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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________________
FORM 10-K
________________________________________________________________
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-36729
________________________________________________________________
FRESHPET, INC.
(Exact name of registrant as specified in its charter)
________________________________________________________________
Delaware
20-1884894
(State of Incorporation)
(I.R.S. Employer Identification No.)
1545 US-206, 1st Floor Bedminster, New Jersey
07921
(Address of Principal Executive Offices)
(Zip Code)
(201) 520-4000
(Registrant’s telephone number, including area code)
________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of exchange on which registered
Common Stock, $0.001 par value per share
FRPT
NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act: None
________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes x No o
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant's executive officers during the relevant recovery period pursuant to §240.10D-1 (b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
As of June 30, 2024, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held
by non-affiliates was approximately $6.2 billion.
As of February 18, 2025, 48,718,620 shares of common stock of the registrant were outstanding.
________________________________________________________________
Documents Incorporated by Reference
The information required by Part III, Items 10, 11, 12, 13, and 14 of this Annual Report on Form 10-K will be filed (and are hereby incorporated by reference) by an amendment
hereto or pursuant to a definitive proxy statement pursuant to Regulation 14A that will contain such information.
Table of Contents
Freshpet, Inc.
Annual Report on Form 10-K
TABLE OF CONTENTS
PART I
Item 1
Business
5
Item 1A
Risk Factors
13
Item 1B
Unresolved Staff Comments
26
Item 1C
Cybersecurity
26
Item 2
Properties
27
Item 3
Legal Proceedings
28
Item 4
Mine Safety Disclosures
28
PART II
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
28
Item 6
[Reserved]
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
29
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
42
Item 8
Financial Statements and Supplementary Data
43
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
74
Item 9A
Controls and Procedures
74
Item 9B
Other Information
75
Item 9C
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
75
PART III
Item 10
Directors, Executive Officers and Corporate Governance
76
Item 11
Executive Compensation
76
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
76
Item 13
Certain Relationships and Related Transactions, and Director Independence
76
Item 14
Principal Accounting Fees and Services
76
PART IV
Item 15
Exhibits and Financial Statement Schedules
77
Item 16
Form 10-K Summary
77
Signatures
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Forward-Looking Statements
This report contains forward-looking statements that are subject to risks and uncertainties. Forward-looking statements discuss our current
expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You
can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include
words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” "target,"
“intend,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar
meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. They appear
in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning,
among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.
All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we
expected, including:
• our ability to meet our sustainability targets, goals, and commitments, including due to the impact of climate change;
• changes in global and domestic economic and business conditions, and financial market conditions, such as continued inflation,
interest rate increases, tariffs, trade wars, recession, government or regulator shutdowns or defunding, regulatory delays or
uncertainty, supply chain disruptions or agricultural labor shortages;
• the impact of various worldwide or macroeconomic events, such as the ongoing conflict between Russia and Ukraine, and the
continued effects of conflict in the middle east, on U.S. and global economics, our employees, suppliers, customers and end
consumers, which could adversely and materially impact our business, financial condition and results of operations;
• our ability to successfully implement our growth strategy, including related to implementing our marketing strategy and continuing to
build our capacity to meet demand, such as through the timely expansion of certain of our Freshpet Kitchens (collectively, our
Freshpet Kitchens Bethlehem, Freshpet Kitchens South and Freshpet Kitchens Ennis);
• our ability to successfully implement new processes and systems as we continue to stabilize and improve our Enterprise Resource
Planning ("ERP");
• our ability to timely complete the construction at our Freshpet Kitchens Ennis and achieve the anticipated benefits therefrom;
• the loss of key members of our senior management team;
• allegations that our products cause injury or illness or fail to comply with government regulations;
• the loss of a significant customer or supplier;
• the entrance of new competitors into our industry;
• the effectiveness of our marketing and trade spending programs;
• our ability to introduce new products and improve existing products;
• our ability to match our manufacturing capacity with demand;
• the impact of government regulation, scrutiny, warning and public perception;
• the effect of false marketing claims;
• adverse weather conditions, natural disasters, pestilences and other natural conditions affecting our operations or those of our
suppliers;
• sustained disruptions within the agricultural industry, including diseases affecting livestock (such as highly pathogenic avian influenza
(“HPAI”)), or agricultural labor shortages, including as a result of U.S. immigration policy;
• our ability to develop and maintain our brand;
• the effect of potential price increases and shortages on the inputs, commodities and ingredients that we require, including those
effects caused by sustained inflation;
• our ability to manage our supply chain effectively;
• global or local pandemics and epidemics;
• the failure of our information technology systems to perform adequately, including as a result of any interruptions, intrusions, cyber
attacks or physical or electronic security breaches of such systems;
• actions of activist stockholders;
• volatility in the price of our common stock; and
• other factors discussed under the headings “Risk Factors,” “Business,” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in this report.
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While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is
impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ
materially from our expectations, or cautionary statements, are disclosed under “Risk Factors” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in this report. All forward-looking statements are expressly qualified in their entirety by
these cautionary statements. You should evaluate all forward-looking statements made in this report in the context of these risks and
uncertainties. These forward-looking statements speak only as of the date of this Annual Report on Form 10-K. The Company assumes no
obligation to revise or update any forward-looking statements for any reason, except as required by law.
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PART I
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. 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. We have successfully expanded our network of Freshpet Fridges within
leading blue-chip retail chains. The strength of our business model extends to our customers, who we believe find that Freshpet grows their
pet category sales, drives higher traffic, increases shopper frequency and delivers category leading margins. 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.
Our Industry
We primarily compete in the United States dog and cat food market. We believe pet food spending in North America will continue to increase
at a similar rate as it has in the past. The pet food market has historically been resilient as consumers continue to spend on their pets even
during economic downturns.
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. 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.
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. A
consumer selecting a pet food brand resists frequent switching in order to avoid disrupting the pet’s diet, resulting in high repeat purchasing
behavior. As a result, we believe that as consumers try fresh, refrigerated pet food, they are likely to become repeat users of the product.
Our Opportunity
Freshpet has a unique opportunity to capture market share in this large and growing category by mainstreaming fresh food for pets and
making fresh food a greater part of dogs' and cats' main meals.
Even though long-term consumer trends of pet humanization and health and wellness are well documented, conventional pet food sold as
dry kibble or wet food in cans has not changed substantially for decades. We believe that the pet food industry has not kept pace with how
consumers think about food for their families, including their pets. 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 Mission and Values
Our mission is to elevate the way we feed our pets with fresh food that nourishes all. And, we are committed to doing so in ways that are
good for Pets, People, and Planet.
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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. 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.
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. 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. 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. 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. These efforts are intended to help achieve our environmental
goals while reducing the costs of doing business. 2023 saw the introduction of our new Texas distribution center and freight bracket pricing
program. These efforts helped minimize the fuel used to ship Freshpet products to our customers resulting in significantly reduced logistics
costs and environmental footprints.
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.
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. Our
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. Consequently, our brand resonates across a broad cross-section of pet parent
demographics.
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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.
We also offer fresh treats across all classes of retail under the Dognation and Dog Joy labels.
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Our Product Innovation
As the first manufacturer of fresh, refrigerated pet food distributed across North America, product innovation is core to our strategy. We take
a fresh approach to pet food and are not constrained by conventional pet food products, attributes, and production capabilities. We employ a
tightly-knit, creative team of marketing and research and development professionals, and we consult with outside experts through our
Nutrition Council, which consist of PhDs in nutrition and veterinary nutritionists. Our team often identifies pet parents’ needs by evaluating
emerging demand trends in both pet food and human food. New products are refined iteratively with the help of consumer panel data to
arrive at products that we believe can be commercially successful.
The success of our approach is evidenced by our broad product portfolio today. We began Freshpet by producing fresh, refrigerated slice
and serve rolls, and over time have steadily expanded into successful new product forms including bags and treats. We also introduced new
fresh recipes and ingredients, such as proteins and grain-free options never before seen in pet food that cater to the specific dietary
requirements of pets.
Our Innovation Center, which is part of our Freshpet Kitchens (collectively, our Freshpet Kitchens Bethlehem, Freshpet Kitchens South and
Freshpet Kitchens Ennis), helps us ensure that we remain capable of strong innovation, including creating new product platforms to expand
the breadth of our fresh pet food offerings. 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. 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.
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. 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. 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.
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.
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. 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.
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. 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. 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.
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Our Product Quality and Safety
We go to great lengths to ensure product quality, consistency and safety from ingredient sourcing to finished product. Our Freshpet-owned
manufacturing lines allows us to exercise significant control over production. We have a highly skilled Food Safety and Quality Assurance
team consisting of quality assurance supervisors, specialists, analysts, and quality technicians with significant experience in pet and human
food production.
Our production processes are designed to meet science-based quality standards with documented plans for Hazard Analysis Critical Control
Points and Hazard Analysis Risk Based Preventive Control to monitor established production controls, calibrate instruments, record data and
perform corrective actions. Our on-site laboratory has microbial and composition testing capabilities. Quality control approvals are based on a
positive release strategy, wherein a batch can only be shipped when it passes control point record reviews and laboratory testing. Before
commencing production, quality assurance professionals swab equipment to test for potential contaminants.
Freshpet’s food safety program is certified at Safe Quality Food Level III, which is the highest standard determined under the Global Food
Safety Initiative Benchmarks. We believe our systems and standards for product quality and safety can support our growth and ensure
continued success in the market.
Our Customers and Distributors
We sell our products throughout the United States, Canada, and Europe, and generate the vast majority of our sales in the United States.
The strength of our business model makes us an attractive partner for leading blue-chip retailers, who we believe find that Freshpet grows
the sales of their pet category, drives higher traffic, increases shopper frequency, and delivers category-leading margins. Our Freshpet Fridge
locations have been consistently increasing as we add new retail accounts and add stores in existing accounts. 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. 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. 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. Our Freshpet Fridges are
typically four feet wide by seven feet high and replace standard shelving in the pet aisle or an end-cap of a retail store. Our Freshpet Fridge
designs are constantly evolving with all new models featuring prominent edge-lit LED headers, LED interior lighting, crisp black interiors and
frameless glass swing doors for aesthetics and easy access. We use state-of-the-art refrigeration technology and environmentally friendly
refrigerants to minimize energy consumption and environmental impact.
We design and produce the Freshpet Fridge through a combination of in-house resources and world-class partners. We source our Freshpet
Fridges from leading global commercial refrigerator manufacturers with whom we have a collaborative approach to refrigerator design and
innovation. Once ordered by us, Freshpet Fridges are shipped to distribution centers for delivery and installation in retail stores.
Installation into retail locations and ongoing maintenance of the Freshpet Fridge is coordinated by Freshpet and executed through leading
third-party service providers. All of our Freshpet Fridges are protected by a manufacturer warranty of three years. Our refrigerators are
designed to be highly reliable, and at any given time, less than 0.5% of the network is out of service for maintenance. 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.
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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. 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. 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 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 have effectively used national TV advertising to drive incremental
consumers to try Freshpet products. We expect to realize greater benefits from national TV advertising as we continue to grow the network of
Freshpet store locations nationwide. We have also expanded our online presence to better target consumers seeking information on healthy
pet food. 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.
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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. 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.
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.
Competitive factors in the pet food industry include product quality, ingredients, brand awareness and loyalty, product variety, product
packaging and design, reputation, price, advertising, promotion and nutritional claims. We believe that we compete effectively with respect to
each of these factors.
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. We believe that when we create a workplace where our colleagues are engaged, committed and
empowered for the long-term, we are better positioned to create value for our company, as well as for our stockholders. We are proud of our
focus on promoting employee engagement across our operations - from our supply chain to our products - and are committed to building our
business on a foundation of strong ethics.
Attracting and retaining talent at all levels is vital to continuing our success. We promote the work-life balance of our employees, we invest in
our employees through high-quality benefits and various health and wellness initiatives, and we have created a healthy work environment in
our offices. 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. 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. Our principal executive offices are
located at 1545 US-206, 1st Floor, Bedminster, New Jersey 07921.
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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 annual reports on Form 10-K,
quarterly reports on Form 10-Q, periodic reports on Form 8-K and amendments to those reports that we file or furnish pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available through our website, free of charge,
as soon as reasonably practicable after they have been electronically filed or furnished to the Securities and Exchange Commission (the
“SEC”). Our website also provides access to reports filed by our directors, executive officers and certain significant shareholders pursuant to
Section 16 of the Exchange Act. In addition, our Corporate Governance Guidelines, General Code of Ethics, Code of Ethics for Executive
Officers and Principal Accounting Personnel and charters for the committees of our board of directors are available on our website as well as
other shareholder communications. The information contained in or that can be accessed through our website does not constitute a part of,
and is not incorporated by reference into, this report. The SEC maintains a website, http://www.sec.gov, which contains reports, proxy and
information statements and other information that we file electronically with the SEC.
Trademarks and Other Intellectual Property
We believe that our rights in our trademarks and service marks are important to our marketing efforts to develop brand recognition and
differentiate our brand from our competitors and are a valuable part of our business. We own a number of trademarks and service marks that
have been registered, or for which applications are pending, with the United States Patent and Trademark Office including, among others,
Freshpet, Vital, Nature’s Fresh, Roasted Meals, Fresh From The Kitchen, Freshpet Dog Joy, Dognation, Homestyle Creations, and Pets
People Planet.
We believe that our intellectual property has substantial value and has significantly contributed to our success to date. We are continually
developing new technology and enhancing proprietary technology related to our pet food, Freshpet Fridges and manufacturing operations.
We also rely on unpatented proprietary expertise, recipes and formulations, continuing innovation and other trade secrets to develop and
maintain our competitive position.
Government Regulation
Along with our brokers, distributors, and ingredients and packaging suppliers, we are subject to extensive laws and regulations in the United
States by federal, state and local government authorities. In the United States, the federal agencies governing the manufacture, distribution
and advertising of our products include, among others, the Federal Trade Commission, the U.S. Food and Drug Administration (“FDA”), the
U.S. Department of Agriculture, the United States Environmental Protection Agency, and the Occupational Safety and Health Administration.
Under various statutes, these agencies, among other things, prescribe the requirements and establish the standards for quality and safety
and regulate our marketing and advertising to consumers. Certain of these agencies, in certain circumstances, must not only approve our
products, but also review the manufacturing processes and facilities used to produce these products before they can be marketed in the
United States. In addition to agency regulation, we are required to comply with state feed control requirements in the United States. We are
also subject to the laws of Canada, including the Canadian Food Inspection Agency, and the United Kingdom, including the Food Standards
Agency, as well as provincial and local regulations.
We are subject to labor and employment laws, laws governing advertising, privacy laws, safety regulations and other laws, including
consumer protection regulations that regulate retailers or govern the promotion and sale of merchandise. Our operations, and those of our
distributors and suppliers, are subject to various laws and regulations relating to environmental protection and worker health and safety
matters. We monitor changes in these laws and believe that we are in material compliance with applicable laws.
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ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. The following is a discussion of the risks, uncertainties and assumptions that
we believe are material to our business, which should be considered in conjunction with the other information contained in this report,
including our consolidated financial statements and accompanying notes. If any of the following risks actually occurs, our business, financial
condition or results of operations could be materially adversely affected. While the risks are organized by headers, and each risk is discussed
separately, many are interrelated. In any such case, the trading price of our common stock could decline, and you could lose all or part of
your investment. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition, or results of operations.
Risks Related to our Growth Strategy and Need for Capital
We may not be able to successfully implement our growth strategy on a timely basis or at all.
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. 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.
We may not be able to successfully implement our growth strategy or to grow consistently from period to period. Our business, financial
condition and results of operations will be adversely affected if we fail to implement our growth strategy or if we invest resources in a growth
strategy that ultimately proves unsuccessful.
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. 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 ability to obtain additional funding will be subject to various factors, including general economic and market
conditions, our operating performance, the market’s perception of our growth potential, lender sentiment and our ability to incur additional
debt in compliance with our contractual restrictions.
Additionally, our ability to make payments on and to refinance any indebtedness and to fund planned expenditures for our growth and
operational efficiency plans will depend on our ability to generate cash in the future. If our business does not achieve the levels of profitability
or generate the amount of cash that we anticipate or if we expand faster than anticipated, we may need to seek additional debt or equity
financing to operate and expand our business. From time to time, we may seek to raise additional capital by accessing the debt and/or equity
markets to fund capital expenditures or otherwise. We cannot assure you that our business will generate cash flow from operations in an
amount sufficient to enable us to fund our liquidity needs. Further, our capital requirements may vary materially from those currently planned
if, for example, our revenues do not reach expected levels, or we have to incur unforeseen capital expenditures and make investments to
maintain our competitive position. 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. 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."
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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. The sudden loss of any
of these executives' services or our failure to appropriately plan for any expected key executive succession could materially and adversely
affect our business and prospects, as we may not be able to find suitable individuals to replace them on a timely basis, if at all. 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. 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.
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. There are numerous brands and products that compete for shelf
space and sales, with competition based primarily upon brand recognition and loyalty, product packaging, quality and innovation, taste,
nutrition, breadth of product line, price and convenience. We compete with a significant number of companies of varying sizes, including
divisions or subsidiaries of larger companies. We face strong competition from competitors’ products that are sometimes sold at lower prices.
Price gaps between our products and our competitors’ products may result in market share erosion and harm our business. A number of our
competitors have broader product lines, substantially greater financial and other resources and/or lower fixed costs than we have. Our
competitors may succeed in developing new or enhanced products, including additional fresh, refrigerated pet food, that are more attractive
to customers or consumers than our products. These competitors may also prove to be more successful in marketing and selling their
products or may be better able to increase prices to reflect cost pressures. We may not be able to compete successfully with these other
companies or maintain or grow the distribution of our products. We cannot predict the pricing or promotional activities of our competitors or
whether their strategies will negatively affect us. Many of our competitors engage in aggressive pricing and promotional activities. There are
competitive pressures and other factors which could cause our products to lose market share or decline in sales or result in significant price
or margin erosion, which would have a material adverse effect on our business, financial condition and results of operations.
Our operating results depend, in part, on the sufficiency and effectiveness of our marketing and trade spending programs.
In general, due to the highly competitive nature of the businesses in which we compete, we must execute effective and efficient marketing
investments and trade spending programs with respect to our businesses overall to sustain our competitive position in our markets.
Marketing investments may be costly. Additionally, we may, from time to time, change our marketing and trade spending strategies, including
the timing, amount or nature of television advertising and related promotional programs. The sufficiency and effectiveness of our marketing
and trade spending practices is important to our ability to retain or improve our market share or margins. 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.
