrease due to changes in operating assets and liabilities.
This was partially offset by: • $13.7 million decrease due to changes in operating assets and liabilities.
We believe that each of these non-GAAP financial measures provide additional metrics to evaluate our operations and, when considered with both our U.S. GAAP results and the reconciliation to the closest comparable U.S. GAAP measures, provides a more complete understanding of our business than could be obtained absent this disclosure. We use the non-GAAP financial measures, together with U.S.
GAAP results and the reconciliation to the closest comparable U.S. GAAP measures, provides a more complete understanding of our business than could be obtained absent this disclosure. We use the non-GAAP financial measures, together with U.S.
Research and development costs consist of expenses to develop and test new products. The costs are expensed as incurred. Brokerage. We use third-party brokers to assist with monitoring our products at the point-of-sale as well as representing us at headquarters for various customers. These brokers visit our retail customers’ store locations to ensure items are appropriately stocked and maintained.
We use third-party brokers to assist with monitoring our products at the point-of-sale as well as representing us at headquarters for various customers. These brokers visit our retail customers’ store locations to ensure items are appropriately stocked and maintained. Share-based compensation .
These non-GAAP financial measures should be considered as supplements to the U.S. GAAP reported measures, should not be considered replacements for, or superior to, the U.S.
See "—Non-GAAP Financial Measures" below. 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 U.S. GAAP reported measures, should not be considered replacements for, or superior to, the U.S.
Selling, General and Administrative Expenses Selling, general and administrative expenses ("SG&A") were $281.3 million, for the twelve months ended December 31, 2023, compared to $238.0 million in the prior year. As a percentage of net sales, SG&A decreased to 36.7% for the twelve months ended December 31, 2023, compared to 40.0% in the prior year.
Selling, General and Administrative Expenses Selling, general and administrative expenses ("SG&A") were $358.0 million for the year ended December 31, 2024, compared to $281.3 million for the prior year. As a percentage of net sales, SG&A remained consistent at 36.7% for both years ended December 31, 2024 and 2023.
Our inability to raise capital could impede our growth or otherwise require us to forego growth opportunities and could materially adversely affect our business, financial condition and results of operations. 34 The following table sets forth, for the periods indicated, our working capital: December 31, December 31, 2023 2022 (Dollars in thousands) Cash and cash equivalents $ 296,871 $ 132,735 Accounts receivable, net of allowance for doubtful accounts 56,754 57,572 Inventories, net 63,238 58,290 Prepaid expenses 7,615 9,778 Other current assets 2,841 3,590 Accounts payable (36,096 ) (55,088 ) Accrued expenses (49,816 ) (33,016 ) Current operating lease liabilities (1,312 ) (1,510 ) Current finance lease liabilities (1,998 ) - Total Working Capital $ 338,097 $ 172,351 Working capital consists of current assets net of current liabilities.
Our inability to raise capital could impede our growth or otherwise require us to forego growth opportunities and could materially adversely affect our business, financial condition and results of operations. 37 Table of Contents The following table sets forth, for the periods indicated, our working capital: December 31, December 31, 2024 2023 (Dollars in thousands) Cash and cash equivalents $ 268,633 $ 296,871 Accounts receivable, net of allowance for doubtful accounts 68,419 56,754 Inventories, net 80,794 63,238 Prepaid expenses 16,026 7,615 Other current assets 3,126 2,841 Accounts payable (39,164) (36,096) Accrued expenses (56,263) (49,816) Current operating lease liabilities (1,322) (1,312) Current finance lease liabilities (2,120) (1,998) Total Working Capital $ 338,129 $ 338,097 Working capital consists of current assets net of current liabilities.
Freshpet Fridge operating costs consist of repair costs and depreciation. The purchase and installation costs for new Freshpet Fridges are capitalized and depreciated over the estimated useful life. All new refrigerators are covered by a manufacturer warranty for three years. We subsequently incur maintenance and freight costs for repairs and refurbishments handled by third-party service providers. Research & development.
Freshpet Fridge operating costs consist of repair costs and depreciation. The purchase and installation costs for new Freshpet Fridges are capitalized and depreciated over the estimated useful life. All new refrigerators are covered by a manufacturer warranty for three years.
Year Ended December 31, 2023 2022 (Dollars in thousands) Cash at the beginning of period $ 132,735 $ 72,788 Net cash provided by (used in) operating activities 75,940 (43,227 ) Net cash used in investing activities (239,093 ) (233,364 ) Net cash provided by financing activities 327,289 336,538 Cash at the end of period $ 296,871 $ 132,735 Net Cash Provided by (Used In) Operating Activities Cash provided by (used in) operating activities consists primarily of net loss adjusted for certain non-cash items (i.e., provision for (gains) loss on receivable, loss on disposal of property, plant and equipment, share-based compensation, change in reserve for inventory obsolescence, depreciation and amortization, write-off and amortization of deferred financing costs and loan discount, change in operating lease right of use asset and loss on equity method investment). 2023 Net cash provided by operating activities of $75.9 million in 2023 was primarily attributed to: ● $61.7 million of net income adjusted for reconciling non-cash items, which excludes $95.3 million of non-cash items primarily related to $4.3 million of loss on disposal of property, plant and equipment, $24.9 million of share-based compensation including amortization of warrants, $58.5 million of depreciation and amortization, $4.1 million of write-off and amortization of deferred financing costs and loan discount, $1.5 million of change in operating lease right of use asset and $1.9 million of loss on equity method investment. ● $14.3 million increase due to changes in operating assets and liabilities.
Year Ended December 31, 2024 2023 (Dollars in thousands) Cash at the beginning of period $ 296,871 $ 132,735 Net cash provided by operating activities 154,288 75,940 Net cash used in investing activities (187,092) (239,093) Net cash provided by financing activities 4,566 327,289 Cash at the end of period $ 268,633 $ 296,871 Net Cash Provided by Operating Activities Net cash provided by operating activities consists primarily of net income (loss) adjusted for certain non-cash items (i.e., provision for loss (gains) on accounts receivable, loss on disposal of property, plant and equipment, share-based compensation, change in reserve for inventory obsolescence, depreciation and amortization, write-off and amortization of deferred financing costs and loan discount, change in operating lease right of use asset, loss on equity method investment, and gain on equity investment). 38 Table of Contents 2024 Net cash provided by operating activities of $154.3 million in 2024 was primarily attributed to: • $168.0 million of net income, adjusted for reconciling non-cash items, which excludes $121.0 million of non-cash items related to $73.6 million of depreciation and amortization, $51.8 million of share-based compensation including amortization of warrants, $2.1 million of write-off and amortization of deferred financing costs and loan discount, $1.4 million of change in operating lease right of use asset, $1.3 million of loss on disposal of property, plant and equipment, $0.3 million of a reserve for inventory obsolescence, $0.5 million of provision for loss on accounts receivable, partially offset by $9.9 million of gain on equity investment.
The increase was primarily due to the change in accounts receivable, accounts payable and accrued expenses, primarily offset by the change in inventories, prepaid expenses and other current assets, other assets and operating lease liability. 2022 Net cash used in operating activities of $43.2 million in 2022 was primarily attributed to: ● $10.9 million of net income adjusted for reconciling non-cash items, which excludes $70.4 million of non-cash items primarily related to $34.6 million in depreciation and amortization, $26.1 million in share-based compensation, $3.7 million of investments in equity method investment, $3.5 million in inventory obsolescence, $1.4 million of change in operating lease right of use asset, $0.8 million of amortization of deferred financing costs and $0.4 million in loss on disposal of property, plant and equipment.
The decrease was primarily due to the change in accounts receivable, inventories, other assets, and operating lease liability, partially offset by the change in accounts payable, accrued expenses, and prepaid expenses and other current assets. 2023 Net cash provided by operating activities of $75.9 million in 2023 was primarily attributed to: • $61.7 million of net income adjusted for reconciling non-cash items, which excludes $95.3 million of non-cash items primarily related to $58.5 million of depreciation and amortization, $24.9 million of share-based compensation including amortization of warrants, $4.3 million of loss on disposal of property, plant and equipment, $4.1 million of write-off and amortization of deferred financing costs and loan discount, $1.9 million of loss on equity method investment, and $1.5 million of change in operating lease right of use asset. • $14.3 million increase due to changes in operating assets and liabilities.
We expect to continue to mitigate any adverse movement in input costs through a combination of cost management and price increases. Selling, General and Administrative Expenses Our selling, general and administrative expenses consist of the following: Outbound freight. We use a third-party logistics provider for outbound freight that ships directly to retailers as well as third-party distributors. Marketing & advertising.
Selling, General and Administrative Expenses Our selling, general and administrative expenses consist of the following: Outbound freight. We use a third-party logistics provider for outbound freight that ships directly to retailers as well as third-party distributors. Marketing & advertising.