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. Sales of pet food products are subject to evolving consumer preferences, changing
demographics and economic pressures. A 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.
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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. The success of our innovation and product development efforts is
affected by our ability to anticipate changes in consumer preferences and demographics, the technical capability of our product development
staff in developing and testing product prototypes, including complying with governmental regulations, and the success of our management
and sales team in introducing and marketing new products. Additionally, the development and introduction of new products requires
substantial research, development and marketing expenditures, which we may be unable to recoup if the new products do not gain
widespread market acceptance. Efforts to accelerate our innovation may exacerbate risks associated with innovation. Failure to develop and
market new products that appeal to consumers and meet our objectives could negatively impact our business, financial condition and results
of operations.
If we fail to develop and maintain our brand, or the quality of our products that customers have come to expect, our business could
suffer.
We believe that developing and maintaining our brand and the quality of our products is critical to our success. The importance of our brand
recognition and the quality of our products may become even greater as competitors offer more products similar to ours. Our financial
success is directly dependent on consumer perception of our brand and our products. Our brand-building activities involve providing high-
quality products, increasing awareness of our brand, creating and maintaining brand loyalty and increasing the availability of our products.
The success of our brand may suffer if our marketing plans or product initiatives do not have the desired impact on our brand’s image or its
ability to attract customers. 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. 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. If we fail to maintain favorable perception of our
brands, our business, financial condition and results of operations could be negatively impacted.
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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.
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. This percentage may
increase if there is consolidation among retailers or if mass merchandisers grow disproportionately to their competition. 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. 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. Requirements that may be imposed on us by our customers, such as sustainability,
inventory management or product specification requirements, may have an adverse effect on our results of operations. 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. We have in the past, and
could again in the future, have disruptions in our distributor network which could adversely impact our net sales and results of operations or
subject us to litigation. 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. 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.
We rely in part on price increases to neutralize cost increases and improve the profitability of our business. 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. During challenging economic times, our ability to increase the prices of our products
may be particularly constrained. Additionally, customers may pressure us to rescind price increases that we have announced or already
implemented (either through a change in list price or increased promotional activity). If we or our suppliers were to experience significant or
long-term increases in the prices or availability of our raw materials, which include meat, poultry products, whole grains and other agricultural
products, whether as a result of livestock disease such as HPAI, labor shortages in the agricultural industry or macroeconomic factors such
as tariffs or trade wars, our ability to effectively mitigate such cost increases could be further diminished, See "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 operation." 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. 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.
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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.
We have in the past and may in the future be exposed to product recalls, including voluntary recalls or withdrawals, and adverse public
relations if our products are alleged to cause injury or illness or if we are alleged to have mislabeled or misbranded our products or otherwise
violated governmental regulations. We may also voluntarily recall or withdraw products that we consider below our standards, whether for
taste, appearance or otherwise, in order to protect our brand reputation. Consumer or customer concerns (whether justified or not) regarding
the quality or safety of our products could adversely affect our business. Product recalls or withdrawals can result in substantial and
unexpected expenditures, destruction of product inventory, and lost sales due to the unavailability of the product for a period of time, which
could reduce profitability and cash flow. In addition, a product recall or withdrawal may require significant management attention. As an
example, in June 2022 we initiated a voluntary recall of a single lot of a particular brand due to potential salmonella contamination. Although
we received no reports of harm to pets or their owners as a result of this potential contamination, this recall resulted in production delays and
significant diversion of management time to identify and remediate the issue. Product recalls, product liability claims (even if unmerited or
unsuccessful), or any other events that cause consumers to no longer associate our brands with high quality and safe products may also
result in adverse publicity or legal challenges, hurt the value of our brands, lead to a decline in consumer confidence in and demand for our
products, and lead to increased scrutiny, fines, or other penalties by federal and state regulatory agencies of our operations, which could
have a material adverse effect on our business, financial condition and results of operations.
We also may be subject to product liability claims and adverse public relations if consumption or use of our products is alleged to cause injury
or illness. While we carry product liability insurance, our insurance may not be adequate to cover all liabilities we may incur in connection with
product liability claims. For example, punitive damages are generally not covered by insurance. In addition, we may not be able to continue to
maintain our existing insurance, obtain comparable insurance at a reasonable cost, if at all, or secure additional coverage (which may result
in future product liability claims being uninsured). A product liability judgment against us or our agreement to settle a product liability claim
could also result in substantial and unexpected expenditures, which would reduce profitability and cash flow. In addition, even if product
liability claims against us are not successful or are not fully pursued, these claims could harm our brand image, be costly and time-
consuming and may require management to spend time defending the claims rather than operating our business.
From time to time we may be subject to claims from competitors or consumers, including consumer class actions, alleging that our product
claims are deceptive, such as products being mislabeled or misbranded. For example, we have had legal claims brought against us in
California for our use of the word "natural" in describing certain of our products. 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.
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. 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 many of our costs, such as energy and logistics costs,
packaging costs and ingredient, commodity and raw product costs, are affected by factors outside or substantially outside our control, we
generally must seek to control or reduce costs through operating efficiency or other initiatives. If we are not able to identify and complete
initiatives designed to control or reduce costs and increase operating efficiency on time or within budget, our results of operations could be
adversely impacted. 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.
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Our manufacturing capacity and expansion plans could have a material adverse effect on our business, financial condition and
results of operations.
Due to limited manufacturing capacity and our continued growth, the Company recently expanded its manufacturing capacity and may in the
future continue expanding its manufacturing capacity via organic growth, operational efficiency increases or other means. See "Item 1.
Business" and "Item 7. 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. If
we overestimate our demand and overbuild our capacity, we may have significantly underutilized assets, and we may experience reduced
margins. If we do not accurately align our manufacturing capabilities with demand, it could have a material adverse effect on our business,
financial condition and results of operations.
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.
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). 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.
In February 2025, the new U.S. presidential administration announced the imposition of tariffs on imports from Canada, Mexico and China,
and those countries subsequently announced retaliatory tariffs in response. Although the imposition of certain of these tariffs was temporarily
stayed, the situation is dynamic, rapidly evolving and uncertain. If allowed to become or remain effective, these or any new or increased
tariffs or resultant trade wars could have an adverse effect on us or on our suppliers, which could lead to significant increases in the costs of
materials, and as a result could negatively impact our results of operations, cash flow and financial condition. New or increased tariffs could
also negatively affect U.S national or regional economies or lead to increased inflation or a recession, which also could negatively impact our
sales growth, and our business and results of operations.
Input, commodity and ingredient price increases or shortages may result in higher costs or interrupt our production schedules, each of which
could have a material adverse effect on our results of operations. Production delays could lead to reduced sales volumes and profitability, as
well as loss of market share. Higher costs could adversely impact our earnings. For example, fuel prices affect our transportation costs for
both ingredients and finished product. If we are not able to implement our productivity initiatives or increase our product prices to offset price
increases of our inputs, commodities and ingredients, as a result of consumer sensitivity to pricing or otherwise, or if sales volumes decline
due to price increases, our results of operations could be adversely affected. Our competitors may be better able than we are to implement
productivity initiatives or effect price increases or to otherwise pass along cost increases to their customers. Moreover, if we increase our
prices in response to increased costs, we may need to increase marketing spending, including trade promotion spending, in order to retain
our market share. 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.
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If we do not manage our supply chain effectively, including inventory levels, our business, financial condition and results of
operation may be adversely affected.
The inability of any supplier, co-packer, third-party distributor or transportation provider to deliver or perform for us in a timely or cost-effective
manner could cause our operating costs to increase and our profit margins to decrease. We must continuously monitor our inventory and
product mix against forecasted demand or risk having inadequate supplies to meet consumer demand, as well as having too much inventory
on hand that may reach its expiration date and become unsaleable. 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.
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.
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. Adverse weather conditions may
be impacted by climate change and other factors. Adverse weather conditions and natural disasters can reduce crop size and crop quality,
which in turn could reduce our supply of ingredients, lower recoveries of usable ingredients, increase the prices of our ingredients, increase
our transportation costs or increase our cost of storing ingredients if harvests are accelerated and processing capacity is unavailable.
Additionally, the growth of crops, as well as the manufacture and processing of our products, requires significant amounts of water. Drought
or other causes of a reduction of water in aquifers may affect availability of water, which in turn may adversely affect our results of operations.
Competing manufacturers may be affected differently by weather conditions and natural disasters depending on the location of their supplies
or operations. If our supply of ingredients is reduced, we may not be able to find enough supplemental supply sources on favorable terms, if
at all, which could impact our ability to supply product to our customers and adversely affect our business, financial condition and results of
operations. 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. If our operations are damaged by a fire, flood or
other disaster, for example, we may be subject to supply or delivery interruptions, destruction of our facilities and products or other business
disruptions, which could adversely affect our business, financial condition and results of operations.
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 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. In addition, if our Freshpet
Fridges fail to operate as intended, for any reason, the reputation of our Freshpet Fridges with customers and the reputation of our brand with
consumers may decline. 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.
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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. If these materials are alleged or prove to include contaminants that affect the safety or
quality of our products or are otherwise rumored to have adverse effects, for any reason, we may need to find alternate ingredients for our
products, delay production of our products, or discard or otherwise dispose of our products, which could adversely affect our results of
operations. 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.
Outbreaks of animal diseases could have a material adverse effect on our business, financial condition and results of operations.
The cost of the protein-based ingredients we use in our products has been adversely impacted in the past by the publicity surrounding animal
diseases, such as bovine spongiform encephalopathy, or “mad cow disease.” As a result of extensive global publicity and trade restrictions
imposed to provide safeguards against mad cow disease, the cost of alternative sources of the protein-based ingredients we use in our
products has from time to time increased significantly and may increase again in the future if additional cases of mad cow disease are found.
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. Those sources may not
be available to sustain our sales volumes, may be more costly and may affect the quality and nutritional value of our products. 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. However, we may not be able to charge higher prices for our products without negatively impacting future sales volumes.
Additionally, certain publicity arising from animal disease outbreaks may create fear in consumers, which could lead to reduced sales in the
fresh pet food category. Any resultant negative impact on sales or growth could negatively impact our business, financial condition and
results of operations.
We rely on co-packers to provide our supply of certain products and distributors to sell some of our products in certain channels.
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. 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. 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. 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. During economic downturns, our co-packers and distributors may be more susceptible to
experiencing such financial difficulties, bankruptcies or other business disruptions. A new co-packing or distribution arrangement may not be
available on terms as favorable to us as the existing arrangement, if at all.
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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. Transportation services include scheduling and coordinating
transportation of finished products to our customers, shipment tracking and freight dispatch services. Our use of transportation services for
shipments is subject to risks, including increases in fuel prices, which would increase our shipping costs, and employee strikes and inclement
weather, which may impact the ability of providers to provide delivery services that adequately meet our shipping needs, including keeping
our products adequately refrigerated during shipment. Any such change could cause us to incur costs and expend resources. Moreover, in
the future we may not be able to obtain terms as favorable as those we receive from the third-party transportation providers that we currently
use, which in turn would increase our costs and thereby adversely affect our business, financial condition and results of operations.
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. Consumers have access to lower-priced offerings and, during economic downturns, may shift purchases to these lower-priced or
other perceived value offerings. Customers may become more conservative in response to these conditions and seek to reduce their
inventories. For example, during the economic downturn from 2007 through 2009, customers significantly reduced their inventories. Global or
local pandemics could also have adverse impacts on our business operations. In addition, any tariffs imposed by the new U.S. presidential
administration or retaliatory tariffs announced by other countries could result in a trade war. If effected, these or any new or increased tariffs
or resultant trade wars could have an adverse effect on us or on our suppliers, distributors or customers, which could lead to significant
increases in the costs of materials and services, resulting in product cost increases and reduced consumer demand.
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.
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. Competition
for qualified employees or inflationary pressures on employee compensation could require us to pay higher wages to attract and retain a
sufficient number of qualified employees. We cannot be certain that we will be able to attract and retain qualified employees to meet current
or future operational 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.
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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.
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. The FDA Food Safety Modernization Act of 2011 provides direct recall authority to the
FDA and includes a number of other provisions designed to enhance food safety, including increased inspections by the FDA of domestic
and foreign food facilities and increased review of food products imported into the United States. In addition, many states have adopted the
Association of American Feed Control Officials’ model pet food regulations or variations thereof, which generally regulate the information
manufacturers provide about pet food. Complying with government regulation can be costly or may otherwise adversely affect our business.
Regulatory delays or uncertainty, including as a result of any government or regulator shutdown or defunding could impede our ability to
manufacture and timely deliver our products. 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.
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 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.
From time to time, we may be subject to litigation, government investigations or governmental proceedings, which may adversely
impact our results of operations and financial condition.
From time to time, we have been and may continue to be involved in various legal, regulatory or administrative investigations, negotiations or
proceedings arising in the normal course of business. In the event of litigation, government investigations or governmental proceedings, we
are subject to the inherent risks and uncertainties that may result if outcomes differ from our expectations. In the event of adverse outcomes
in any litigation, investigation or government proceeding, we could be required to pay substantial damages, fines or penalties and cease
certain practices or activities, which could materially harm our business. For example, as an employer, we may be subject to various
employment-related claims, such as individual or class actions or government enforcement actions relating to alleged employment
discrimination, employee classification and related withholding, wage-hour, labor standards or healthcare and benefit issues. 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.
We rely on trademark, copyright, trade secret, patent and other intellectual property laws, as well as nondisclosure and confidentiality
agreements and other methods, to protect our intellectual property rights as well as the intellectual property of third parties with respect to
which we are subject to non-use and non-disclosure obligations. We may need to engage in litigation or similar activities to enforce our
intellectual property rights, to protect our trade secrets or to determine the validity and scope of proprietary rights of others. Any such
litigation could require us to expend significant resources and divert the efforts and attention of our management and other personnel from
our business operations. The steps we take to prevent misappropriation, infringement or other violation of our intellectual property or the
intellectual property of others may not be successful. In addition, effective patent, copyright, trademark and trade secret protection may be
unavailable or limited for some of our trademarks and patents in some foreign countries. Failure to protect our intellectual property could
harm our business, financial condition and results of operations.
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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. Third parties may also oppose our trademark applications, or
otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand
our products, which could result in the loss of brand recognition and could require us to devote resources to advertising and marketing new
brands. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequate resources to enforce
our trademarks.
We rely on unpatented proprietary know-how in the areas of recipes, ingredients sourcing, cooking techniques, packaging, transportation and
delivery. It is possible that others will independently develop the same or similar know-how or otherwise obtain access to our proprietary
know-how. To protect our trade secrets and other proprietary know-how, we require employees, consultants, advisors and collaborators to
enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection in the event of any
unauthorized use, misappropriation or disclosure of our trade secrets, know-how or other proprietary information. If we are unable to maintain
the proprietary nature of our recipes, methods and other know-how, we could be materially adversely affected.
Further, to the extent we develop, introduce and acquire products, the risk of such claims may be exacerbated. Any such claims, even those
without merit, could (i) require us to expend significant resources, (ii) cause us to cease making or using products that incorporate the
challenged intellectual property, (iii) require us to redesign, reengineer or rebrand our products or packaging, including our Freshpet Fridges,
(iv) divert management's attention and resources or (v) require us to enter into royalty or licensing agreements in order to obtain the right to
use a third-party's intellectual property, which may not be available to us on acceptable terms or at all. Any of such events may adversely
impact our business, financial condition and results of operations.
Risks Related to our International Operations
We may face difficulties as we expand into countries in which we have no prior operating experience.
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.
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.
In addition, our expansion into new countries may require significant resources and the efforts and attention of our management and other
personnel, which will divert resources from our existing business operations. 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. Climate change or
concerns regarding climate change may increase environmental regulation and environmental risks.
As a result of our agricultural and food processing operations, we are subject to numerous environmental laws and regulations at the federal,
state and local levels. As these laws and regulations become increasingly complex, our compliance costs become increasingly expensive.
Changes in environmental conditions may result in existing legislation having a greater impact on us. Additionally, we may be subject to new
legislation and regulation in the future.
For example, the long-term effects of global climate change present both physical risks (such as extreme weather conditions or rising sea
levels) and transition risks (such as regulatory or technology changes), which are expected to be widespread and unpredictable. These
changes could over time affect, for example, the availability and cost of products, commodities, including our ingredients, and energy
(including utilities), which in turn may impact our ability to procure goods or services required for the operation of our business at the
quantities and levels we require. Regulations limiting greenhouse gas emissions and energy inputs may also increase in coming years, which
may increase our costs associated with compliance.
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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. We cannot predict the extent to which any environmental
law or regulation that may be enacted or enforced in the future may affect our operations. The effect of these actions and future actions on
the availability and use of pesticides could adversely impact our financial position or results of operations. If the cost of compliance with
applicable environmental laws or regulations increases, our business, financial condition and results of operations could be negatively
impacted.
Risks Related to Information Technology and Cyber Security
Our business operations could be disrupted if our information technology systems fail to perform adequately.
The efficient operation of our business depends on our information technology systems, some of which are managed by third-party service
providers. We rely on our information technology systems to effectively manage our business data, communications, supply chain, order
entry and fulfillment, and other business processes. The failure of our information technology systems to perform as we anticipate could
disrupt our business and could result in transaction errors, processing inefficiencies, and the loss of sales and customers, impacts to working
capital, causing our business and results of operations to suffer. 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. Any such damage or interruption
could have a material adverse effect on our business, financial condition and results of operations.
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. 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. 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. In addition, data and security breaches can also
occur as a result of non-technical issues, including breach by us or by persons with whom we have commercial relationships that result in the
unauthorized release of personal or confidential information. Furthermore, the increased use of smartphones, tablets, and other wireless
devices, as well as continued work-from-home arrangements for a substantial portion of our corporate employees, may also heighten these
and other operational risks. 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.
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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.
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. In
general, a corporation that undergoes an "ownership change" is subject to limitations on its ability to utilize its “pre-ownership change” NOLs
to offset future taxable income. In general, under the U.S. Internal Revenue Code of 1986, as amended (the “Code”), an ownership change
occurs if the aggregate stock ownership of certain stockholders (generally 5% stockholders, applying certain look-through and aggregation
rules) increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally
three years). We have completed several analyses under Section 382 of the Code in the past which concluded that certain annual limitations
exist. Purchases or sales of our common stock in amounts greater than specified levels, which are generally beyond our control, could create
additional limitations on our ability to utilize our NOLs for tax purposes in the future. Limitations imposed on our ability to utilize NOLs could
cause an increase in the amount of our aggregate payments of U.S. federal and state income taxes in future years. In addition, (i) the amount
of NOLs generated in taxable years beginning after December 31, 2017 that we are permitted to deduct in any taxable year beginning after
December 31, 2020 is limited to 80% of our taxable income in such year, and (ii) NOLs generated in taxable years beginning after December
31, 2020 cannot be carried back to prior taxable years. Furthermore, we may not be able to generate sufficient taxable income to utilize our
pre-2018 NOLs before they expire. If any of these events occur, we may not derive some or all of the expected benefits from our NOLs. In
addition, NOLs incurred in one state will not be available to offset income earned in a different state. Furthermore, there may be periods
during which the use of NOLs is suspended or otherwise limited for state tax purposes, which could accelerate or permanently increase state
taxes owed.