The increase was primarily driven by the termination of our Credit Agreement in the current period resulting in the write-off of unamortized fees of $2.5 million which were recorded to interest expense, $5.2 million increase as a result of interest incurred on our Convertible Notes (as defined below) compared to interest incurred on the Credit Agreement that existed in the prior period, as well as a $1.2 million increase related to the interest on our finance lease liability.
The decrease was primarily driven by the termination of our Credit Agreement in the prior year resulting in the write-off of unamortized fees of $2.5 million, which were recorded to interest expense, and the non-recurring $0.3 million of interest expense incurred on this facility prior to termination, partially offset by a $0.2 million increase (net of capitalized interest) as a result of interest incurred on our Convertible Notes compared to interest incurred in the prior year and a $1.0 million increase related to the interest on our finance lease liability.
At December 31, 2023, we had approximately $312.8 million of state NOLs, which expire between 2024 and 2043, and had $20.7 million of foreign NOLs in the United Kingdom which do not expire.
At December 31, 2024, we had approximately $278.4 million of state NOLs, which expire between 2025 and 2046, and had $27.6 million of foreign NOLs in the United Kingdom which do not expire.
GAAP: Twelve Months Ended December 31, 2023 2022 2021 (Dollars in thousands) SG&A expenses $ 281,318 $ 238,016 $ 186,809 Depreciation and amortization expense 15,849 13,781 13,923 Non-cash share-based compensation (a) 13,941 18,799 20,846 Loss on disposal of equipment 774 396 1,000 Enterprise Resource Planning (b) 2,457 8,558 1,379 Capped Call Transactions fees (c) 113 — — Activism engagement (d) 8,177 — — COVID-19 expense (e) — — 5 Organization changes (f) (67 ) 734 — Adjusted SG&A Expenses $ 240,074 $ 195,748 $ 149,656 Adjusted SG&A Expenses as a % of Net Sales 31.3 % 32.9 % 35.2 % (a) Includes the true-up of share-based compensation expense during the period ended December 31, 2023.
GAAP: Year Ended December 31, 2024 2023 2022 (Dollars in thousands) SG&A expenses $ 357,957 $ 281,318 $ 238,016 Depreciation and amortization expense 21,747 15,849 13,781 Non-cash share-based compensation (a) 44,046 13,941 18,799 Loss on disposal of equipment 588 774 396 Enterprise Resource Planning (b) — 2,457 8,558 Capped Call Transactions fees (c) — 113 — Shareholder activism defense engagement (d) — 8,177 — Organization changes (e) — (67) 734 Adjusted SG&A Expenses $ 291,576 $ 240,074 $ 195,748 Adjusted SG&A Expenses as a % of Net Sales 29.9 % 31.3 % 32.9 % (a) Includes true-ups to share-based compensation expense compared to prior periods.
GAAP: Twelve Months Ended December 31, 2023 2022 2021 (Dollars in thousands) Net loss $ (33,614 ) $ (59,494 ) $ (29,699 ) Depreciation and amortization 57,058 34,555 30,468 Interest expense, net of interest income 1,069 5,208 2,882 Income tax expense 210 282 162 EBITDA $ 24,723 $ (19,449 ) $ 3,813 Loss on equity method investment $ 1,890 $ 3,731 $ 2,005 Loss on disposal of property, plant and equipment 4,321 396 1,000 Non-cash share-based compensation (a) 24,936 26,092 24,998 Enterprise Resource Planning (b) 2,457 8,558 1,379 Capped Call Transaction fees (c) 113 — — COVID-19 expense (d) — — 1,758 Activism engagement (e) 8,177 — — Organization changes (f) (67 ) 734 — Adjusted EBITDA $ 66,550 $ 20,062 $ 34,953 Adjusted EBITDA as a % of Net Sales 8.7 % 3.4 % 8.2 % (a) Includes the true-up of share-based compensation expense during the period ended December 31, 2023.
GAAP: Year Ended December 31, 2024 2023 2022 (Dollars in thousands) Net income (loss) $ 46,925 $ (33,614) $ (59,494) Depreciation and amortization 70,803 57,058 34,555 Interest expense, net of interest income 335 1,069 5,208 Income tax expense 598 210 282 EBITDA 118,661 24,723 (19,449) Gain on equity investment (9,918) — — Loss on disposal of property, plant and equipment 1,284 4,321 396 Non-cash share-based compensation (a) 51,807 24,936 26,092 Loss on equity method investment — 1,890 3,731 Enterprise Resource Planning (b) — 2,457 8,558 Capped Call Transactions fees (c) — 113 — Shareholder activism defense engagement (d) — 8,177 — Organization changes (e) — (67) 734 Adjusted EBITDA $ 161,834 $ 66,550 $ 20,062 Adjusted EBITDA as a % of Net Sales 16.6 % 8.7 % 3.4 % (a) Includes true-ups to share-based compensation expense compared to prior periods.
When such performance conditions are deemed to be improbable of achievement, the compensation cost previously recorded is reversed. (b) Represents implementation, amortization of deferred implementation costs and other costs associated with the implementation of an ERP system. (c) Represents fees associated with the Capped Call Transactions.
When the probability of achieving such performance conditions changes, the compensation cost previously recorded is adjusted as needed. When such performance conditions are deemed to be improbable of achievement, the compensation cost previously recorded is reversed. (b) Represents costs associated with the implementation of an ERP system.
Amounts billed and due from our customers are classified as receivables and require payment on a short-term basis. The Company applies judgment in the determination of the amount of consideration the Company receives from its customers. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods.
Amounts billed and due from our customers are classified as receivables and require payment on a short-term basis and, therefore, we do not have any significant financing components. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods, including estimates of trade incentives the Company offers to its customers and their consumers.
Our non-GAAP financial measures may not be comparable to similarly titled measures in other organizations because other organizations may not calculate non-GAAP financial measures in the same manner as we do. 31 Our presentation of the non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items.
Our presentation of the non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items. We recognize that the non-GAAP financial measures have limitations as analytical financial measures.
For the twelve months ended December 31, 2023, Adjusted Gross Profit was $306.6 million, or 40.0% as a percentage of net sales, compared to $214.1 million, or 36.0% as a percentage of net sales, in the prior year.
For the year ended December 31, 2024, Adjusted Gross Profit was $453.5 million, or 46.5% as a percentage of net sales, compared to $306.6 million, or 40.0% as a percentage of net sales, in the prior year. See "—Non-GAAP Financial Measures" below.
Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2022 Annual Report on Form 10-K, which information is incorporated herein by reference. Overview We started Freshpet with a single-minded mission to bring the power of real, fresh food to our dogs and cats.
Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2023 Annual Report on Form 10-K, which information is incorporated herein by reference. 29 Table of Contents Overview Freshpet's mission is to elevate the way we feed our pets with fresh food that nourishes all.
This was partially offset by: ● $66.2 million for the purchase of capped call options. ● $2.0 million for debt issuance costs. ● $1.4 million for tax withholdings related to net share settlements of restricted stock units. ● $1.1 million for principal payments under finance lease obligations. 2022 Net cash provided by financing activities of $336.5 million in 2022 was primarily attributed to: ● $337.5 million of proceeds from common shares issued in a primary offering, net of issuance cost. ● $78.0 million of proceeds from borrowings under Credit Facility. ● $0.5 million of proceeds from the exercise of stock options.
This was partially offset by: • $66.2 million for the purchase of a capped call option. • $2.0 million for debt issuance costs. • $1.4 million for tax withholdings related to net share settlements of restricted stock units. • $1.1 million for principal payments under finance lease obligations.
Adjusted EBITDA represents EBITDA plus loss on equity method investment, non-cash share-based compensation, implementation and other costs associated with the implementation of an ERP system, loss on disposal of property, plant and equipment, fees related to the Capped Call Transactions, and advisory fees related to activism engagement.
Adjusted EBITDA represents EBITDA less gain on equity investment, plus loss on equity method investment, non-cash share-based compensation expense, implementation and other costs associated with the implementation of an ERP system, loss on disposal of property, plant and equipment, fees related to the Capped Call Transactions, advisory fees related to activism engagement, and organizational changes. 33 Table of Contents We believe that each of these non-GAAP financial measures provide additional metrics to evaluate our operations and, when considered with both our U.S.
The net sales increase was primarily driven by volume gains of 20%. 29 Gross Profit Gross profit was $250.9 million, or 32.7% as a percentage of net sales, for the twelve months ended December 31, 2023, compared to $186.0 million, or 31.2% as a percentage of net sales, in the prior year.
Gross Profit Gross profit was $396.0 million, or 40.6% as a percentage of net sales, for the year ended December 31, 2024, compared to $250.9 million, or 32.7% as a percentage of net sales, for the prior year.