Risks Related to Interest Rates
Changes in interest rates may adversely affect our earnings and cash flows.
During periods of rising interest rates, our cost of borrowing could increase, the fair value of our investments could be affected, and it could
constrain the purchasing power of our customers.
Risks Related to Ownership of Our Common Stock
Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and
investors due to various factors that are beyond our control, resulting in a decline in our stock price.
Our quarterly operating results may fluctuate significantly, including because of the risks described in this "Risks Factors" section.
Accordingly, results for any one period are not necessarily indicative of results to be expected for any future period. In the future, operating
results may fall below the expectations of securities analysts and investors. 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.
The trading price of our common stock has been, and may continue to be, volatile, and you may not be able to resell your shares at or above
the purchase price. Such volatility could be based on various factors relating to our Company and industry, including those described in this
“Risks Factors" section.
In addition, in recent years the stock market has experienced significant price and volume fluctuations. These fluctuations may be unrelated
to the operating performance of particular companies. These broad market fluctuations may cause declines in the market price of our
common stock. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our business, financial
condition and results of operations, and those fluctuations could materially reduce our common stock price.
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.
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Future sales of our common stock, or the perception that such sales may occur, could depress our common stock price.
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. 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.
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. If
activist stockholder activities continue, our business could be adversely affected because responding to proxy contests and reacting to other
actions by activist stockholders can be costly and time-consuming, disrupt our operations, and divert the attention of management and our
employees. For example, we have been and may continue to be required to retain the services of various professionals to advise us on
activist stockholder matters, including legal, financial, and communications advisers, the costs of which may negatively impact our future
financial results. This may be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to
attract and retain qualified personnel. In addition, actions of activist shareholders may cause significant fluctuations in our stock price based
on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of
our business.
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.
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. Additional equity offerings may
dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both, and may result in future Section 382
limitations that could reduce the rate at which we utilize our NOL carryforwards. Preferred stock, if issued, could have a preference on
liquidating distributions or a preference on dividend payments or both that could limit our ability to make a dividend distribution to the holders
of our common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our
control. 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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. Such breaches and disruptions may
occur through breaches by our personnel or by intrusions over the internet, malware, computer viruses, attachments to e-mails or by persons
with whom we have commercial relationships. While we have not, as of the date of this Form 10-K, experienced a cybersecurity threat or
incident that resulted in a material adverse impact to our business or operations, there can be no guarantee that we will not experience such
an incident in the future. See "Item 1A. 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.
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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. Our CIO has over 25 years of technology experience, including leading information governance, I.T. security, and
cybersecurity teams and initiatives across both publicly traded companies and global organizations.
Our policies, practices, and standards for addressing material risks associated with cybersecurity are integrated into our overall risk
management and are based on industry standards including the National Institute of Standards and Technology ("NIST") which aligns the
prevention techniques, identification, protection, detection, response, and recovery related to an incident. 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.
Our organization-wide information security program focuses on implementing effective and efficient controls, technologies, and other
processes to help protect, identify, assess, manage and mitigate material cybersecurity threats and incidents. These processes include,
among other things, regular testing of these controls through table-top exercises, penetration and vulnerability testing, auditing of our
information security by an independent third-party auditor, ongoing security awareness training for employees and other educational
programs, and continuous monitoring of our cybersecurity posture. We also employ numerous tools including, but not limited to, segregated
layers of controls for access to our systems and security tools that help identify, isolate, remediate, and recover from identified vulnerabilities
and security incidents in a timely manner. Our cybersecurity posture is managed by both our information security organization and through
partnerships with industry recognized cybersecurity firms.
We have also created, and tested through incident response drills, the Freshpet Incident Response Plan and Playbook, which together set
forth policy-level directives as well as specific guidelines for implementation, that describe our process for responding in the event of certain
defined cyber incidents. These protocols (i) define the roles and responsibilities of participants, relationships to other Company policies and
procedures, and reporting requirements needed during an incident, (ii) provide a framework by which our Incident Response Team ("IRT")
shall determine the scope and risk of an incident, respond appropriately to that incident, and inform the Board and others depending upon
the nature and severity of the incident, and (iii) reduce the likelihood of a similar incident from reoccurring following identification of such an
incident.
Our CIO and other members of the information security organization routinely engage with our CFO regarding cyber risk management
activities and provide updates and data, as needed, to other members of our executive team to facilitate decisions regarding security matters.
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. Additionally, some of our Board members have completed specialized director
training on cybersecurity risk.
ITEM 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, 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-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. At the completion of phase 2 and 3, the Freshpet
Kitchens Ennis facility will grow by approximately 400,000 square-feet.
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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.
ITEM 3. LEGAL PROCEEDINGS
We are currently involved in various claims and legal actions that arise in the ordinary course of our business. While the results of such
litigation proceedings cannot be predicted with certainty, management believes none of these claims or proceedings are expected to have a
material adverse effect on our business, financial condition, results of operations or cash flows. See also “Item 1A. Risk Factors” and Note 10
- Commitments and Contingencies to our Consolidated Financial Statements for a discussion of certain legal proceedings involving the
Company.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
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. This number excludes
stockholders whose stock is held in nominee or street name by brokers.
Dividend Policy
Since we became a publicly traded company in 2014, we have not declared or paid, and do not anticipate declaring or paying in the
foreseeable future, any cash dividends on our capital stock. Any future determination to declare and pay cash dividends will be at the
discretion of our Board of Directors in accordance with applicable laws and will depend on, among other things, our financial condition,
results of operations, cash requirements, contractual restrictions and such other factors as our Board of Directors deems relevant. 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.
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.
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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, 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.
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
ITEM 6. [RESERVED]
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially
from those discussed in these forward-looking statements as a result of various factors, including those set forth in “Risk Factors.” The
following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial
statements included elsewhere in this report.
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. 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.
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Overview
Freshpet's mission is to elevate the way we feed our pets with fresh food that nourishes all. We were inspired by the rapidly growing view
among pet owners that their dogs and cats are a part of their family, leading them to demand healthier pet food choices. Since Freshpet's
inception in 2006, we have created a comprehensive business model to deliver wholesome pet food that pet parents can trust, and in the
process, we believe we have become one of the fastest growing pet food companies in North America. 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.
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. 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. Sales are recorded net of discounts, returns and
promotional allowances.
Our net sales growth is driven by the following key factors:
• Increasing sales velocity from the average Freshpet Fridge due to increasing awareness, trial and adoption of Freshpet products and
innovation. 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. The impact of new Freshpet Fridge installations on our net sales varies by retail class and depends on
numerous factors including store traffic, refrigerator size, placement within the store, and proximity to other stores that carry our
products.
• Consumer trends including growing pet ownership, pet humanization and a focus on health and wellness.
• At times we increase our sales price to offset any adverse movement in input costs.
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.
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. Our marketing and advertising expenses primarily consist of national television media, digital marketing, social
media and grass roots marketing to drive brand awareness. These expenses may vary from quarter to quarter depending on the timing of our
marketing and advertising campaigns. Our Feed the Growth initiative focuses on growing the business through increased marketing
investments.
Freshpet Fridge operating costs. 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.
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Research & development. 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.
Share-based compensation. 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. 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. 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. 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 may be subject to certain limitations in our annual utilization of NOL carry forwards to off-set future taxable income
pursuant to Section 382 of the Internal Revenue Code, which could result in NOLs expiring unused. 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. 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.
Consolidated 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)%
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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. 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. 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.
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. 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. 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.
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. 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.
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.
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.
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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.
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. 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.
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.
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.
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. 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. 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. GAAP. We define Adjusted Gross Profit as Gross
Profit before depreciation expense, non-cash share-based compensation, and loss on disposal of manufacturing equipment. 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. EBITDA represents net income (loss) plus interest expense net of interest income, income tax expense and
depreciation and amortization expense. 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.
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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 financial
measures, such as net sales, gross profit margins and cash flow from operations, to assess our historical and prospective operating
performance, to provide meaningful comparisons of operating performance across periods, to enhance our understanding of our operating
performance, and to compare our performance to that of our peers and competitors.
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. The non-GAAP financial measures
should not be considered in isolation or as alternatives to net income (loss), income (loss) from operations or any other measure of financial
performance calculated and prescribed in accordance with U.S. GAAP. Neither EBITDA nor Adjusted EBITDA should be considered a
measure of discretionary cash available to us to invest in the growth of our business. 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.
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 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 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. Other companies in our
industry may calculate the non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures.
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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. 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. 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. 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.
(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.
(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.
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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. 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. 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. 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. 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.
(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.
(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.
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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. Further,
on March 13, 2023, in connection with the proposed offering of the Convertible Notes, the Company notified City National Bank of Freshpet's
intent to terminate the Credit Agreement, and such termination became effective as of March 15, 2023 (the "Termination Date"). The
Company had no borrowings outstanding under the Credit Agreement as of the Termination Date.
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 expect to rely on our current and future cash flow from operations, may issue additional debt, and/or raise capital through our access to
capital markets, if appropriate. Our ability to obtain additional funding will be subject to various factors, including general economic and
market conditions, our operating performance, the market's perception of our growth potential, lender sentiment and our ability to incur
additional debt in compliance with other contractual restrictions.
Our ability to make future minimum interest payments on the Convertible Notes, to refinance any indebtedness and to fund any necessary
expenditures for our growth will depend on our ability to generate cash in the future. If our business does not achieve the levels of profitability
or generate the amount of cash that we anticipate or if we expand faster than anticipated, we may need to seek additional debt or equity
financing to operate and expand our business. Future third-party financing may not be available on favorable terms or at all.
Our primary cash needs, in addition to our plant expansions, are for purchasing ingredients, operating expenses, marketing expenses and
capital expenditures to procure Freshpet Fridges. 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. We believe our sources of liquidity and capital will be sufficient to finance our continued operations, growth strategy and
additional expenses we expect to incur for at least the next twelve months. However, our ability to continue to meet these requirements and
obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow from operations and our
ability to manage costs and working capital successfully. 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. We
cannot assure you that our business will generate cash flow from operations in an amount sufficient to enable us to fund our liquidity needs.
Expanding certain of our Freshpet Kitchens primarily comprises our material future cash requirement. However, our capital requirements,
including our cash requirements, may vary materially from those currently planned if, for example, our revenues do not reach expected
levels, or we have to incur unforeseen capital expenditures and make investments to maintain our competitive position. 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. Moreover, if we issue new debt securities, the debt holders would have rights senior to common stockholders to
make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common
stock. If we issue additional equity or if the Convertible Notes are converted to common shares, existing stockholders may experience
dilution, and such new securities could have rights senior to those of our common stock. These factors may make the timing, amount, terms
and conditions of additional financing unattractive. 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.
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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. Working capital remained consistent at $338.1 million at both
December 31, 2024 and 2023. 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.
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 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.
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).
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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.
This was partially offset by:
• $13.7 million decrease due to changes in operating assets and liabilities. 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. 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.
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.
This was partially offset by:
• $113.4 million of proceeds from maturities of short-term investments.
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.
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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.
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.
Indebtedness
For a discussion of our material indebtedness, see Note 6 and 7 to our Consolidated Financial Statements included in this report.
Critical Accounting Estimates and Policies
Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States, or ("U.S. GAAP"). The preparation of these
financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenue and expenses incurred during the
reported periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and share-
based compensation. We base our estimates on historical experience and on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not
apparent from other sources. Changes in estimates and policies are reflected in reported results for the period in which they become known.
Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting estimates and policies are described in the notes to our financial statements appearing in this report, we
believe that the following critical accounting estimates and policies are most important to understanding and evaluating our reported financial
results.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and
the reported amounts of net sales and expenses during the reporting period.
We believe that the accounting estimates policies discussed below are critical to understanding our historical and future performance, as
these policies related to the more significant areas involving management’s judgments and estimates. We base our estimates on historical
experience and on various assumptions that we believe to be reasonable under the circumstances. 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 following critical accounting policies reflect significant judgments and estimates used in preparation of our consolidated financial
statements:
Revenue Recognition and Incentives—Revenue is recognized when performance obligations under the terms of the contract with the
customer are satisfied, which occurs once control is transferred upon delivery to the customer.
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Revenue is reported net of applicable trade incentives and allowances. 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. 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.
While our revenue recognition does not involve significant judgment, it represents a significant accounting policy.
Share-based Compensation—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. 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.
We have outstanding share-based awards that have performance-based vesting conditions in addition to time-based vesting. Awards with
performance-based vesting conditions require the achievement of certain financial criteria as a condition to the vesting. For certain
performance-based awards, the quantity of awards received can range based on the level of performance 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. At each reporting period, we reassess the probability of
achieving the performance criteria and the performance period required to meet those targets. Determining whether the performance criteria
will be achieved involves judgment, and the share-based compensation expense may be revised periodically based on changes in the
probability of achieving the performance criteria. Revisions are reflected in the period in which the probability assessment is changed. If
performance goals are not met, no share-based compensation expense is recognized for the cancelled shares, and, to the extent share-
based compensation expense was previously recognized for those cancelled shares, such share-based compensation expense is reversed.
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.
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ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Interest Rate Risk
During periods of rising interest rates, our cost of borrowing could increase, the fair value of our investments could be affected, and it could
constrain the purchasing power of our customers.
Commodity Price and Inflation Risk
We purchase certain products and services that are affected by commodity prices, including, but not limited to agricultural products. These
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. In many cases,
we believe we will be able to address material commodity cost increases by either increasing prices or reducing operating expenses.
However, increases in commodity prices, without adjustments to pricing or reduction to operating expenses, could increase our operating
costs as a percentage of our net sales.
Inflation
Our profitability is dependent, among other things, on our ability to anticipate and react to changes in the costs of key operating resources,
including food and other raw materials, labor, energy and other supplies and services. Substantial increases in costs and expenses could
impact our operating results to the extent that such increases cannot be passed along to our customers.
While generally we have been able to offset inflation and other changes in the costs of key operating resources through price increases,
productivity improvements and greater economies of scale, our price increases are not always implemented immediately, which can cause us
to temporarily absorb increased cost. Further, there can be no assurance that we will be able to continue to effectively implement such
offsets in the future. From time to time, competitive conditions could limit our pricing flexibility. In addition, macroeconomic conditions could
make additional price increases imprudent. There can be no assurance that all future cost increases can be offset by increased prices or that
increased prices will be fully absorbed without any resulting changes in product purchasing patterns.
Foreign Exchange Rates
Fluctuations in the currencies of countries where the Company operates outside the U.S. may impact our financial results. 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 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. 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. As of December 31, 2024, there were
no forward contracts outstanding.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FRESHPET, INC.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm
44
Consolidated Balance Sheets as of December 31, 2024 and 2023
46
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2024, 2023, and
2022
47
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2024, 2023, and 2022
48
Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023, and 2022
49
Notes to Consolidated Financial Statements
51
43
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Freshpet, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Freshpet, Inc. and subsidiaries (the Company) as of December 31, 2024
and December 31, 2023, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes (collectively, the
consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2024,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2024 and December 31, 2023, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024 based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures
as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material
to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of
a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Assessment of probability of achieving the vesting performance criteria of share-based awards
As discussed in Notes 1 and 12 to the consolidated financial statements, the Company recognizes share-based compensation based on
the value of the number of share-based payment awards that are ultimately expected to vest during the period. Share-based awards with
performance-based vesting conditions require the achievement of certain financial criteria as a condition to vesting. For certain
performance-based awards, the quantity of awards with the financial criteria have 1) an annual revenue target or 2) adjusted earnings
before interest, taxes, depreciation and amortization target within fiscal years 2023 through 2027. At each reporting period, the Company
reassesses the probability of achieving the performance criteria required to meet those vesting targets. When achievement of the vesting
criteria is considered probable, compensation cost is recognized. As of December 31, 2024, there were unrecognized compensation
costs of approximately $12.79 million and $1.55 million related to performance-based restricted stock units and stock options,
respectively, for which the achievement of the vesting criteria is considered probable.
We identified the assessment of probability of achieving the vesting performance criteria of share-based awards as a critical audit matter.
Evaluating the assumptions related to the Company’s determination of the probability that the performance criteria will be achieved for
the share-based awards involved subjective auditor judgment. In particular, judgment was required to assess the probability of meeting
the Company’s future performance targets, including forecasted revenue.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the
operating effectiveness of certain internal controls over the Company’s share-based compensation process, including a control related to
the Company’s assessment of assumptions that were used in the determination that a performance criterion was probable of
achievement. To assess the Company’s ability to accurately forecast revenue, we compared the Company’s historical revenue forecasts
to actual results. We compared forecasted revenue to those in communications to the Board of Directors, press releases and analyst
reports.
/s/ KPMG LLP
We have served as the Company’s auditor since 2012.
Short Hills, New Jersey
February 20, 2025
45
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FRESHPET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31,
2024
December 31,
2023
ASSETS
CURRENT ASSETS:
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
Total Current Assets
436,998
427,319
Property, plant and equipment, net
1,065,869
979,164
Deposits on equipment
1,047
1,895
Operating lease right of use assets
3,366
3,616
Long term investment in equity securities
33,446
23,528
Other assets
34,152
28,899
Total Assets
$
1,574,878 $
1,464,421
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
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 Current Liabilities
$
98,869 $
89,222
Convertible senior notes
395,163
393,074
Long term operating lease liabilities
2,213
2,591
Long term finance lease liabilities
23,273
26,080
Total Liabilities
$
519,518 $
510,967
Commitments and contingencies
—
—
STOCKHOLDERS' EQUITY:
Common stock — voting, $0.001 par value, 200,000 shares authorized, 48,716 issued and
48,702 outstanding on December 31, 2024, and 48,277 issued and 48,263 outstanding on
December 31, 2023
49
48
Additional paid-in capital
1,338,160
1,282,984
Accumulated deficit
(281,806)
(328,731)
Accumulated other comprehensive loss
(787)
(591)
Treasury stock, at cost — 14 shares on December 31, 2024 and on December 31, 2023
(256)
(256)
Total Stockholders' Equity
1,055,360
953,454
Total Liabilities and Stockholders' Equity
$
1,574,878 $
1,464,421
See accompanying notes to the consolidated financial statements.