When such performance conditions are deemed to be improbable of achievement, the compensation cost previously recorded is reversed. (b) Represents implementation, amortization of deferred implementation costs and other costs associated with the implementation of an ERP system. (c) Represents fees associated with the Capped Call Transactions. (d) Represents advisory fees related to activism engagement.
When the probability of achieving such performance conditions changes, the compensation cost previously recorded is adjusted as needed. When such performance conditions are deemed to be improbable of achievement, the compensation cost previously recorded is reversed. (b) Represents costs associated with the implementation of an ERP system.
The increase in gross profit as a percentage of net sales was primarily due to improved leverage on plant expenses, reduced quality costs, and decreased input cost as a percentage of sales mainly due to an increase in net sales pricing, partially offset by increased depreciation expense associated with the Company's capacity expansion and cost related to the disposal of equipment.
The increase in gross profit as a percentage of net sales was primarily due to lower input costs, reduced quality costs and improved leverage on plant expenses.
We believe that as a result of the above key factors, we will continue to penetrate the pet food marketplace and increase our share of the pet food category. 27 Gross Profit Our gross profit is net of costs of goods sold, which include the costs of product manufacturing, product ingredients, packaging materials and inbound freight, as well as depreciation and amortization and non-cash share-based compensation.
Gross Profit Our gross profit is net of costs of goods sold, which include the costs of product manufacturing, product ingredients, packaging materials and inbound freight, as well as depreciation and amortization and non-cash share-based compensation. We expect to continue to mitigate any adverse movement in input costs through a combination of cost management and price increases.
Adjusted SG&A for the twelve months ended December 31, 2023, was $240.1 million, or 31.3% as a percentage of net sales, compared to $195.7 million, or 32.9% as a percentage of net sales, in the prior year. See “—Non-GAAP Financial Measures” for how we define Adjusted SG&A, a reconciliation of Adjusted SG&A to SG&A, the closest comparable U.S.
Adjusted SG&A for the year ended December 31, 2024, was $291.6 million, or 29.9% as a percentage of net sales, compared to $240.1 million, or 31.3% as a percentage of net sales, for the prior year. See "—Non-GAAP Financial Measures" below.
Interest Expense Interest expense increased $8.9 million to interest expense of $14.1 million for the twelve months ended December 31, 2023 as compared to interest expense of $5.2 million for the same period in the prior year.
Interest Expense Interest expense decreased $1.8 million to interest expense of $12.3 million for the year ended December 31, 2024 as compared to interest expense of $14.1 million for the prior year.
This was partially offset by: ● $113.4 million of proceeds from maturities of short-term investments. 2022 Net cash used in investing activities of $233.4 million in 2022 was primarily attributed to: ● $28.4 million in capital expenditures related to Freshpet Kitchens South expansion. ● $165.1 million in capital expenditures related to Freshpet Kitchens Ennis expansion. ● $27.4 million in capital expenditures related to investment in fridges and other capital spend. ● $9.2 million in plant recurring capital expenditures. ● $19.8 million purchase of short-term investments. ● $3.3 million investment in equity method investment.
Net Cash Used in Investing Activities 2024 Net cash used in investing activities of $187.1 million in 2024 was primarily attributed to: • $187.1 million of capital expenditures related to Freshpet Kitchens, plant recurring capital expenditures, expenditures relating to investment in fridges, and other capital spend. 2023 Net cash used in investing activities of $239.1 million in 2023 was primarily attributed to: • $239.1 million of capital expenditures related to Freshpet Kitchens, plant recurring capital expenditures, expenditures relating to investment in fridges, and other capital spend. • $113.4 million purchase of short-term investments.
Income Taxes We had federal net operating loss (“NOL”) carry forwards of approximately $420.3 million as of December 31, 2023, of which, approximately $175.4 million, generated in 2017 and prior, will expire between 2025 and 2037.
Other general and administrative costs include non-plant personnel salaries and benefits, as well as corporate general & administrative costs. Income Taxes We had federal net operating loss (“NOL”) carry forwards of approximately $391.5 million as of December 31, 2024, of which, approximately $146.7 million, generated in 2017 and prior, will expire between 2028 and 2037.
Additionally, our cash flow generation ability is subject to general economic factors, including but not limited to increasing interest rates and inflation, financial, competitive, legislative and regulatory factors and other factors that are beyond our control.
Additionally, our cash flow generation ability is subject to general economic factors at the international, national and regional levels, including but not limited to increased interest rates and inflation, tariffs, trade wars, recession, financial, competitive, legislative and regulatory factors and other factors that are beyond our control, including government or regulatory shutdowns or defunding, or disruptions with or increased costs imposed by our key suppliers or others within our supply chain.
Net Loss Net loss decreased $25.9 million to a net loss of $33.6 million for the twelve months ended December 31, 2023 as compared to a net loss of $59.5 million for the prior year due to contribution from higher sales, increased gross margin and reduced logistics costs as a percentage of net sales, partially offset by increased SG&A including increased media spend of $23.1 million. 30 Adjusted EBITDA Adjusted EBITDA was $66.6 million, or 8.7% as a percentage of net sales (also called Adjusted EBITDA Margin), for the twelve months ended December 31, 2023, compared to $20.1 million, or 3.4% as a percentage of net sales, in the prior year.
Net Income (Loss) Net income increased $80.5 million to net income of $46.9 million for the year ended December 31, 2024 as compared to a net loss of $33.6 million in the prior year, primarily due to contribution from higher sales, improved gross margin, reduced logistics costs as a percentage of net sales, and gain on equity investment, partially offset by increased SG&A expenses.
This was partially offset by: ● $19.8 million of proceeds from maturities of short-term investments. Net Cash Provided by Financing Activities 2023 Net cash provided by financing activities of $327.3 million in 2023 was primarily attributed to: ● $393.5 million net proceeds from Convertible Notes. ● $4.5 million cash proceeds from the exercise of stock options.
Net Cash Provided by Financing Activities 2024 Net cash provided by financing activities of $4.6 million in 2024 was primarily attributed to: • $9.1 million cash proceeds from the exercise of stock options. 39 Table of Contents This was partially offset by: • $2.6 million for tax withholdings related to net share settlements of restricted stock units. • $2.0 million for principal payments under finance lease obligations. 2023 Net cash provided by financing activities of $327.3 million in 2023 was primarily attributed to: • $393.5 million net proceeds from Convertible Notes. • $4.5 million cash proceeds from the exercise of stock options.
Estimates of trade promotion expense and coupon redemption costs are based upon programs offered, timing of those offers, estimated redemption/usage rates from historical performance, management’s experience and current economic trends. Share-based Compensation— We account for all share-based compensation payments issued to employees, directors and nonemployees using a fair value method.
Trade incentives consist primarily of customer pricing allowances and merchandising funds, and consumer coupons offered through various programs to customers and consumers. Estimates of trade promotion expense and coupon redemption costs are based upon programs offered, timing of those offers, estimated redemption/usage rates from historical performance, management’s experience and current economic trends.
Loss on Equity Method Investment Our loss on equity method investment for the twelve months ended December 31, 2023 was $1.9 million as compared to a loss on equity method investment of $3.7 million in the prior year from the Company's interest in a privately held company, as discussed in Note 1.
Gain on Equity Investment The $9.9 million gain on equity investment for the year ended December 31, 2024, resulted from the change in fair value of the Company's equity interest in a privately held company.
Interest and Other Income, net The Company recorded interest and other income, net of $13.0 million for the twelve months ended December 31, 2023 as a result of interest income generated from cash and short-term investments.
Income (Loss) from Operations As a result of the factors discussed above, income from operations increased by $68.4 million to income from operations of $38.0 million for the year ended December 31, 2024 as compared to a loss from operations of $30.4 million for the prior year. 32 Table of Contents Interest and Other Income, net The Company recorded interest and other income, net of $11.9 million for the year ended December 31, 2024 as a result of interest income generated from cash and cash equivalents as compared to $13.0 million for the prior year, which also included interest income generated from short-term investments.
This was partially offset by: ● $78.0 million for repayment of borrowings under Credit Facility. ● $1.4 million for tax withholdings related to net share settlements of restricted stock units. 37 Indebtedness For a discussion of our material indebtedness, see Note 6 and 7 to our Consolidated Financial Statements included in this report.
Indebtedness For a discussion of our material indebtedness, see Note 6 and 7 to our Consolidated Financial Statements included in this report.
To the extent that there are differences between our estimate and the actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. 38 The following critical accounting policies reflect significant judgments and estimates used in preparation of our consolidated financial statements: Revenue Recognition and Incentives —Revenue is reported net of applicable trade incentives and allowances.
Actual results, as determined at a later date, could differ from those estimates. To the extent that there are differences between our estimate and the actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
The $171.6 million increase in net sales was driven by growth in the Grocery, Mass, and Club channel of $160.3 million, with the remaining growth in Pet Specialty and Natural.