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FRESHPET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
For the Year Ended
December 31,
2024
2023
2022
NET SALES
$
975,177 $
766,895 $
595,344
COST OF GOODS SOLD
579,221
516,023
409,311
GROSS PROFIT
395,956
250,872
186,033
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
357,957
281,318
238,016
INCOME (LOSS) FROM OPERATIONS
37,999
(30,446)
(51,983)
OTHER INCOME (EXPENSES):
Interest and Other Income, net
11,868
13,029
1,710
Interest Expense
(12,262)
(14,097)
(5,208)
Gain on Equity Investment
9,918
—
—
9,524
(1,068)
(3,498)
INCOME (LOSS) BEFORE INCOME TAXES
47,523
(31,514)
(55,481)
INCOME TAX EXPENSE
598
210
282
LOSS ON EQUITY METHOD INVESTMENT
—
1,890
3,731
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
$
46,925 $
(33,614) $
(59,494)
OTHER COMPREHENSIVE (LOSS) INCOME:
Change in foreign currency translation
$
(196) $
(1,961) $
1,490
TOTAL OTHER COMPREHENSIVE (LOSS) INCOME
(196)
(1,961)
1,490
TOTAL COMPREHENSIVE INCOME (LOSS)
$
46,729 $
(35,575) $
(58,004)
NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON
STOCKHOLDERS
-BASIC
$
0.97 $
(0.70) $
(1.29)
-DILUTED
$
0.93 $
(0.70) $
(1.29)
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING
-BASIC
48,487
48,163
46,191
-DILUTED
50,255
48,163
46,191
See accompanying notes to the consolidated financial statements.
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FRESHPET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
Common
Shares
Common
Stock
Additional
Paid-in Capital
Accumulated
Deficit
Accumulated Other
Comprehensive
(Loss)
Income
Treasury
Shares
Treasury
Stock
Total
Stockholders'
Equity
BALANCES, December 31,
2021
43,449
$
43
$
955,710
$
(235,623)
$
(120)
14
$
(256)
$
719,754
Exercise of options to purchase
common stock
45
—
471
—
—
—
—
471
Vesting of restricted stock units
43
1
(1,441)
—
—
—
—
(1,440)
Share-based compensation
expense
—
—
23,505
—
—
—
—
23,505
Issuance and exercise of
partner warrants
194
9,775
—
—
—
—
9,775
Shares issued in primary
offering, net of issuance costs
4,320
4
337,504
—
—
—
—
337,508
Foreign currency translation
—
—
—
—
1,490
—
—
1,490
Net Loss
—
—
—
(59,494)
—
—
—
(59,494)
BALANCES, December 31,
2022
48,051
$
48
$
1,325,524
$
(295,117)
$
1,370
14
$
(256)
$
1,031,569
Exercise of options to purchase
common stock
160
—
4,517
—
—
—
—
4,517
Vesting of restricted stock units
66
—
(1,400)
—
—
—
—
(1,400)
Share-based compensation
expense
—
—
20,554
—
—
—
—
20,554
Purchase of capped call
options
—
—
(66,211)
—
—
—
—
(66,211)
Foreign currency translation
—
—
—
—
(1,961)
—
—
(1,961)
Net loss
—
—
—
(33,614)
—
—
—
(33,614)
BALANCES, December 31,
2023
48,277
$
48
$
1,282,984
$
(328,731)
$
(591)
14
$
(256)
$
953,454
Exercise of options to purchase
common stock
352
1
9,137
—
—
—
—
9,138
Vesting of restricted stock units
87
—
(3,341)
—
—
—
—
(3,341)
Share-based compensation
expense
—
—
49,380
—
—
—
—
49,380
Foreign currency translation
—
—
—
—
(196)
—
—
(196)
Net income
—
—
—
46,925
—
—
—
46,925
BALANCES, December 31,
2024
48,716
$
49
$
1,338,160
$
(281,806)
$
(787)
14
$
(256)
$
1,055,360
See accompanying notes to the consolidated financial statements.
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FRESHPET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended
December 31,
2024
2023
2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
46,925
$
(33,614)
$
(59,494)
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
Provision for loss (gains) on accounts receivable
467
(2)
(20)
Loss on disposal of property, plant and equipment
1,284
4,321
396
Share-based compensation
51,807
24,935
26,092
Inventory obsolescence
347
—
3,455
Depreciation and amortization
73,615
58,517
34,555
Write-off and amortization of deferred financing costs and loan discount
2,089
4,060
795
Change in operating lease right of use asset
1,350
1,549
1,372
Loss on equity method investment
—
1,890
3,731
Gain on equity investment
(9,918)
—
—
Changes in operating assets and liabilities:
Accounts receivable
(12,228)
820
(32,993)
Inventories
(15,484)
(1,207)
(26,171)
Prepaid expenses and other current assets
269
(2,249)
(435)
Other assets
(5,063)
(4,053)
(3,141)
Accounts payable
12,484
3,543
(3,063)
Accrued expenses
7,811
19,237
13,078
Operating lease liability
(1,467)
(1,807)
(1,384)
Net cash flows provided by (used in) operating activities
154,288
75,940
(43,227)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property, plant and equipment, software and deposits on equipment
(187,092)
(239,093)
(230,071)
Purchase of short-term investments
—
(113,441)
(19,840)
Proceeds from maturities of short-term investments
—
113,441
19,840
Investments in equity method investment
—
—
(3,293)
Net cash flows used in investing activities
(187,092)
(239,093)
(233,364)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options to purchase common stock
9,138
4,517
471
Tax withholdings related to net shares settlements of restricted stock units
(2,595)
(1,400)
(1,441)
Principal payments under finance lease obligations
(1,977)
(1,109)
—
Purchase of capped call options
—
(66,211)
—
Proceeds from issuance of convertible senior notes
—
393,518
—
Debt issuance costs
—
(2,026)
—
Proceeds from borrowings under Credit Facility
—
—
78,000
Repayment of borrowings under Credit Facility
—
—
(78,000)
Proceeds from common shares issued in primary offering, net of issuance cost
—
—
337,508
Net cash flows provided by financing activities
4,566
327,289
336,538
NET CHANGE IN CASH AND CASH EQUIVALENTS
(28,238)
164,136
59,947
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
296,871
132,735
72,788
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
268,633
$
296,871
$
132,735
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SUPPLEMENTAL CASH FLOW INFORMATION:
Taxes paid
$
193
$
308
$
297
Interest paid, net of amounts capitalized
$
10,154
$
9,303
$
3,152
Operating right-of-use assets obtained in exchange for lease obligations
$
1,785
$
—
$
—
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Property, plant and equipment and software purchases in accounts payable and accrued expenses
$
7,760
$
19,286
$
44,258
Tax withholdings related to net shares settlements of restricted stock units in accrued expenses
$
746
$
—
$
—
Non-cash addition of finance lease to property, plant and equipment
$
—
$
29,187
$
—
Issuance of partner warrants
$
—
$
—
$
9,775
See accompanying notes to the consolidated financial statements.
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 1 – Summary of Significant Accounting Policies:
Nature of the Business – Freshpet, Inc. (hereafter referred to as “Freshpet”, the “Company”, "we," "us" or "our"), a Delaware corporation,
manufactures and markets natural fresh meals and treats for dogs and cats. The Company’s products are distributed throughout the United
States, Canada and other international markets, into major retail classes including Grocery, Mass, International, Digital, Pet Specialty, and
Club.
Basis of Presentation – The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the U.S. (“U.S. GAAP”). The consolidated financial statements have been prepared in accordance with the rules and
regulations of the United States Securities and Exchange Commission (the "SEC"). All amounts included in the consolidated financial
statements have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may
not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.
Principles of Consolidation – The financial statements include the accounts of the Company as well as the Company’s wholly-owned
subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Estimates and Uncertainties – The preparation of our consolidated financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the
reporting period. Estimates are used in determining, among other items, trade incentives, share-based compensation, and useful lives for
long-lived assets. Actual results, as determined at a later date, could differ from those estimates.
Segments – The Company has one operating and reportable segment, as the Company's chief operating decision maker, who is the
Company's Chief Executive Officer, reviews financial information on a consolidated basis for purposes of allocating resources and evaluating
financial performance.
The accounting policies of the segment are the same as those described herein, Note 1 – Summary of Significant Accounting Policies.
Investment in Unconsolidated Company – The Company utilizes the equity method to account for investments when the Company
possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to
exercise significant influence is presumed when an investor possesses more than 20% of the voting interests of the investee. This
presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is
restricted.
In applying the equity method, the Company records the investment at cost and subsequently increases or decreases the carrying amount of
the investment by its proportionate share of the net income or loss. The Company has elected to record its share of equity in income (losses)
of equity method investment on a one-quarter lag based on the most recently available financial statements.
Through 2022, we invested a total of $31,200 in a privately held company that operates in our industry, with no additional investments
thereafter. The Company concluded that it is not the primary beneficiary as it does not have the power to direct activities that most
significantly impact economic performance. Prior to March 30, 2023, the Company accounted for the investment under the equity method of
accounting based on its ability to exercise significant influence, based on its representation on and the makeup of the investee's Board of
Directors.
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
On March 30, 2023, the Company no longer had representation on the investee's Board of Directors, and therefore determined that
significant influence had been lost as of that date. As such, as of March 30, 2023, the Company stopped accounting for the investment as an
equity method investment and began to account for the investment under Accounting Standards Codification (ASC) Topic 321 ("ASC 321"),
Investments - Equity Securities. As of December 31, 2024, the Company's ability to exercise significant influence continues to be restricted
as it no longer has, or the ability to obtain, board representation and it has no means of participation in any decision making processes as the
privately held investee's Board of Directors is closely held.
Because the investee is a privately held company, there is not a means to obtain a readily determinable fair value of the entity. The Company
follows ASC 321 using the measurement alternative to measure investments in investees that do not have readily determinable fair value and
over which the Company does not have significant influence. Under ASC 321, the initial carrying value of the investment is equal to the
previous carrying amount of the investment under the equity method. The carrying amount of the investment is subsequently adjusted for any
impairment or adjustments resulting from observable price changes in orderly transactions for identical or similar investments of the same
issuer, if any. Dividends and distributions, if any, from the investee would be recognized in the period in which they are received and recorded
in other income on the consolidated statement of operations.
The Company performs a qualitative assessment of whether the investment is impaired at each reporting date. If a qualitative assessment
indicates that the investment is impaired, the Company estimates the investment's fair value in accordance with the principles of ASC Topic
820 ("ASC 820"), Fair Value Measurements and Disclosures. If the fair value is less than the investment's carrying value, the entity
recognizes an impairment loss in earnings equal to the difference between the carrying value and fair value. On March 26, 2024, the investee
completed an equity funding, which we concluded represented an orderly transaction for an identical equity security with no differences in
rights and obligations. As a result, pursuant to the ASC 321 measurement alternative, we adjusted the carrying amount of our equity
investment from $23,528 as of December 31, 2023 to $33,446 as of March 31, 2024, recognizing a gain of $9,918 in earnings for the year
ended 2024, based on the observable transactional price of the identical equity security issued by the investee.
March 2023 Issuance of $402.5 million of 3.00% Convertible Senior Notes (the "Convertible Notes") – In conjunction with the issuance
of the $402.5 million Convertible Notes in March 2023, the Company evaluated the debt instrument and its embedded features to determine
if the contract or the embedded components of the contract qualified as a derivative that would be required to be separately accounted for in
accordance with the relevant accounting literature.
The Company accounts for the Convertible Notes as a single liability measured at amortized cost. The Company uses the effective interest
rate method to amortize the debt issuance costs to interest expense over the respective term of the Convertible Notes.
Inventories – Inventories are stated at the lower of cost or market, using the first-in, first-out method. When necessary, the Company
provides allowances to adjust the carrying value of its inventories to the lower of cost or net realizable value, including any costs to sell or
dispose and consideration for obsolescence, excessive inventory levels, product deterioration and other factors in evaluating net realizable
value.
Property, Plant, and Equipment – Property, plant, and equipment are recorded at cost. The Company recognizes depreciation pursuant to
the straight-line method based upon estimated useful lives of 7 years for furniture and office equipment, 9 years for refrigeration equipment, 5
to 10 years for machinery and equipment, and 15 to 39 years for building and improvements. Capitalized cost includes the costs incurred to
bring the property, plant, and equipment to the condition and location necessary for its intended use, which includes any necessary delivery,
electrical, and installation cost for equipment. Maintenance and repairs that do not extend the useful life of the assets over two years are
charged to expense as incurred. Leasehold improvements are amortized over the shorter of the term of the related lease or the estimated
useful lives on the straight-line method.
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Long-Lived Assets – The Company evaluates all long-lived assets for impairment. Long-lived assets are evaluated for impairment
whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future net cash flows expected to
be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future net cash flows, an impairment
charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Recoverability of assets
held for sale is measured by a comparison of the carrying amount of an asset or asset group to their fair value less estimated costs to sell.
Estimating future net cash flows and determining fair value of assets requires significant estimates and assumptions by management. If the
carrying amount is not fully recoverable, an impairment loss is recognized to reduce the carry amount to fair value and is charged to expense
in the period of impairment.
Leases – The Company is a lessee in noncancelable (1) operating leases, and (2) finance leases, which it accounts for in accordance with
ASC Topic 842, Leases.
The Company determines if an arrangement is or contains a lease at contract inception. The Company recognizes a right of use asset and a
lease liability at the lease commencement date. For both operating and finance leases, the right of use asset is initially measured at cost,
which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus
any initial direct costs incurred less any lease incentives received; and the lease liability is initially measured at the present value of the
unpaid lease payments at the lease commencement date.
The Company’s leases do not provide an implicit rate; therefore, the Company uses its incremental borrowing rate based on the information
available at the lease commencement date in determining the present value of future payments for those leases. The Company’s incremental
borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease
payments under similar terms in a similar economic environment.
Right of use assets for the operating and finance leases are periodically reviewed for impairment losses. The Company uses the long-lived
assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment - Overall, to determine whether a right of use asset is
impaired, and if so, the amount of the impairment loss to recognize. No such loss was recognized as of December 31, 2024.
The Company monitors for events or changes in circumstances that require a reassessment of its leases. When a reassessment results in
the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding right of use asset.
The Company has elected the practical expedient to combine lease and non-lease components when determining the right of use asset and
lease liability. The Company has also elected not to recognize right of use assets and lease liabilities for short-term leases that have a lease
term of 12 months or less. The Company recognizes the lease payments associated with its short-term leases as an expense on a straight-
line basis over the lease term.
Income Taxes – The Company provides for deferred income taxes for temporary differences between financial and income tax reporting,
principally net operating loss carryforwards, depreciation, and share-based compensation. Deferred tax assets and liabilities are measured
using enacted tax rates in effects for the years in which those temporary differences are expected to be recovered or settled.
A valuation allowance is appropriate when management believes it is more likely than not (a probability level of more than 50%), the deferred
tax asset will not be realized. This evaluation utilizes the framework contained in ASC Topic 740, Income Taxes, pursuant to which
management analyzed all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the
deferred tax assets will not be realized. At December 31, 2024 and 2023, the Company determined that a full valuation of its net deferred tax
assets and liabilities is appropriate. The Company will continue to monitor the realizability of its net deferred tax assets in the future and
determine the necessity or changes to such valuation allowance based on future positive and negative evidence.
The taxable income position as of December 31, 2024 was fully offset by our federal NOL carry forwards and corresponding change in
valuation allowance, resulting in no federal income tax expense in the current period.
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Share-based Compensation – 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. 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.
Cash Equivalents – The Company holds treasury bills with original maturities when purchased of less than three months, within cash and
cash equivalents, carried at amortized cost on the Consolidated Balance Sheet. Treasury bills have been classified as held-to-maturity as we
have the ability and intent to hold them to maturity. As of December 31, 2024, the Company had $109,608 of treasury bills within cash
equivalents, which included $300 of amortized discount. As of December 31, 2023, the Company had $134,570 of treasury bills within cash
equivalents, which included $692 of amortized discount.
Short-Term Investments – The Company, from time to time, holds treasury bills with original maturities when purchased of greater than
three months, within short-term investments, carried at amortized cost on the Consolidated Balance Sheet. Treasury bills have been
classified as held-to-maturity as we have the ability and intent to hold them to maturity. As of December 31, 2024 and December 31, 2023,
there were no short-term investments.
Trade Accounts Receivable – The allowance for doubtful accounts is based on the Company's assessment of the collectability of customer
accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the
accounts receivable balances and current economic conditions that may affect a customer's ability to pay.
Implementation Costs of Cloud Computing Arrangement – As of December 31, 2024 and 2023, the Company's deferred implementation
costs of our ERP system associated with our cloud computing arrangement, which are reflected within prepaid and other assets, were $8,965
and $9,895, respectively. The cost will be recognized over the term of the agreement, which began in the first quarter of 2022.
Fair Value of Financial Instruments – ASC 820 guidance specifies a hierarchy of valuation techniques based on whether the inputs to
those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
The three levels of the fair value hierarchy are as follows:
• Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access
at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as
exchange-traded instruments and listed equities.
• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or
liabilities in markets that are not active). Level 2 includes financial instruments that are valued using models or other valuation
methodologies.
• Level 3 – Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are
determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input
is unobservable.
Our financial assets and liabilities include cash and cash equivalents, receivables, accounts payable and accrued liabilities, the fair values of
which approximate their carrying values due to the short-term nature of these instruments. The Company holds certain financial assets within
cash and cash equivalents in the form of held-to-maturity treasury bills as we have the ability and intent to hold them to maturity, as such,
they are not fair valued each reporting period but instead measured at amortized cost. The fair value of these assets is based on quoted
market prices for the same or similar securities within less active markets, which the Company determined to be Level 2 inputs. As of
December 31, 2024, the fair value of these treasury bills approximates their carrying value due to the short-term nature of these instruments.
54
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Certain financial and non-financial assets, including operating lease right-of-use assets and property, plant, and equipment are reported at
their carrying values and are not subject to recurring fair value measurements. We review our long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For the investment in equity
securities, we have elected the measurement alternative under which we measure this investment at cost minus impairment, if any, plus or
minus changes resulting from observable price changes, if any, in orderly transactions for an identical or a similar investment of the same
issuer, for which the change in fair value would be included in net income.
Refer to Note 7 - Convertible Senior Notes for the fair value of our Convertible Senior Notes.