The net sales increases were driven by year-over-year growth in the Grocery, Mass, International and Digital channel of $158.5 million and $138.6 million in 2024 and 2023, respectively, with the remaining growth in the Pet Specialty and Club channel. This growth was primarily driven by year-over-year volume gains of 26.1% and 20.0% in 2024 and 2023, respectively.
Accordingly, share-based compensation expense is measured based on the estimated fair value of the awards on the date of grant. We recognize compensation expense for the portion of the award that is ultimately expected to vest over the period during which the recipient renders the required services to us using the straight-line single option method.
The Company recognizes share-based compensation based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. The Company estimates grant date fair value of its options using the Black-Scholes Merton option-pricing model.
GAAP: Twelve Months Ended December 31, 2023 2022 2021 (Dollars in thousands) Gross profit $ 250,872 $ 186,033 $ 162,146 Depreciation expense 41,209 20,774 16,545 Non-cash share-based compensation 10,995 7,293 4,152 COVID-19 expense (a) — — 1,753 Loss on disposal of manufacturing equipment 3,547 — — Adjusted Gross Profit $ 306,623 $ 214,100 $ 184,596 Adjusted Gross Profit as a % of Net Sales 40.0 % 36.0 % 43.4 % (a) 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.
GAAP: Year Ended December 31, 2024 2023 2022 (Dollars in thousands) Gross profit $ 395,956 $ 250,872 $ 186,033 Depreciation expense 49,056 41,209 20,774 Non-cash share-based compensation 7,761 10,995 7,293 Loss on disposal of manufacturing equipment 696 3,547 — Adjusted Gross Profit $ 453,469 $ 306,623 $ 214,100 Adjusted Gross Profit as a % of Net Sales 46.5 % 40.0 % 36.0 % The following table provides a reconciliation of Adjusted SG&A Expenses to SG&A Expenses, the most directly comparable financial measure presented in accordance with U.S.
The decrease of 330 basis points in SG&A as a percentage of net sales was mainly a result of reduced logistics cost as a percentage of net sales, decreased cost related to the ERP implementation, and increased leverage on depreciation and share-based compensation as the business scales, partially offset by activism engagement charges, increased media spend and increased variable compensation accrual.
SG&A as a percentage of net sales remained consistent as the decreases due to reduced logistics as a percentage of net sales and the absence of non-recurring charges incurred in the prior year were fully offset by increased media as a percentage of net sales, higher share-based compensation and increased variable compensation accrual.
The increase was partially offset by a decrease in accounts receivable of $0.8 million, a decrease in prepaid expenses of $2.2 million, a decrease in other current assets of $0.7 million, an increase in accrued expenses of $16.8 million due to timing and capital expenditures of approximately $3.8 million related to our capital expansion plan, and an increase in current finance lease liabilities of $2.0 million.
Working capital remained consistent as the increases consisting of an increase of $17.6 million in inventories, net, an increase of $11.7 million in accounts receivable, and an increase of $8.4 million in prepaid expenses were fully offset by a decrease of $28.2 million in cash and cash equivalents, an increase of $6.4 million in accrued expenses due to timing, and an increase of $3.1 million in accounts payable as a result of timing.
(2) Stores at December 31, 2023 and December 31, 2022 consisted of 5,164 and 5,135 pet specialty and 478 and 476 natural, respectively. Net sales increased $171.6 million, or 28.8%, to $766.9 million for the twelve months ended December 31, 2023 as compared to the prior year.
In contrast, grocery, mass, international and digital offer a wide variety of products. Net sales were $975.2 million and $766.9 million for the years ended December 31, 2024 and 2023, respectively, representing increases of $208.3 million and $171.6 million, or 27.2% and 28.8%, as compared to the respective prior years.
Working capital increased $165.7 million to $338.1 million at December 31, 2023 compared with working capital of $172.4 million at December 31, 2022.
Working capital remained consistent at $338.1 million at both December 31, 2024 and 2023.
The increase in Adjusted EBITDA was a result of increased Adjusted Gross Profit partially offset by higher Adjusted SG&A expense. See "—Non-GAAP Financial Measures" for how we define Adjusted EBITDA, a reconciliation of Adjusted EBITDA to EBITDA, the closest comparable U.S.
Adjusted EBITDA Adjusted EBITDA was $161.8 million, or 16.6% as a percentage of net sales, for the year ended December 31, 2024, compared to $66.6 million, or 8.7% as a percentage of net sales, in the prior year. The increase in Adjusted EBITDA was a result of increased Adjusted Gross Profit partially offset by higher Adjusted SG&A expenses.
Removed
Share-based compensation . We account for all share-based compensation payments issued to employees, directors and non-employees using a fair value method. Accordingly, share-based compensation expense is measured based on the estimated fair value of the awards on the grant date using the Black-Scholes Merton option-pricing model.
Added
We subsequently incur maintenance and freight costs for repairs and refurbishments handled by third-party service providers. 30 Table of Contents Research & development. Research and development costs consist of expenses to develop and test new products. The costs are expensed as incurred. Brokerage.
Removed
We recognize compensation expense for the portion of the award that is ultimately expected to vest over the period during which the recipient renders the required services to us using the straight-line single option method. Other general & administrative costs. Other general and administrative costs include non-plant personnel salaries and benefits, as well as corporate general & administrative costs.
Added
Restricted stock units are measured based on the fair market value of the underlying stock on the dates of the grants. Share awards are amortized under the straight-line method over the requisite service period of the entire award. The Company accounts for forfeitures as they occur. Other general & administrative costs.
Removed
See "—Non-GAAP Financial Measures" for how we define Adjusted Gross Profit, a reconciliation of Adjusted Gross Profit to gross profit, the closest comparable U.S. GAAP measure, certain limitations of Non-GAAP measures and why management has included such Non-GAAP measures.
Added
At December 31, 2024, we had a full valuation allowance against our net deferred tax assets as the realization of such assets was not considered more likely than not.
Removed
GAAP measure, certain limitations of Non-GAAP measures and why management has included such Non-GAAP measures.
Added
Our non-GAAP financial measures may not be comparable to similarly titled measures in other organizations because other organizations may not calculate non-GAAP financial measures in the same manner as we do.
Removed
Loss from Operations As a result of the factors discussed above, loss from operations decreased by $21.5 million to a loss from operations of $30.4 million for the twelve months ended December 31, 2023 as compared to a loss from operations of $52.0 million in the prior year.
Added
(c) Represents fees associated with the Capped Call Transactions associated with our sale of Convertible Notes in 2023. (d) Represents advisory fees related to shareholder activism defense engagement.

… 17 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+1 added−0 removed7 unchanged
Biggest changeCommodity Price and Inflation Risk We purchase certain products and services that are affected by commodity prices and are, therefore, subject to price volatility caused by weather, market conditions and other factors which are not considered predictable or within our control.
Biggest changeThese products are subject to price volatility caused by weather, market conditions, disease, government programs and policies, labor availability and availability of similar or competitive products, and other factors which are not considered predictable or within our control.
Historically, the foreign currency forward contracts have not been designated as hedges and, accordingly, any changes in their fair value are recognized on the Consolidated Statements of Operations and Comprehensive Loss in Interest and Other Income, net, and carried at their fair value in the Consolidated Balance Sheet with gains reported in prepaid expenses and other current assets and losses reported in accrued expenses.
Historically, the foreign currency forward contracts have not been designated as hedges and, accordingly, any changes in their fair value are recognized on the Consolidated Statements of Operations and Comprehensive Income (Loss) in Interest and Other Income, net, and carried at their fair value in the Consolidated Balance Sheet with gains reported in prepaid expenses and other current assets and losses reported in accrued expenses.
The Company is exposed to movements in the British pound sterling and Euro. The Statements of Financial Position of non-U.S. business units are translated into U.S. dollars using period-end exchange rates for assets and liabilities and weighted-average exchange rates for revenues and expenses.
The Company is exposed to movements in the British pound sterling, Euro and Canadian Dollar. The Statements of Financial Position of non-U.S. business units are translated into U.S. dollars using period-end exchange rates for assets and liabilities and weighted-average exchange rates for revenues and expenses.
The percentage of our consolidated revenue for the twelve months ended December 31, 2023 recognized in Europe was approximately 1%. The Company may, from time to time, enter into forward exchange contracts to reduce the Company's exposure to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies.
The percentage of our consolidated revenue for the year ended December 31, 2024 recognized in Europe was less than 1%. The Company may, from time to time, enter into forward exchange contracts to reduce the Company's exposure to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies.
As of December 31, 2023, there were no forward contracts outstanding. 40
As of December 31, 2024, there were no forward contracts outstanding. 42 Table of Contents
Added
Commodity Price and Inflation Risk We purchase certain products and services that are affected by commodity prices, including, but not limited to agricultural products.

Other FRPT 10-K year-over-year comparisons