As of December 31, 2024, the Company maintained Level 1 and Level 2 assets and liabilities.
Debt Issuance Cost – The Company's policy is to record debt issuance costs as a direct deduction to the related debt liability in the
Consolidated Balance Sheet and to amortize these debt issuance costs to interest expense over the term of the related debt using the
effective interest method.
Revenue Recognition and Incentives – Revenues primarily consist of the sale of fresh pet food products to retailers, through direct sales
and distributor arrangements. Revenue is recognized when performance obligations under the terms of the contract with the customer are
satisfied, which occurs once control is transferred upon delivery to the customer.
Revenue is reported net of applicable trade incentives and allowances. 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. Trade incentives consists 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.
Sales taxes and other similar taxes are excluded from revenue.
There were no contract assets as of December 31, 2024 and 2023.
Net Sales – Information about the Company’s net sales by class of retailer is as follows:
Year Ended
December 31,
2024
2023
2022
Grocery, Mass, International and Digital
$
800,775 $
642,306 $
503,753
Pet Specialty and Club
174,402
124,589
91,591
Net Sales
$
975,177 $
766,895 $
595,344
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. In
contrast, grocery, mass, international and digital offer a wide variety of products.
Advertising – Advertising costs are expensed when incurred, with the exception of production costs which are expensed the first time
advertising takes place. Advertising costs, consisting primarily of media ads, were $127,681, $97,877 and $71,720, in 2024, 2023 and 2022,
respectively. As of December 31, 2024, 2023 and 2022 we had $29, $56 and $553, respectively of production cost in prepaid expense,
representing advertising that had yet to take place.
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Shipping and Handling Costs/Freight Out – Costs incurred for shipping and handling are included in selling, general, and administrative
expenses within the statement of operations and comprehensive income (loss). Shipping and handling costs primarily consist of costs
associated with moving finished products to customers, including costs associated with our distribution center and the cost of shipping
products to customers through third-party carriers. Shipping and handling cost totaled $58,424, $57,427, and $63,891 in 2024, 2023 and
2022, respectively.
Recently Adopted Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Segment Reporting (Topic 280):
Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements, primarily through enhanced
disclosures about significant segment expenses. This guidance is effective for the Company for the current annual report for the fiscal year
ending December 31, 2024 and subsequent interim periods and the Company has adopted the guidance as of the effective date.
Refer to Note 16 - Segment Information for required disclosures.
Recently Issued Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires improved disclosures related
to the rate reconciliation and income taxes paid. This ASU requires companies to reconcile the income tax expense attributable to continuing
operations to the statutory federal income tax rate applied to pre-tax income from continuing operations. Additionally, this ASU requires
companies to disclose the total amount of income taxes paid during the period. This guidance will be effective for the Company for the annual
report for the fiscal year ending December 31, 2025, with early adoption permitted. The guidance is required to be applied on a prospective
basis with the option to apply retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating
the provisions of this guidance and its effect on its future consolidated financial statements.
In March 2024, the SEC adopted final rules to require disclosures about certain climate-related information in registration statements and
annual reports. As adopted, the Final Climate Rules mandate disclosure of, among other things, material climate-related risks, how the board
of directors and management oversee and manage such risks, and the actual and potential material impacts of such risks on us. The rules
also require disclosure about material climate-related targets and goals, Scope 1 and Scope 2 GHG emissions, and the financial impacts of
severe weather events and other natural conditions. In April 2024, the SEC voluntarily stayed the Final Climate Rules pending resolution of
legal challenges. We are currently evaluating the impact of adopting the new rules and continue to monitor the status of the related legal
challenges.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation
Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disclosures related to the specific types of
expenses included within the expense captions presented on the face of the income statement as well as disclosures about selling
expenses. This guidance will be effective for the Company for the annual report for the fiscal year ending December 31, 2027 and
subsequent interim periods, with early adoption permitted. The guidance is required to be applied on a retrospective basis for all prior periods
presented in the financial statements. The Company is currently evaluating the provisions of this guidance and its effect on its future
consolidated financial statements.
Note 2 – Inventories, net:
December 31,
2024
December 31,
2023
Raw Materials and Work in Process
$
16,289 $
16,055
Packaging Components Material
7,296
5,607
Finished Goods
57,209
41,576
Inventories, net
$
80,794 $
63,238
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 3 – Property, Plant and Equipment, net:
December 31,
2024
December 31,
2023
Refrigeration Equipment
$
193,249 $
167,956
Machinery and Equipment
279,093
242,256
Building, Land and Improvements
712,209
535,003
Furniture and Office Equipment
13,570
14,987
Leasehold Improvements
12
1,319
Construction in Progress
104,526
187,952
Finance Lease Right of Use Asset
28,478
29,187
1,331,137
1,178,660
Less: Accumulated Depreciation and Amortization
(265,268)
(199,496)
Property, Plant and Equipment, net
$
1,065,869 $
979,164
Depreciation and amortization expense related to property, plant and equipment totaled $69,497, $58,169, and $34,332 in 2024, 2023 and
2022, respectively; of which $51,735, $42,667, and $20,774 was recorded to cost of goods sold for 2024, 2023 and 2022, respectively, with
the remainder of depreciation expense recorded to selling, general and administrative expense.
Note 4 – Income Taxes
A summary of income taxes as follows:
Year Ended
December 31,
2024
2023
2022
Federal
$
— $
— $
—
State
598
210
282
International
—
—
—
$
598 $
210 $
282
The provisions for income taxes do not bear a normal relationship to income (loss) before income taxes primarily as a result of the valuation
allowance on deferred tax assets.
The reconciliation of the statutory federal income tax rate to the Company’s effective tax is presented below:
Year Ended
December 31,
2024
2023
2022
Tax at federal statutory rate
21.0 %
21.0 %
21.0 %
State taxes, net of federal
0.5 %
1.2 %
3.6 %
Permanent items
(14.3)%
5.8 %
3.7 %
Other
0.5 %
(0.4)%
(0.7)%
State rate change
— %
(1.8)%
0.5 %
Change in valuation allowance
(6.5)%
(26.4)%
(28.6)%
Effective tax rate
1.2 %
(0.6)%
(0.5)%
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
In assessing the realizability of the net deferred tax assets, the Company considers all relevant positive and negative evidence to determine
whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of the gross
deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net
operating loss carryforwards. The Company believes that it is more likely than not that the Company’s deferred income tax assets will not be
realized. With the exception of 2024, the Company has cumulative taxable losses from inception. As such, there is a full valuation allowance
against the net deferred tax assets as of December 31, 2024, 2023 and 2022.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as
follows:
Year Ended
December 31,
2024
2023
2022
Net operating loss
$
103,729 $
105,233 $
85,214
Stock option expense
34,368
23,643
18,709
Property and equipment
(47,159)
(35,756)
(20,753)
Other
7,555
5,536
5,920
Less: Valuation allowance
(98,493)
(98,656)
(89,090)
Net deferred income tax assets
$
— $
— $
—
At December 31, 2024, the Company had federal net operating loss (“NOL”) carryforwards of $391.5 million, of which $146.7 million,
generated in 2017 and prior, will expire between 2028 and 2037. The NOL 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. The
Company may be subject to the net operating loss utilization provisions of Section 382 of the Internal Revenue Code. The effect of an
ownership change would be the imposition of an annual limitation on the use of NOL carry forwards attributable to periods before the change.
The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s
capital during a specified period prior to the change, and the federal published interest rate. We have completed several analyses under
Section 382 of the Code in the past which concluded that certain annual limitations exist. At December 31, 2024, the Company had $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.
Entities are also required to evaluate, measure, recognize and disclose any uncertain income tax provisions taken on their income tax
returns. The Company has analyzed its tax positions and has concluded that as of December 31, 2024, there were no uncertain positions.
The Company has incurred U.S. federal and state net operating losses since its inception in 2005, with the exception of 2024, and remains in
a cumulative loss position. As such, tax years subject to potential tax examination could apply from that date because the utilization of net
operating losses from prior years opens the relevant year to audit by the IRS and/or state taxing authorities. Interest and penalties, if any, as
they relate to income taxes assessed, are included in the income tax provision. The Company did not have any unrecognized tax benefits
and has not accrued any interest or penalties through 2024, 2023 and 2022.
The Company considered the impact of the disallowance of certain compensation tax deductions in excess of $1.0 million under Internal
Revenue Code Section 162(m); however, to the extent an adjustment to the deferred tax asset is required the impact will be offset by a
corresponding adjustment to the valuation allowance.
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 5 – Accrued Expenses:
December 31,
2024
December 31,
2023
Accrued Compensation and Employee Related Costs
$
34,550 $
19,307
Accrued Chiller Cost
3,468
7,478
Accrued Customer Consideration
735
1,228
Accrued Freight
4,358
6,078
Accrued Production Expenses
4,176
6,928
Accrued Corporate and Marketing Expenses
4,166
3,627
Accrued Interest
3,019
3,019
Other Accrued Expenses
1,791
2,151
Accrued Expenses
$
56,263 $
49,816
Note 6 – Debt:
On February 19, 2021, the Company entered into the Sixth Amended and Restated Loan and Security Agreement ("Credit Agreement"),
which provided for a $350,000 senior secured credit facility (as amended the "Credit Facility"), encompassing a $300,000 delayed draw term
loan facility (the "Delayed Draw Facility") and a $50,000 revolving loan facility (the "Revolving Loan Facility").
On March 15, 2023, the Company terminated the Credit Agreement in connection with the offering of the Convertible Notes (as defined
below) and it had no borrowings outstanding under the Credit Facility as of such date. Interest expense and fees totaled $2,785 and $5,208
in 2023 and 2022, respectively. Interest expense in 2023 included $2,478 of debt issuance costs written off in conjunction with the
termination of the Credit Facility in March 2023. There was $0 of accrued interest on the credit facilities as of December 31, 2023.
Note 7 – Convertible Senior Notes:
In March 2023, we issued $402,500 aggregate principal amount of 3.0% convertible senior notes due 2028 (the "Convertible Notes"). The
Convertible Notes were issued in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as
amended (the "Securities Act"). The net proceeds from the sale of the Convertible Notes were approximately $391,492 after deducting
offering and issuance costs related to the Convertible Notes and before the 2023 Capped Call transactions, as described below.
The Convertible Notes are our senior, unsecured obligations and accrue interest at a rate of 3.0% per annum, payable semi-annually in
arrears on April 1 and October 1 of each year, beginning on October 1, 2023. The Convertible Notes will mature on April 1, 2028 unless
earlier converted, redeemed or repurchased by us. Before January 3, 2028, noteholders will have the right to convert their Convertible Notes
only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ended on June 30, 2023 (and
only during such calendar quarter), if the last reported sale price of our common stock, par value $0.001 per share (the "common stock"), for
each of at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the
last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable
trading day; (2) during the five consecutive business day period immediately after any 10 consecutive trading day period (the "measurement
period") in which the trading price per $1,000 principal amount of notes, as determined following a request by a holder or holders of the
Convertible Notes in the manner described in indenture pursuant to which the Convertible Notes were issued and are governed (the
“Indenture”), for each trading day of the measurement period, was less than 98% of the product of the last reported sale price of our common
stock and the conversion rate on each such trading day; (3) if we call any or all of the Convertible Notes for redemption, but only with respect
to the convertible notes called (or deemed called) for redemption; or (4) upon the occurrence of specified corporate events (e.g., a
fundamental change or the making of certain distributions). On or after January 3, 2028, until the close of business on the second scheduled
trading day immediately preceding the maturity date, a holder may convert its Convertible Notes at any time, regardless of the foregoing
circumstances.
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
As of March 31, 2024, June 30, 2024 and September 30, 2024 noteholders had the right to early convert under the 130% early conversion
feature, with such conversion right exercisable only during the respective subsequent quarter. No early conversions occurred as of
December 31, 2024. As of December 31, 2024, noteholders again have the right to early convert under the 130% early conversion feature,
with such conversion right exercisable only during the first quarter of 2025. As of the date of this filing, no early conversions have occurred
during the first quarter of 2025.
We will settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of
our common stock, at our election. The initial conversion rate for the Convertible Notes is 14.3516 shares of common stock per $1,000
principal amount of Notes, which represents an initial conversion price of approximately $69.68 per share of common stock. The conversion
rate and conversion price are subject to customary adjustments upon the occurrence of certain events. In addition, in connection with a
make-whole fundamental change (as defined in the Indenture), which shall include among other things the Company's delivery of a notice of
redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its notes in
connection with such a corporate event or redemption, as the case may be.
We may not redeem the Convertible Notes prior to April 3, 2026. We may redeem for cash all or any portion of the Convertible Notes, at our
option, on or after April 3, 2026 and on or before the 40 scheduled trading day immediately preceding the maturity date, if the last reported
sale price of our common stock has been at least 130% of the conversion price then in effect for each of at least 20 trading days (whether or
not consecutive) during the 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the
trading day immediately preceding the date on which we send the notice of redemption, at a redemption price equal to 100% of the principal
amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. However, we may
not redeem less than all of the outstanding Convertible Notes unless at least $100 million aggregate principal amount of Convertible Notes
are outstanding and not called for redemption as of the time we send the related redemption notice.
Upon the occurrence of a fundamental change (as defined in the Indenture), holders may require the Company to repurchase for cash all or
any portion of their Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible
Notes to be repurchased, plus accrued and unpaid additional interest, if any, to, but excluding, the fundamental change repurchase date.
The effective interest rate for the Convertible Notes is 3.59%. Transaction costs of $11,008 attributable to the issuance of the Convertible
Notes were recorded as a direct deduction from the related debt liability in the Consolidated Balance Sheet and are amortized to interest
expense over the term of the Convertible Notes using the effective interest method.
The Company measures the fair value of its Convertible Notes for disclosure purposes. The fair value is based on observable market prices
for this debt, which is traded in less active markets and is therefore classified as a Level 2 fair value measurement. The following table
discloses the carrying value and fair value of the Company's Convertible Notes as of December 31, 2024:
As of December 31, 2024
Carrying Value (1)
Fair Value
3.00% Convertible Senior Notes Maturing April 1, 2028
$
395,163 $
879,527
Total
$
395,163 $
879,527
(1) The carrying amounts presented are net of unamortized debt issuance costs of $7,337 as of December 31, 2024.
th
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Lender fees that were paid upfront to the lenders and debt issuance fees paid to third parties are recorded as a discount to the carrying
amount of debt and are being amortized to interest expense over the life of the debt. The total interest expense recognized on the
Convertible Notes consists of the following:
Year Ended
December 31,
2024
2023
Contractual interest expense
$
12,075 $
9,426
Amortization of issuance costs
2,090
1,582
Total
$
14,165 $
11,008
Accrued interest was $3,019 as of both December 31, 2024 and 2023. Of the $12,075 and $9,426 of interest expense incurred in 2024 and
2023, respectively, approximately $4,165 and $1,207 of interest expense was capitalized to construction in progress in 2024 and 2023,
respectively, as the proceeds from the sale of the Convertible Notes are being used to fund construction on the Company's manufacturing
facility expansion in Ennis, Texas. As of December 31, 2024 and 2023, $3,687 and $136 of capitalized interest, respectively, was reclassified
from construction in progress to assets placed in service.
Note 8 – Purchase of Capped Call Options:
In connection with the pricing of the Convertible Notes issued in March 2023, we used $66,211 of the net proceeds from the Convertible
Notes to enter into privately negotiated capped call transactions (collectively, the "Capped Call Transactions") with certain financial
institutions.
The Capped Call Transactions are generally expected to reduce potential dilution to holders of our common stock upon any conversion of the
Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of the Convertible Notes upon
conversion of the Convertible Notes in the event that the market price per share of our common stock is greater than the strike price of the
Capped Call Transactions, with such reduction and/or offset subject to a cap.
The Capped Call Transactions have an initial cap price of approximately $120.23 per share, which represents a premium of 120% over the
last reported sale price of our common stock of $54.65 per share on March 15, 2023, and is subject to certain adjustments under the terms of
the Capped Call Transactions. Collectively, the Capped Call Transactions cover, initially, the number of shares of our common stock
underlying the Convertible Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes.
The Capped Call Transactions are accounted for as freestanding derivatives and recorded at the initial fair value in additional paid-in-capital
in the Consolidated Balance Sheet with no recorded subsequent change to fair value as long as they meet the criteria for equity
classification. As of December 31, 2024, the instrument continued to qualify for equity classification.
Note 9 – Leases:
We have various noncancelable operating lease agreements for office and warehouse space with original remaining lease terms of two years
to nine years, some of which include an option to extend the lease term for up to four years. Because the Company is not reasonably certain
to exercise the renewal options on these lease arrangements, the options are not considered in determining the lease term and associated
potential option payments are excluded from lease payments. The Company’s leases generally do not include termination options for either
party to the lease or restrictive financial or other covenants.
During the third quarter of 2023, we also entered into a finance lease agreement for manufacturing equipment with an initial term of ten
years, which includes an option to extend the lease term for up to ten years, which the Company is not reasonably certain to exercise. The
agreement did not include termination options for either party to the lease or restrictive financial or other covenants. In connection with the
manufacturing equipment lease, which is a new asset class, we elected the practical expedient to combine lease and non-lease components
to determine the right of use asset and lease liability.
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Weighted-average remaining lease term (in years) and discount rate related to operating and finance leases were as follows:
Operating Leases
Finance Lease
Weighted-average remaining lease term
2.51
8.50
Weighted-average discount rate
7.3 %
8.6 %
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the
commencement date to determine the present value of lease payments.
Maturities of lease liabilities under noncancelable operating leases and finance lease as of December 31, 2024 were as follows:
As of December 31, 2024
Operating Leases
Finance Lease
2025
$
1,538
$
4,221
2026
1,575
4,221
2027
778
4,221
2028
—
4,221
2029 and beyond
—
18,996
Total lease payments
$
3,891
$
35,880
Less: Imputed interest
(356)
(10,487)
Present value of lease liabilities
$
3,535
$
25,393
A summary of lease costs for 2024, 2023 and 2022 were as follows:
Year Ended
December 31,
2024
2023
2022
Operating Lease:
Lease cost
Cost of goods sold and selling, general and
administrative
$
1,591
$
1,752
$
1,752
Finance Lease:
Amortization of right of use asset
Cost of goods sold
$
2,812
$
1,459
$
—
Interest on lease liabilities
Interest expense
$
2,244
$
1,235
$
—
Variable lease cost (a)
Inventory/Cost of goods sold (a)
$
13,972
$
6,733
$
—
(a) Variable lease cost primarily consists of the procurement and manufacturing costs capitalized to inventory. For the year ended 2024
and 2023, $13,972 and $6,733 of variable lease costs, respectively, were capitalized to inventory and will be captured as part of cost of
goods sold as the inventory turns.
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Supplemental balance sheet information related to leases as of December 31, 2024 and December 31, 2023 are as follows:
As of December 31,
2024
As of December 31,
2023
Assets:
Operating leases
Operating lease right of use assets
$
3,366
$
3,616
Finance lease, net
Property, plant and equipment, net
24,206
27,728
Total lease assets
$
27,572
$
31,344
Liabilities:
Current:
Operating lease liabilities
Current operating lease liabilities
$
1,322
$
1,312
Finance lease liabilities
Current finance lease liabilities
2,120
1,998
Long-term:
Operating lease liabilities
Long term operating lease liabilities
2,213
2,591
Finance lease liabilities
Long term finance lease liabilities
23,273
26,080
Total lease liabilities
$
28,928
$
31,981
Supplemental cash flow information and non-cash activity relating to operating and finance leases are as follows:
Year Ended
December 31,
Operating cash flow information:
2024
2023
2022
Cash paid for amounts included in the measurement of operating lease liabilities
$
1,645
$
1,802
$
1,764
Cash paid for amounts included in the measurement of finance lease liabilities (i.e. interest)
$
2,244
$
1,235
$
—
Finance cash flow information:
Cash paid for amounts included in the measurement of finance lease liabilities (i.e. principal payment)
$
1,977
$
1,109
$
—
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 10 - Commitments and Contingencies
Commitments:
As of December 31, 2024, the Company has the following future commitments:
In August 2023, we entered into a lease arrangement for a to-be constructed office space, 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. As of December 31, 2024, the future
commitments related to this arrangement are not determinable as they are variable in nature.
Certain of the Company’s executives are covered by employment contracts requiring the Company to pay severance in the event of certain
terminations.
The future minimum payments due under manufacturing and service obligations for five years were as follows:
As of December 31,
2024
2025
$
13,150
2026
4,500
2027
4,403
2028
3,855
2029 and beyond
589
Total Manufacturing and Servicing Obligations
$
26,497
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Legal Obligations:
We are currently involved in various claims and legal actions that arise in the ordinary course of our business. None of these claims or
proceedings, most of which are covered by insurance, are expected to have a material adverse effect on our business, financial condition,
results of operations or cash flows. However, a significant increase in the number of these claims or an increase in amounts owing under
successful claims could materially and adversely affect our business, financial condition, results of operations or cash flows.
On April 8, 2022, Phillips Feed Service, Inc., d/b/a Phillips Feed and Pet Supply ("Phillips") filed a complaint against the Company in U.S.
District Court for the Eastern District of Pennsylvania (Allentown Division) for damages allegedly sustained as a result of the termination of
the Company's distribution arrangement with Phillips, a former distributor of Freshpet products. Phillips asserts a claim for breach of contract
and seeks monetary damages in excess of $8,300 based on a claimed "termination payment" under a 2018 "Letter Of Intent" and additional
damages based on a claim for improper notice of termination. Phillips also claims a right of setoff with respect to monies owed by Phillips to
the Company.
On July 5, 2022, the Company answered the complaint disputing the claimed damages, assertions of breach of contract, and the right of
offset. In addition, the Company counterclaimed breach of contract for amounts owed to Freshpet earned while Phillips served as an
authorized distributor of Freshpet product.
As of December 31, 2022, due to the claims and counterclaims between the parties, the Company reclassified the amounts due from Phillips
of $8,971 to other noncurrent assets.
Discovery in this action has closed. The parties are currently waiting for a new trial date and a ruling on Phillips Motion for Partial Summary
Judgment ("MSJ") following the reassignment of the case to a new judge on October 2, 2024. A joint status report was submitted to the new
Judge on October 25, 2024 and a hearing on the MSJ and the Company's Response in Opposition was held December 4, 2024.
Based on information currently available and advice of counsel, we do not believe that the outcome of this matter is likely to have a material
adverse effect on our business, financial condition, results of operations or liquidity. However, in the event of unexpected further
developments, it is possible that the ultimate resolution of this matter, if unfavorable, may be materially adverse to our business, financial
condition, results of operations or liquidity. Legal costs such as outside counsel fees and expenses are charged to selling, general and
administrative expenses in the period incurred.
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 11 – Warrants (in thousands, except share data):
In connection with an agreement we entered into with operators of Freshpet Kitchens South during the third quarter of 2022 in exchange for
services, we issued our partner warrants to purchase up to an aggregate of 194,000 shares of voting common stock of the Company at a
purchase price of $0.01 per share. The Company determined these warrants are accounted for under ASC Topic 718, Stock Compensation.
The warrants were recorded as a prepaid expense as the warrants were exercisable at the grant date. The prepaid expense was amortized
within Cost of Goods Sold as services are provided by the supplier. As of December 31, 2024, the warrants were fully amortized. As of
December 31, 2023, there were $2,027 of warrants in prepaid expense.
During 2022, 194,000 warrants were both issued and exercised, respectively. The grant date fair value of warrants granted during 2022 was
$50.32 per share.
Total amortization associated with partner warrants during 2024, 2023 and 2022 was $2,027, $5,160, and $2,587, respectively.
Note 12 – Equity Incentive Plans and Equity (in thousands, except share data):
Total compensation cost for share-based payments recognized in 2024, 2023 and 2022 was approximately $49,779, $19,774 and $23,505,
respectively, of which $5,734, $5,833, $4,706, respectively, was recorded to cost of goods sold with the remainder recorded to selling,
general and administrative expense. The share-based compensation cost includes an adjustment related to the reassessment of the
probability of achieving performance conditions related to certain outstanding share-based awards.
Omnibus Incentive Plans—In October 2024, the Company's stockholders approved the 2024 Equity Incentive Plan (the “2024 Plan”) under
which 1,450,000 shares of common stock may be issued or used for reference purposes as awards granted under the 2024 Plan, for grants
on or after October 1, 2024. Concurrently with the adoption of the 2024 Plan, the issuance of new awards under the 2014 Omnibus Incentive
Plan (the "2014 Plan") was frozen. Awards issued pursuant to the plans may be in the form of stock options, stock appreciation rights,
restricted stock, as well as other stock-based and cash-based awards. As of December 31, 2024, the awards granted were either time-based
(cliff vest over three years), performance-based (vest when performance targets are met, as defined in the stock option grant agreement), or
restricted stock units (employee RSUs cliff vest over three years and non-employee director RSUs cliff vest over one year).
At December 31, 2024, there were 1,324,759 shares of common stock available to be issued or used for reference purposes under the 2024
Plan.
NASDAQ Marketplace Rules Inducement Award—During 2016, 500,000 service period stock options and 500,000 performance-based
stock options were granted to the Company’s CEO as an inducement under the NASDAQ Marketplace Rules.
During 2022, as an inducement under the NASDAQ Marketplace Rules, and therefore outside of any Plan, 40,120 service period stock
options and 22,381 restricted stock units were granted to the Company's CFO.
During 2024, as an inducement under the NASDAQ Marketplace Rules, and therefore outside of any Plan, 17,150 restricted stock units were
granted to the Company’s COO.
Under the terms of the applicable agreement, each grant is governed as if issued under the 2014 Omnibus Plan. The awards granted are
time-based (cliff vest over four years or three years) and performance-based (vest when performance targets are met, as defined in the stock
option grant agreement).
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Service Period Restricted Stock Units—The following table includes activity related to outstanding service period restricted stock units in
2024.
Shares
Weighted-Average Grant-Date Fair
Value Per Unit
(in thousands)
Outstanding at December 31, 2023
372 $
66.97
Granted
185
122.79
Vested
(147)
60.50
Forfeited
(5)
75.32
Expired
—
—
Outstanding at December 31, 2024
405 $
94.65
As of December 31, 2024, there was approximately $24,622 of total unrecognized compensation costs related to service period restricted
stock units, of which $12,178 will be incurred in 2025, $8,579 will be incurred in 2026, and $3,865 will be incurred in 2027.
Performance Based Restricted Stock Units—The following table includes activity related to outstanding performance based restricted
stock units in 2024.
Shares
Weighted-Average Grant-Date Fair
Value Per Unit
(in thousands)
Outstanding at December 31, 2023
167 $
62.11
Granted
71
143.46
Issued Upon Vesting
(15)
111.65
Forfeited
—
—
Expired
—
—
Outstanding at December 31, 2024
223 $
84.61
As of December 31, 2024, there was approximately $12,788 of total unrecognized compensation costs related to performance-based
restricted stock units for which the achievement of the vesting criteria is considered probable, of which $6,086 will be incurred in 2025,
$3,351 will be incurred in 2026, and $3,351 will be incurred in 2027.
Service Period Stock Options—A summary of service period stock options outstanding and changes under the plans during the year ended
December 31, 2024 are presented below:
Options
Shares
Weighted
Average
Exercise
Price
Average
Remaining
Contractual
Term
Aggregate Intrinsic
Value
(in thousands)
(in thousands)
Outstanding at December 31, 2023
1,163 $
47.30
Granted
—
—
Exercised
(126)
141.18
Forfeited
(44)
141.78
Outstanding at December 31, 2024
993 $
51.76
3.5 $
95,803
Exercisable at December 31, 2024
968 $
50.36
3.4 $
94,718
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Of the options exercisable at the end of December 31, 2024, 951 shares were in-the-money, which account for the entire aggregate intrinsic
value.
As of December 31, 2024, there was $620 of total unrecognized compensation costs related to non-vested service period options which will
be incurred in 2025.
Performance Based Options—Performance based option vesting is contingent upon the Company achieving certain annual Net Sales
and/or Adjusted EBITDA goals. A summary of performance-based stock options outstanding and changes under the plans during the year
ended December 31, 2024 are presented below:
Options
Shares
Weighted
Average
Exercise
Price
Average
Remaining
Contractual
Term
Aggregate Intrinsic
Value
(in thousands)
(in thousands)
Outstanding at December 31, 2023
1,943 $
75.36
Granted
—
—
Exercised
(205)
131.32
Forfeited
(53)
137.53
Expired
—
—
Outstanding at December 31, 2024
1,685 $
75.69
4.2 $
122,773
Exercisable at December 31, 2024
1,521 $
70.92
3.9 $
117,397
Of the options exercisable at the end of December 31, 2024, 1,521 shares were in-the-money, which account for the entire aggregate
intrinsic value.
As of December 31, 2024, there was approximately $1,550 of total unrecognized compensation costs related to performance-based awards
for which the achievement of the vesting criteria is considered probable, of which $760 will be incurred in 2025, $730 will be incurred in 2026,
and $60 will be incurred in 2027.
Grant Date Fair Value of Options—There were no options granted in 2024. The weighted average grant date fair value of options (service
period options and performance based options) granted in 2023 and 2022 were $35.81 and $37.39 per share, respectively.
Expected Volatility—Expected volatility was based on the historical volatility of the Company’s common stock.
Weighted Average Expected Term—The Company determined the expected term based on the “shortcut method” described in ASC 718,
Compensation—Stock Compensation (an expected term based on the midpoint between the vesting date and the end of the contractual
term).
Risk-Free Interest Rate—The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of
the option in effect at the time of the grant.
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Expected Dividend Yield—The Company has not historically declared dividends, and no future dividends are expected to be available to
benefit option holders. Accordingly, the Company used an expected dividend yield of zero in the valuation model.
Year Ended
December 31,
2023
2022
Weighted average exercise price of options granted
$64.05
$67.02
Expected volatility
51.8%
52.5%
Average expected terms in years
6.4
6.5
Risk-free interest rate
4.5%
3.8%
Expected dividend yield
0.0%
0.0%
Note 13 – Net Income (Loss) Per Share Attributable to Common Stockholders:
Basic net income (loss) per share of common stock is calculated by dividing net income (loss) attributable to common stockholders by the
weighted-average number of shares of common stock outstanding for the period. Diluted net income (loss) per share of common stock is
computed by giving effect to all potentially dilutive securities. For the purpose of determining diluted earnings per common share, the treasury
stock method is used for stock options, warrants, and RSUs, and the if-converted method is used for convertible instruments such as
convertible debt as prescribed in ASC Topic 260 ("ASC 260"). In conjunction with the issuance of the $402.5 million Convertible Notes in
March 2023, the Company used $66.2 million of the proceeds to purchase capped call instruments. In accordance with ASC 260, antidilutive
contracts, such as purchased put options and purchased call options are excluded from the computation of diluted net income (loss) per
share. Accordingly, any potential impact resulting from capped call transactions is excluded from our computation of diluted net income (loss)
per share.
For the year ended December 31, 2024, diluted net income per share attributable to common stockholders is shown below. For the year
ended December 31, 2023 and 2022, diluted net loss per common share is the same as basic net loss per common share, due to the fact
that potentially dilutive securities would have an antidilutive effect as the Company incurred a net loss in those periods.
Year Ended
December 31,
2024
Net Income Attributable to Common Stockholders
$
46,925
Weighted Average Common Shares Outstanding, Basic
48,487
Service Period Stock Options
673
Restricted Stock Units
271
Performance Stock Options
824
Weighted Average Common Shares Outstanding, Diluted
50,255
Basic Net Income per Share
$
0.97
Diluted Net Income per Share
$
0.93
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
The potentially dilutive securities excluded from the determination of diluted income per share, as their effect is antidilutive, are as follows (in
thousands):
Year Ended
December 31,
2024
2023
2022
Service Period Stock Options
—
1,163
1,291
Restricted Stock Units
—
372
275
Performance Stock Options
—
1,109
1,107
Convertible Notes
5,776
5,776
—
Total
5,776
8,420
2,673
Note 14 – Retirement Plan:
The Company sponsors a safe harbor 401(k) plan covering all employees. All employees are eligible to participate. Active participants in the
plan may make contributions of up to 50% of their compensation, subject to certain limitations. Company contributions totaled approximately
$4,198 in 2024, $3,109 in 2023 and $2,297 in 2022.
Note 15 – Concentrations:
Concentration of Credit Risk—The Company maintains its cash balances in financial institutions that are insured by the Federal Deposit
Insurance Corporation up to $250 each. At times, such balances may be in excess of the FDIC insurance limit.
Major Customers—In 2024, 2023 and 2022, net sales to one of our distributors accounted for 8%, 9%, and 8% of our net sales,
respectively. In 2024, 2023 and 2022, one customer accounted for more than 10% of our net sales, respectively. As of December 31, 2024,
one distributor and two customers accounted for 15%, 26%, and 15% respectively, of our accounts receivable. As of December 31, 2023,
one distributor and two customers accounted for 15%, 21%, and 13% respectively, of our accounts receivable.
Major Suppliers—The Company purchased approximately 70% of its raw materials from three vendors during 2024, approximately 67% of
its raw materials from three vendors during 2023, and approximately 52% of its raw materials from two vendors during 2022.
The Company purchased approximately 80% of its packaging material from two vendors during 2024, 78% of its packaging material from two
vendors during 2023, and approximately 80% of its packaging material from two vendors during 2022.
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 16 – Segment Information:
The Company operates in one, consolidated operating and reportable segment: the manufacturing, marketing and distribution of fresh dog
food, cat food, and dog treats (collectively, "fresh pet food products"). The Company's chief operating decision maker ("CODM"), who is the
Company's Chief Executive Officer, reviews financial information on a consolidated basis for purposes of allocating resources and evaluating
financial performance.
The segment derives revenues from the sale of fresh pet food products to retailers, through direct sales and distributor arrangements.
Revenue from transactions with external customers for each of our fresh pet food products would be impracticable to disclose and
management, including the CODM, does not view its business by product line. Although the CODM does not review such information on a
regular basis, refer to Note 1 – Summary of Significant Accounting Policies for information about the Company's net sales by class of retailer.
The CODM measures performance for the segment primarily based on net income (loss). The CODM uses net income (loss) to evaluate
operating performance and the execution of capacity expansion plans to drive greater capital efficiency.
The measure of segment assets is reported as total assets on the Consolidated Balance Sheet and total capital expenditures for additions to
long-lived assets were $187,092, $239,093, and $230,071, for the periods ending December 31, 2024, 2023, and 2022, respectively.
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Financial information, including segment revenue, significant segment expenses, and profit or loss for each of the three most recent fiscal
years is presented in the table below:
Year Ended
December 31,
2024
2023
2022
Net sales
$
975,177
$
766,895
$
595,344
Input costs (a)
(289,642)
(261,511)
(209,561)
Quality costs (b)
(25,103)
(31,443)
(32,149)
Logistics costs (c)
(58,424)
(57,517)
(63,702)
Media costs (d)
(111,269)
(85,483)
(62,511)
Plant costs and other costs of goods sold (e)
(206,177)
(171,020)
(142,121)
Other segment selling, general and administrative items (f)
(121,884)
(107,754)
(78,827)
Depreciation and amortization
(73,615)
(58,517)
(34,555)
Share-based compensation
(49,780)
(19,775)
(23,505)
Loss on disposals of equipment
(1,284)
(4,321)
(396)
Interest and other income
11,868
13,029
1,710
Interest expense
(12,262)
(14,097)
(5,208)
Gain on equity investment
9,918
—
—
Loss on equity method investment
—
(1,890)
(3,731)
Income tax expense
(598)
(210)
(282)
Consolidated net income (loss)
$
46,925
$
(33,614)
$
(59,494)
(a) Input costs include expenses related to the procurement of raw materials and packaging materials used in the production of finished
goods.
(b) Quality costs include expenses related to quality control processes in place over the production of our dog and cat food products. This
includes high pressure processing costs, which is a food preservation method that uses high pressure and cold water to inactivate pathogens
and extend shelf life.
(c) Logistics costs include expenses related to the transportation of finished goods from production facilities to our customers and certain
warehousing costs.
(d) Media costs include expenses related to advertising through media outlets.
(e) Plant costs and other cost of goods sold items include plant employee costs and administrative expenses directly related to the cost of
goods sold.
(f) Other segment selling, general and administrative items include employee costs, chiller expenses, loss on disposals, and other
administrative selling expenses.
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FRESHPET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 17 – Subsequent Events:
The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued for recognition
or disclosures.
The Company did not identify any recognized or unrecognized subsequent events that have required adjustment or disclosure in the financial
statements.
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ITEM 9. — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROL AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed
to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal
executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures as of December 31, 2024. Based on the evaluation of our disclosure controls and procedures as of
December 31, 2024, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and
procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-
15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external
reporting purposes in accordance with generally accepted accounting principles.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO")
in its Internal Control-Integrated Framework (2013). This evaluation was carried out under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer. Based on this assessment, management concluded that as of
December 31, 2024, the Company’s internal control over financial reporting was effective.
Our independent registered public accounting firm that audited the consolidated financial statements included in this annual report has
issued an audit report on the effectiveness of our internal control over financial reporting, which is included within "Item 8. Financial
Statements and Supplementary Data" under section "Report of Independent Registered Public Accounting Firm".
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) and
15d-15(d) of the Exchange Act during the period covered by this Annual Report on Form 10-K that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and
internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the
reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control
over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if
any, have
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been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can
occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of
compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
ITEM 9B. OTHER INFORMATION
Insider Trading Arrangements
Our directors and executive officers may from time to time enter into plans or other arrangements for the purchase or sale of our shares that
are intended to satisfy the affirmative defense conditions of Rule 10b5–1(c) or may represent a non-Rule 10b5-1 trading arrangement under
the Exchange Act.
During the fiscal quarter ended December 31, 2024, none of our directors or officers informed us of the adoption or termination of a "Rule
10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as those terms are defined in Regulation S-K, Item 408.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item will be filed (and is hereby incorporated by reference) by an amendment hereto or pursuant to a
definitive proxy statement pursuant to Regulation 14A that will contain such information.
The Company has adopted a code of ethics applicable to all directors, officers, team members and agents of the Company. This code is
publicly available on the Company's website at www.investors.freshpet.com. If the Company makes any amendments to this code other than
technical, administrative, or other non-substantive amendments, or grants any waivers, including implicit waivers, from a provision of this
code, the Company will disclose the nature of the amendment or waiver, its effective date and to whom it applies on its website. The
information on the website listed above is not and should not be considered part of this Annual Report on Form 10-K. It is intended to be an
inactive textual reference only and is not incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be filed (and is hereby incorporated by reference) by an amendment hereto or pursuant to a
definitive proxy statement pursuant to Regulation 14A that will contain such information.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this item will be filed (and is hereby incorporated by reference) by an amendment hereto or pursuant to a
definitive proxy statement pursuant to Regulation 14A that will contain such information.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item will be filed (and is hereby incorporated by reference) by an amendment hereto or pursuant to a
definitive proxy statement pursuant to Regulation 14A that will contain such information.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent registered public accounting firm is KPMG LLP, Short Hills, NJ, Auditor ID: 185.
The information required by this item will be filed (and is hereby incorporated by reference) by an amendment hereto or pursuant to a
definitive proxy statement pursuant to Regulation 14A that will contain such information.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as a part of this report:
(1)
Financial Statements – See Index to the Consolidated Financial Statements appearing on page 45.
(2)
Financial Statement Schedules – None.
(3)
Exhibits – The exhibits listed on the accompanying Exhibit Index are furnished, filed or incorporated by reference as part of this report.
ITEM 16. FORM 10–K SUMMARY
None.
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EXHIBIT INDEX
Exhibit No.
Description
3.1
Sixth Amended and Restated Certificate of Incorporation of Freshpet, Inc. (incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed with the SEC on October 4, 2022)
3.2
Amended and Restated Bylaws of Freshpet, Inc. (incorporated by reference to Exhibit 3.2 to the Company's Current Report
on Form 8-K filed with the SEC on October 4, 2022)
4.1
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. (incorporated by
reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K filed with the SEC on February 28, 2023)
4.2
Indenture, dated as of March 20, 2023, between Freshpet, Inc. and U.S. Bank Trust Company, National Association, as
trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the SEC on March
23, 2023)
4.3
Form of certificate representing the 3.00% Convertible Senior Notes due 2028 (included as Exhibit A to the Indenture, dated
as of March 20, 2023, between Freshpet, Inc. and U.S. Bank Trust Company, National Association, as trustee) (incorporated
by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the SEC on March 23, 2023)
4.4
Form of Capped Call Confirmation (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed with the SEC on March 23, 2023)
10.1+
Freshpet, Inc. Second Amended and Restated 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 99.1 to the
Company's Registration Statement on Form S-8 filed with the SEC on October 7, 2020)
10.2+
Amendment to Freshpet, Inc. Second Amended and Restated 2014 Omnibus Incentive Plan (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K filed with the SEC on February 22, 2021)
10.3+
Professor Connor’s, Inc. 2010 Stock Option Plan (incorporated by reference to Exhibit 99.2 to the Company’s Registration on
Form S-8 filed with the SEC on December 12, 2014)
10.4+
Professor Connor’s, Inc. 2006 Stock Plan (incorporated by reference to Exhibit 99.3 to the Company’s Registration on Form
S-8 filed with the SEC on December 12, 2014)
10.5+
Form of Restricted Stock Agreement Pursuant to the Freshpet, Inc. 2014 Omnibus Incentive Plan (incorporated by reference
to Exhibit 10.17 to the Company’s Registration Statement on Form S-1 filed with the SEC on October 27, 2014)
10.6+
Form of Restricted Stock Unit Agreement Pursuant to the Freshpet, Inc. 2014 Omnibus Incentive Plan (incorporated by
reference to Exhibit 10.18 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 filed with the SEC on
October 27, 2014)
10.7+
Form of Incentive Stock Option Agreement Pursuant to the Freshpet, Inc. 2014 Omnibus Incentive Plan (incorporated by
reference to Exhibit 10.19 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 filed with the SEC on
October 27, 2014)
10.8+
Form of Nonqualified Stock Option Agreement Pursuant to the Freshpet, Inc. 2014 Omnibus Incentive Plan (incorporated by
reference to Exhibit 10.20 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 filed with the SEC on
October 27, 2014)
10.9+
Form of Stock Appreciation Rights Agreement Pursuant to the Freshpet, Inc. 2014 Omnibus Incentive Plan (incorporated by
reference to Exhibit 10.21 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 filed with the SEC on
October 27, 2014)
10.10*+
Summary of Non-Employee Director Compensation Arrangements
10.11+
Employment Agreement, dated as of July 27, 2016, by and between Freshpet, Inc. and William B. Cyr (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 8, 2016)
10.12+
Form of Employment Agreement between Scott Morris and Freshpet, Inc. (incorporated by reference to Exhibit 10.29 to
Amendment No. 3 to the Company’s Registration Statement on Form S-1 filed with the SEC on November 4, 2014)
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Exhibit No.
Description
10.13+
Separation Agreement and General Release of Claims, dated October 13, 2022, by and among the Company and Heather
Pomerantz (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on
October 19, 2022)
10.14+
Employment Agreement, dated October 27, 2022, by and among the Company and Todd Cunfer (incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on November 2, 2022)
10.15+
Employment Agreement, dated as of July 6, 2015, by and between Freshpet, Inc. and Stephen Weise (incorporated by
reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K, Amendment No. 1, filed with the SEC on April 30,
2019)
10.16+
Form of Employment Agreement between Cathal Walsh and Freshpet, Inc. (incorporated by reference to Exhibit 10.30 to
Amendment No. 3 to the Company’s Registration Statement on Form S-1 filed with the SEC on November 4, 2014)
10.17+
Nonqualified Stock Option Inducement Award Agreement by and between Freshpet, Inc. and William B. Cyr, dated
September 6, 2016 (incorporated by reference to Exhibit 99.2 to the Company's Registration Statement on Form S-8, filed
with the SEC on October 7, 2020)
10.18+
Nonqualified Stock Option Inducement Award Agreement by and between Freshpet, Inc. and Heather Pomerantz, dated
January 12, 2020 (incorporated by reference to Exhibit 99.3 to the Company's Registration Statement on Form S-8, filed with
the SEC on October 7, 2020)
10.19+
Inducement Nonqualified Stock Option Award Agreement by and between Todd Cunfer and Freshpet, Inc., effective as of
December 1, 2022 (incorporated by reference to Exhibit 99.2 to the Company's Registration Statement on Form S-8 filed with
the SEC on November 7, 2024)
10.20+
Inducement Restricted Stock Unit Award Agreement by and between Todd Cunfer and Freshpet, Inc., effective as of
December 1, 2022 (incorporated by reference to Exhibit 99.3 to the Company's Registration Statement on Form S-8 filed with
the SEC on November 7, 2024)
10.21+
Inducement Restricted Stock Unit Award Agreement by and between Nicola Baty and Freshpet, Inc., effective as of
September 1, 2024 (incorporated by reference to Exhibit 99.4 to the Company's Registration Statement on Form S-8 filed
with the SEC on November 7, 2024)
10.22+
Inducement Restricted Stock Unit Award Agreement by and between Nicola Baty and Freshpet, Inc., effective as of
September 1, 2024 (incorporated by reference to Exhibit 99.5 to the Company's Registration Statement on Form S-8 filed
with the SEC on November 7, 2024)
10.23
Form of Indemnification Agreement between Freshpet, Inc. and each of its directors and executive officers (incorporated by
reference to Exhibit 10.31 to Amendment No. 3 to the Company’s Registration Statement on Form S-1 filed with the SEC on
November 4, 2014)
10.24
Cooperation Agreement, by and between Freshpet, Inc. and JANA Partners LLC, dated August 21, 2023 (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on August 21, 2023)
10.25
Freshpet, Inc. 2024 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed with the SEC on October 4, 2024)
10.26
Freshpet, Inc. Key Executive Severance Plan (incorporated by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed with the SEC on August 30, 2024)
10.27
Form Participation Letter for Key Executive Severance Plan (incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K filed with the SEC on August 30, 2024)
10.28
Cyr Participation Letter for Key Executive Severance Plan (incorporated by reference to Exhibit 10.3 to the Company's
Current Report on Form 8-K filed with the SEC on August 30, 2024)
19.1*
Insider Trading Plan
21.1*
List of Subsidiaries
23.1*
Consent of KPMG LLP
31.1*
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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Exhibit No.
Description
97.1
Freshpet, Inc. Policy Relating to Recovery of Erroneously Awarded Compensation (incorporated by reference to Exhibit 97.1
to the Company's Annual Report on Form 10-K filed with the SEC on February 26, 2024)
101.INS*
Inline XBRL Instance Document
101.SCH*
Inline XBRL Schema Documents
101.CAL*
Inline XBRL Calculation Linkbase Document
101.LAB*
Inline XBRL Labels Linkbase Document
101.PRE*
Inline XBRL Presentation Linkbase Document
101.DEF*
Inline XBRL Definition Linkbase Document
EX-104
Inline XBRL Formatted Cover Page (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith.
**Furnished herewith.
+ Indicates a management contract or compensatory plan or agreement.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 20, 2025.
FRESHPET, INC.
By: /s/ William B. Cyr
William B. Cyr
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Todd Cunfer
Todd Cunfer
Chief Financial Officer
(Principal Financial and Accounting Officer)
* * * *
Power of Attorney
Each person whose signature appears below constitutes and appoints each of William B. Cyr, Todd Cunfer or Lisa Alexander, acting
alone or together with another attorney-in-fact, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this
Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ William B. Cyr
William B. Cyr
Chief Executive Officer and Director
(Principal Executive Officer)
February 20, 2025
/s/ Todd Cunfer
Todd Cunfer
Chief Financial Officer
(Principal Accounting and Financial Officer)
February 20, 2025
/s/ Olu Beck
Olu Beck
Director
February 20, 2025
/s/ David Biegger
David Biegger
Director
February 20, 2025
/s/ Daryl G. Brewster
Daryl G. Brewster
Director
February 20, 2025
/s/ Walter N. George III
Walter N. George III
Director
February 20, 2025
/s/ Jacki S. Kelley
Jacki S. Kelley
Director
February 20, 2025
/s/ Lauri Kien Kotcher
Lauri Kien Kotcher
Director
February 20, 2025
/s/ Timothy McLevish
Timothy McLevish
Director
February 20, 2025
/s/ Leta D. Priest
Leta D. Priest
Director
February 20, 2025
/s/ Joseph Scalzo
Joseph Scalzo
Director
February 20, 2025
/s/ Craig D. Steeneck
Craig D. Steeneck
Director
February 20, 2025
/s/ David J. West
David J. West
Director
February 20, 2025
82
Exhibit 10.10
FRESHPET, INC.
NON-EMPLOYEE DIRECTORS’ COMPENSATION SUMMARY
ANNUAL FEES
Each non-employee director will receive annual fees consisting of the following:
(1)
$70,000 (or $140,000 for the Chair of the Board) retainer paid in cash payable in quarterly installments; and
(2)
$120,000 (or $190,000 for the Chair of the Board) award of time-vesting RSUs, which vest on the first anniversary of the grant date;
QUARTERLY STIPENDS
Each Committee Chair and Committee Member will also receive stipends as follows:
Non-Employee Director Stipends
Quarterly
Annualized
Audit Committee Chair
$3,750
$15,000
Compensation and Human Capital Management Committee Chair
$3,750
$15,000
Nominating and Governance Committee Chair
$3,750
$15,000
Operations and FSQA Committee Chair
$3,750
$15,000
Audit Committee Member
$1,875
$7,500
Compensation Committee Member
$1,875
$7,500
Nominating and Governance Committee Member
$1,875
$7,500
Operations and FSQA Committee Member
$1,875
$7,500
VALUATION OF RESTRICTED STOCK UNITS
Annual Fees: The number of RSUs to be awarded annually to a director is determined by dividing the dollar value of RSUs to be granted to the director by
the fair market value (the closing price) of our common stock on the date of the grant date of the RSUs.
Dividends: Dividends (or dividend equivalents) shall not be payable with respect to any shares of stock underlying an award until such award has vested,
except that a grantee of an award may be provided with the right to the accrual of dividends (or dividend equivalents) on the unvested portion of an award
that may be payable upon the vesting of such portion of the award.
Exhibit 19.1
FRESHPET, INC.
Insider Trading Policy
BACKGROUND
The Board of Directors of Freshpet, Inc. (the “Company”) has adopted this Insider Trading Policy (the “Policy”) to prevent the
misuse of confidential information by Covered Persons (as defined below) about the Company, as well as other companies with
which the Company has a business relationship, and to promote compliance at the Company with securities laws.
Federal and state securities laws prohibit the purchase or sale of a company’s securities by persons who are aware of “material
nonpublic information” about that company. These laws also prohibit persons who are aware of such material nonpublic
information from disclosing (“tippers”) such information to others who may then trade securities on the basis of that material
nonpublic information (“tippees”). Any person who engages in insider trading or acts as a tipper or tippee can face civil and
criminal penalties and disciplinary action, including termination of employment. In addition, companies and their controlling
persons are also subject to liability and may be subject to significant criminal fines and civil penalties if they fail to take
reasonable steps to prevent insider trading by company personnel.
It is important that Covered Persons understand the breadth of activities that constitute illegal insider trading and the
consequences, which can be severe. The Securities and Exchange Commission (“SEC”), the Nasdaq Stock Market, LLC
(“Nasdaq”) and the Financial Industry Regulatory Authority (“FINRA”) in the United States, and similar agencies in other
jurisdictions where the Company does business, investigate and are very effective at detecting insider trading. These agencies,
along with government prosecutors, pursue insider trading violations vigorously. Cases have been successfully prosecuted
against employees, their family members and their friends, including for trades through foreign accounts and/or involving only a
small number of shares.
SCOPE OF POLICY
Covered Persons. This Policy applies to any director, officer or employee of the Company, as well as its consultants and
contractors (collectively, “Covered Persons”). This Policy also applies to: (i) the Covered Person’s family and household
members, which includes family members who reside with a Covered Person (including a spouse, a child, a child away at
college, stepchildren, grandchildren, parents, stepparents, grandparents, siblings, and in-laws), anyone else who lives in the
Covered Person’s household (whether or not they are the Covered Person’s family members), and any family members who do
not live in the Covered Person’s household, but whose transactions in Company securities are directed by the Covered Person
or subject to influence or control by the Covered Person (such as family members who consult with the Covered Person before
they trade in Company securities) (collectively, “Family Members”) and (ii) any entities or persons who are controlled by a
Covered Person (“Related Entities”).
1
DB1/ 154239847.3
Covered Persons are responsible for making sure that the purchase or sale of any security covered by this Policy by any such
person or entity complies with this Policy. They are also responsible for informing such persons of this Policy.
Securities Covered. The prohibition on insider trading in this Policy is not limited to trading in the Company’s securities. It
includes trading in the securities of other companies involved in a potential transaction or business relationship with the
Company (“Other Companies”). Information that may not be material to the Company may nevertheless be material to any Other
Company and, accordingly, trading in and tipping with respect to the Other Company’s securities are prohibited until the
information becomes public or is no longer material.
Transactions Covered. This Policy covers purchases and sales of stock and other securities (such as debentures, bonds and
notes) that are issued by the Company. It also covers purchases and sales of options, warrants, puts and calls, and other
derivative securities related to Company stock or debt securities, as well as gifts (other than as outlined in “Bona Fide Gifts”).
Transactions not Covered. This Policy does not apply to the transactions described below as permitted under “Transactions
under Company Plans and Mutual Funds,” “Bona Fide Gifts” and “Rule 10b5-1 Plans.”
For purposes of this Policy, references to the “Company” includes the Company and its subsidiaries.
STATEMENT OF POLICY
No Trading on Nonpublic Information. Covered Persons may not trade in the securities of the Company, directly or through
family members or other persons or entities, if they are aware of any material nonpublic information about the Company as
defined below, unless conducted pursuant to a valid Rule 10b5-1 Plan (as defined herein). Similarly, Covered Persons may not
trade in the securities of any Other Company if they are aware of any material nonpublic information about such Other Company
or about our Company which may impact the stock of such Other Company. You must treat material nonpublic information about
Other Companies with the same care required with respect to information related directly to the Company.
No Tipping. Covered Persons may not pass material nonpublic information on to others or recommend to anyone the purchase
or sale of any securities when they are aware of such information. This practice, known as “tipping,” also violates the securities
laws and can result in the same civil and criminal penalties that apply to insider trading, even though the tipper did not trade.
No Exception for Hardship. The existence of a personal financial emergency does not excuse anyone from compliance with this
Policy.
Potential Consequences for Non-Compliance: Employees in violation of this policy will be subject to disciplinary action up to and
including termination, in accordance with Company policy.
2
DB1/ 154239847.3
DEFINITION OF MATERIAL NONPUBLIC INFORMATION
The concept of material nonpublic information has two important elements — materiality and the absence of public availability.
Material Information. Information is “material” if there is a substantial likelihood that a reasonable investor would consider it
important in deciding whether to buy, hold or sell a security. Any information that could reasonably be expected to affect the
price of the security is material. Common examples of material information are:
•
Projections of future earnings or losses or other financial or operation metrics.
•
Earnings inconsistent with the Company’s published guidance or with the consensus expectations of the investment
community.
•
A pending or proposed merger, acquisition, tender offer, joint venture, licensing arrangement or an acquisition or
disposition of significant assets.
•
A change in the Company’s executive leadership or the composition of the Board of Directors.
•
Major events regarding the Company’s securities, including the declaration of a stock split, dividend or offering of
additional securities.
•
Significant financial liquidity problems.
•
Actual or threatened major litigation or the resolution of such litigation.
•
New major contracts, orders, suppliers, customer or financing sources, or the loss of any of them.
•
Significant expansion or curtailment of operations.
•
The establishment of a stock repurchase program.
•
Extraordinary borrowing or changes in liquidity.
•
The occurrence or knowledge of a significant cybersecurity incident, data breach or privacy incident.
•
The imposition of any event-specific restrictions on trading securities of the Company (as discussed below under
Trading Window And Pre-Clearance Procedures), or the extension or termination of any such trading restrictions.
Both positive and negative information can be material. It is important to keep in mind that material information need not be
certain information - information that something of a material nature is likely to happen, or even just that it may happen, can
affect the market price of the securities and therefore, in hindsight, may be determined to be material.
Nonpublic Information. Information is considered “nonpublic” until the information has been disclosed broadly to the marketplace
and the investing public has had time to absorb and evaluate the information fully. Information may be considered publicly
disseminated in a variety of ways, including through:
3
DB1/ 154239847.3
•
Documents furnished or filed with the SEC;
•
Press releases;
•
Public news conferences;
•
Publicly accessible investor conferences; and
•
Webcasts for which proper prior notice has been publicly given.
Under this Policy, information is considered nonpublic until one full trading day has lapsed after the information is released
broadly to the marketplace as outlined above. For example, if the Company announces financial earnings before trading begins
on a Tuesday, the first time that a Covered Person who is subject to the Trading Window procedures described below can buy
or sell Company securities is the opening of the market on Wednesday (assuming they are not aware of other material
nonpublic information at that time), subject to any applicable pre-clearance requirements or blackout periods.
Determining “Material” and “Nonpublic.” Whether a particular item is “material” or “nonpublic” will be judged with 20/20 hindsight.
Accordingly, when in doubt as to a particular item of information, you should presume it is material and has not been disclosed
to the public.
ADDITIONAL PROHIBITED TRANSACTIONS
The Company considers it improper and inappropriate for those employed by or associated with the Company to engage in
short-term or speculative transactions in the Company’s securities or in other transactions in the Company’s securities that may
lead to inadvertent violations of the insider trading laws. Accordingly, Covered Persons are subject to the following additional
provisions:
Short Sales. They may not engage in short sales (sales of securities that are not then owned), including “sales against the box”
(a sale with delayed delivery). These restrictions apply to the purchase or sale of Company stock for any fiduciary account (e.g.,
trustee, executor, custodian) with respect to which the person or family member makes the investment decision, regardless of
whether the person or family member has any beneficial interest in the account.
Publicly Traded Options. They may not engage in transactions in publicly traded options, such as puts, calls and other derivative
securities, on an exchange or in any other organized market.
Limit Orders. A limit order (also referred to as a standing limit order when left in place for an extended period of time) should be
used only for a very brief period of time. A limit order placed with a broker to sell or purchase stock at a specified price leaves
individuals without control over the timing of the transaction. Especially when left in place for an extended period of time (i.e., a
standing limit order), a limit order may result in a transaction being executed by the broker when an individual is aware of
material nonpublic information, and thus my result in unlawful insider trading.
Hedging Transactions. Hedging or monetization transactions can be accomplished through a variety of mechanisms, including
through variable prepaid forward contracts, equity swaps and collars, and similar devices. Because hedging transactions permit
the holder of Company
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securities to continue to own such securities without the full risks and rewards of ownership, they can cause the interest of such
person not to be aligned with the interests of the Company’s other shareholders. For this reason, all persons subject to this
Policy are prohibited from purchasing securities or other financial instruments, or otherwise engaging in transactions, that hedge
or offset, or are designed to hedge or offset, any decrease in the market value of Company securities.
Margin Accounts and Pledges. Securities held in a margin account or pledged as collateral for a loan may be sold without
consent by the broker if an individual fails to meet a margin call or by the lender in foreclosure if an individual defaults on the
loan. Because a margin or foreclosure sale that occurs when an individual is aware of material nonpublic information or
otherwise is not permitted to trade in Company securities would violate this Policy, Covered Persons are prohibited from holding
Company securities in a margin account or pledging Company securities as collateral for a loan.
Transactions regarding Securities Repurchases. It is the policy of the Company that the Company will not trade in Company
securities while aware of material nonpublic information relating to the Company or Company securities.
TRANSACTIONS UNDER COMPANY PLANS AND MUTUAL FUNDS
This Policy does not apply to transactions under Company benefit plans, except as noted below:
Stock Option Exercises. This Policy’s trading restrictions generally do not apply to the exercise of a stock option. The trading
restrictions do apply, however, to any post-exercise sale of the underlying stock or to a broker-assisted cashless exercise of the
option, as this entails selling a portion of the underlying stock to cover the costs of exercise.
Restricted Stock Awards/Units. This Policy’s trading restrictions do not apply to the vesting of restricted stock or restricted stock
units, or the withholding by the Company, at the election of the holder of the securities or otherwise, of shares in order to satisfy
the tax withholding consequences of vesting. The Policy would apply to market sales of any shares received.
401(k) Plan. This Policy’s trading restrictions do not apply to purchases of securities in the Company’s 401(k) Plan as a result of
periodic contributions made pursuant to payroll deductions. The Policy does apply, however, to initial elections to participate,
increases or decreases in the level of participation in a Company stock fund, elections to borrow money against the account if
the loan will result in a liquidation of a Company stock fund, and transfers in or out of a Company stock fund (including in
connection with a plan loan).
Mutual Funds. If an individual owns shares of a mutual fund that invests in the Company’s securities, there are no restrictions on
trading the shares of the mutual fund at any time.
RULE 10b5-1 PLANS
Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) provides an affirmative defense from
insider trading liability. To be eligible to rely on this affirmative defense, a person must buy or sell securities pursuant to a
“trading plan” that meets the requirements of Rule 10b5-1 (a “Rule 10b5-1 Plan”).
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In general, a Rule 10b5-1 Plan must be entered into in good faith during a Trading Window (as defined below), only at a time
when the person is not aware of any material nonpublic information and not as part of a plan or scheme to evade the
prohibitions of Rule 10b5-1. In addition, the person entering into the Rule 10b5-1 Plan must act in good faith with respect to the
operation of the plan.
The Rule 10b5-1 Plan must be approved in advance by the General Counsel or the Chief Financial Officer (or their delegatee),
meet the requirements of Rule 10b5-1, including the applicable cooling off period and completion of a certification, and should
comply with the “Requirements for Rule 10b5-1 Trading Plans” attached as Appendix A. The General Counsel or the Chief
Financial Officer, or their delegatee, may disapprove of any Rule 10b5-1 Plan if he or she in good faith believes that it is
reasonably likely to result in a violation of this Policy. If the Rule 10b5-1 Plan is approved, no pre-approval of transactions
conducted pursuant to the Rule 10b5-1 Plan will be required. Subsequent modifications, replacements or early terminations of
any Rule 10b5-1 Plan must also be pre-cleared by the General Counsel or the Chief Financial Officer (or their delegatee). You
must provide advance written notice (which may be by email) to the General Counsel, or Chief Financial Officer (or their
delegatee) if you wish to enter, modify or terminate a Rule 10b5-1 Plan.
Under SEC rules, the Company must disclose details of Rule 10b5-1 Plans held by Section 16 Officers and directors in its
periodic filings with the SEC, including the name of the participant, the date of plan adoption or termination, the duration of the
Rule 10b5-1 Plan and the number of shares to be exercised, purchased or sold pursuant to such Rule 10b5-1 Plan.
TRADING WINDOW AND PRE-CLEARANCE PROCEDURES
To help prevent inadvertent violations of the federal securities laws and to avoid impropriety and even the appearance of trading
on the basis of inside information, the Company has established additional procedures that apply to certain Covered Persons,
which include the Company’s executive officers and members of its Board of Directors, as well as certain other employees who
shall be notified by that they are subject to these additional procedures. Family Members and Related Entities of such Covered
Persons also will be subject to trading window and pre-clearance restrictions. These procedures generally prohibit these
specified persons and entities covered from trading in the Company’s securities, except during designated trading windows and
pursuant to preclearance procedures.
Pre-Clearance Procedures. Designated Covered Persons may not engage in any transaction in Company securities without first
obtaining pre-clearance of the transaction from the General Counsel or the Chief Financial Officer.
A request for pre-clearance should be submitted to the General Counsel or the Chief Financial Officer at least two business
days in advance of the proposed transaction (or such other time as determined by the General Counsel). These clearing officers
are under no obligation to approve a transaction submitted for pre- clearance and may determine not to permit the transaction. If
a person seeks pre-clearance and permission to engage in the transaction is denied, then he or she should refrain from initiating
any transaction in Company securities, and should not inform any other person of the restriction. Any prior clearance may be
withdrawn at any time upon notice to the requesting party.
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When a request for pre-clearance is made, the requestor should carefully consider whether he or she may be aware of any
material nonpublic information about the Company, and should describe fully those circumstances to the General Counsel or
Chief Financial Officer, as applicable. The requestor should be prepared, if necessary, to file a Form 4 for the proposed
transaction and to comply with Exchange Act Rule 144, including the need to file a Form 144.
Trading Windows. Certain designated Covered Persons are prohibited from engaging in any transactions involving Company
securities (other than as exempted pursuant this Policy), except during specified periods (“Trading Windows”) following the
announcement of the Company’s quarterly or annual earnings.
For each quarter, the Trading Window will begin on the first trading day that is two full trading days following the public release
of the Company’s quarterly earnings and will end at the close of trading on Nasdaq at the end of the 15 calendar day of the last
month of each fiscal quarter. For example, if the Company announces financial earnings before trading begins on a Tuesday, the
Trading Window will open with the opening of Nasdaq on Wednesday. However, if the Company announces earnings after
trading begins on that Tuesday, the Trading Window will open with the opening of Nasdaq on Thursday. Even during a Trading
Window, a restricted person who is in possession of any material nonpublic information may not trade in the Company’s
securities.
Event-Specific Trading Restrictions. From time to time, the Company may be involved in activities, or an event may occur that
are material to the Company and known by only a few directors, officers and/or employees. The General Counsel or his or her
designee will notify such persons of an event-specific trading restriction and they will not be permitted to trade in Company
securities. So long as the event remains material and nonpublic, the persons designated by the General Counsel may not trade
in Company securities, regardless of whether the period would otherwise be a Trading Window. The existence of an event-
specific trading restriction will not be announced to the Company as a whole, and should not be communicated to any other
person. Even if the General Counsel has not designated an individual as a person who should not trade due to an event-specific
trading restriction, an individual should not trade while aware of material nonpublic information.
Exceptions.
Under certain very limited circumstances, a person subject to the above trading restrictions may be permitted to trade outside a
Trading Window, but only if the General Counsel concludes that the person does not in fact possess material nonpublic
information. Persons wishing to trade outside a Trading Window must contact the General Counsel for approval at least two
business days in advance of any proposed transaction involving Company securities. The General Counsel is under no
obligation to approve such a transaction.
POST-TERMINATION TRANSACTIONS
This Policy continues to apply to transactions in Company securities even after an individual has terminated employment or
other services to the Company or a subsidiary, but only if he or she is aware of material nonpublic information when the
employment or service relationship terminates, in which case he or she may not trade in Company securities until that
information has become public or is no longer material. Stock options that may otherwise expire post-
th
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termination may be exercised in accordance with this Policy under the heading “Transactions Under Company Plans and Mutual
Funds.”
COMPANY ASSISTANCE
Compliance with this Policy is of the utmost importance. If an individual has any questions about this Policy or its application to
any proposed transaction, he or she may obtain additional guidance from the Company’s General Counsel.
CERTIFICATION
Upon request, all persons subject to this Policy must certify their understanding of, and compliance with, this Policy.
RESPONSIBILITY
Covered Persons are responsible for knowing and understanding this Policy, complying with this policy, and requesting
clarification when questions arise. In all cases, the responsibility for determining whether an individual is in possession of
material nonpublic information rests with that individual, and any action on the part of the Company, the General Counsel, Chief
Financial Officer, or any other officer, employee or director pursuant to this Policy (or otherwise) does not in any way constitute
legal advice or insulate an individual from liability under applicable securities laws. A Covered Person may, from time to time,
have to forego a proposed transaction in Company securities even if he or she planned to make the transaction before learning
of the material nonpublic information and even though he or she believes that he or he she may suffer an economic loss or
forego anticipated profit by waiting.
The Legal Department are responsible for providing guidance in response to questions about this policy or its application to any
proposed transactions. In all cases, the final responsibility for determining whether an individual is in possession of material
nonpublic information rests with the individual.
The Legal Department is responsible for monitoring compliance and will work with Human Resources to address violations of
this policy. Employees in violation of this policy will be subject to disciplinary action up to and including termination, in
accordance with Company policy.
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Appendix A
Requirements for Rule 10b5-1 Trading Plans
Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended, provides an affirmative defense from insider
trading liability with respect to certain trading plans. Any such trading plan (“10b5-1 Plan”) must adhere with the terms of Rule
10b5-1 and must be entered into in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1.
Compliance with the terms of a 10b5-1 Plan, the terms of the Policy and Rule 10b5-1 are the sole responsibility of the participant
initiating the 10b5-1 Plan, and not that of the Company or any officer of the Company. No officer of the Company, or their
delegate, shall be deemed, solely by their approval of a participant’s 10b5-1 Plan, to have represented that any 10b5-1 Plan
complies with Rule 10b5-1 or to have assumed any liability or responsibility to the participant or any such party if the 10b5-1
Plan fails to comply with Rule 10b5-1.
The following are requirements for 10b5-1 Plans that serve as general instructions to help protect you and the Company when
adopting a 10b5-1 Plan:
•
All 10b5-1 Plans must be adopted and operated in good faith.
•
You may only enter into, modify or terminate a 10b5-1 Plan during an open window and when you do not possess
material nonpublic information. You should understand that a modification or termination of a 10b5-1 Plan may call into
question your good faith in entering into and operating the plan and, therefore, may jeopardize the availability of the
Rule 10b5-1 affirmative defense.
•
Entry into a 10b5-1 Plan, termination of an existing plan, or a modification to an existing plan must be approved in
accordance with the Company’s Insider Trading Policy prior to adopting or amending the plan by contacting the General
Counsel or Legal Department for pre-clearance.
•
A 10b5-1 Plan must specify the amount, pricing and/or timing of transactions in advance.
•
Once a 10b5-1 Plan is adopted, you must not exercise any influence over the amount of shares, the price or timing of
trades.
•
If you are a Section 16 Officer or director, you may not begin trading pursuant to the 10b5-1 Plan until the later of:
o
90 days of the date of adoption or modification, and
o
two business days following the Company’s disclosure of its financial results for the fiscal quarter in which the
10b5-1 Plan was adopted in an Annual Report on Form 10-K or a Quarterly Report on Form 10-Q (the “Cooling-
Off Period”); provided, however, the Cooling-Off Period shall not exceed 120 days following the date of adoption
or modification.
•
All other employees are subject to a 30-day Cooling-Off Period.
•
10b5-1 Plans commonly have a duration of six to twelve months (except for limited exceptions provided by law).
Although there is no required minimum or maximum period of time, the Company encourages plans of six months or
longer duration to limit the appearance of market timing.
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•
You may not have multiple, overlapping 10b5-1 Plans, subject to limited exceptions provided by law.
•
You may not enter into more than one single trade 10b5-1 Plan during any 12-month period, subject to limited
exceptions provided by law.
•
If you are a director or Section 16 Officer, you must execute a written representation, attached hereto as Exhibit A,
certifying that you are: (i) not aware of any material non-public information about the Company or its securities; and (ii)
adopting the plan in good faith. This may be satisfied if included in the broker’s form of 10b5-1 Plan.
•
In connection with your entry into a 10b5-1 Plan, you agree to promptly provide to the Company upon request any
information relating to such plan that would assist the Company in timely satisfying its disclosure obligations in
connection with required Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, proxy statements, filings on
Forms 3, 4 and 5 and other SEC filings.
•
If you have a 10b5-1 Plan in place, you generally should not transact in Company securities outside of such plan. If a
situation arises where an exception to this practice is required (such as a financial hardship), please contact the Legal
Department and we will review.
All 10b5-1 Plans remain subject to the Company’s Amended and Restated Insider Trading Policy. If any questions arise, please
contact the General Counsel, Legal Department or your own counsel before implementing a 10b5- 1 Plan.
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Exhibit A
RULE 10B5-1 PLAN CERTIFICATION
In connection with my entry into a Rule 10b5-1 Plan, I, ________________, hereby certify that:
1. I am not aware of any material non-public information about Freshpet, Inc. or its securities; and
2. I am adopting the Plan in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1 of
the Securities Exchange Act of 1934.
By:
Date:
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Exhibit 21.1
Subsidiaries of Freshpet, Inc.
Exact Name of Subsidiaries of Registrant as Specified in
the Subsidiary’s Charter
State or Other Jurisdiction of
Incorporation or Organization
Freshpet Canada, Inc.
Ontario, Canada
FP Foods Realty PA, LLC
Pennsylvania
Freshpet Europe LTD
Freshpet NE B.V.
Freshpet France SAS
England and Wales
The Netherlands
France
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements (No. 333-200936, No.333-249363 and No. 333-283058) on
Forms S-8 of our report dated February 20, 2025, with respect to the consolidated financial statements of Freshpet, Inc. and the
effectiveness of internal control over financial reporting.
/s/ KPMG LLP
Short Hills, New Jersey
February 20, 2025
Exhibit 31.1
CERTIFICATIONS
I, William B. Cyr, certify that:
1.I have reviewed this Annual Report on Form 10-K of Freshpet, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 20, 2025
/s/ William B. Cyr
William B. Cyr
Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, Todd Cunfer, certify that:
1.I have reviewed this Annual Report on Form 10-K of Freshpet, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 20, 2025
/s/ Todd Cunfer
Todd Cunfer
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO § 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Annual Report on Form 10-K of Freshpet, Inc., a Delaware corporation (the “Company”), for the year ended
December 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the
Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company as of the dates and for the periods expressed in the Report.
Date: February 20, 2025
/s/ William B. Cyr
William B. Cyr
Chief Executive Officer
/s/ Todd Cunfer
Todd Cunfer
Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate
disclosure document.