FRPT income name for the length finishing December 31, 2024.
Symbol supply: The Motley Idiot.
Freshpet (FRPT -1.08%)This fall 2024 Income CallFeb 20, 2025, 6:30 a.m. ET
Contents:
Ready Remarks Questions and Solutions Name Contributors
Ready Remarks:
Operator
Just right morning, and welcome to Freshpet’s fourth quarter and whole 12 months 2024 income name webcast. On lately’s name are Billy Cyr, leader govt officer; and Todd Cunfer, leader monetary officer. Earlier than we start, please understand that right through the process this name, control might make forward-looking statements throughout the that means of the Personal Securities Litigation Reform Act of 1995. Those come with statements associated with our long-term technique, 2027 targets and tempo achieve those targets, longer-term possible or possibilities for and resources of enlargement, timing of Freshpet Kitchen’s enlargement, the puppy strong point channel, and 2025 steering.
Phrases comparable to wait for, imagine, may just, estimate, be expecting, steering, intend, might, challenge, or equivalent conditional expressions are supposed to spot forward-looking statements. Those statements are in line with control’s present expectancies and ideology and contain dangers and uncertainties that might motive exact effects to range materially from the ones described in those forward-looking statements, together with the ones related to such statements. Please confer with the corporate’s annual record on Shape 10-Ok filed with the Securities and Alternate Fee and the corporate’s press unlock issued lately for an in depth dialogue of dangers that might motive exact effects to range materially from the ones expressed or implied in any forward-looking statements made lately. Please be aware that on lately’s name, control will confer with sure non-GAAP monetary measures, comparable to EBITDA and changed EBITDA, amongst others.
Whilst the corporate believes those non-GAAP monetary measures supply helpful data for buyers, the presentation of this knowledge isn’t supposed to be thought to be in isolation or as an alternative to the monetary data introduced in response to GAAP. Please confer with lately’s press unlock for a way control defines such non-GAAP measures, why control believes such non-GAAP measures are helpful, a reconciliation of the non-GAAP monetary measures to essentially the most related measures ready in response to GAAP and obstacles related to such non-GAAP measures. After all, the corporate has produced a presentation that comprises most of the key metrics that can be mentioned in this name. That presentation will also be discovered at the corporate’s investor site.
Control’s statement won’t particularly stroll throughout the presentation at the name however quite as a abstract of the consequences and steering they’ll speak about lately. With that, I want to flip the decision over to Billy Cyr, leader govt officer.
Billy Cyr — Leader Government Officer
Thanks, Rachel, and excellent morning, everybody. The message I would really like you to remove from lately’s name is that our complete 12 months 2024 effects display that we will convert our sturdy enlargement into scale and leverage to force important will increase in profitability. Fiscal 2024 was once an excellent 12 months for Freshpet, marked by means of sturdy top-line enlargement or even higher profitability development. The sturdy internet gross sales enlargement was once nearly solely pushed by means of quantity features, that have been the results of a mixture of enlargement in family penetration and purchase price and is fueled by means of our media funding and retail enlargement, which leads to a faithful client franchise as we don’t take part in any business promotions or discounting.
The family penetration features had been our biggest on file as we added roughly 2 million families, 800,000 of that have been tremendous heavy and heavy customers. We additionally added new distribution with roughly 1,300 new shops and nearly 900 2d and 3rd refrigerators for a complete of just about 2,300 new refrigerators. Additional, we demonstrated our skill so as to add capability to enhance this enlargement on time and on funds. We threaded the needle on managing our capability enlargement and media spend not to get forward of ourselves.
We controlled to take care of over 99% fill charges whilst including capability and promoting 27% extra quantity than ultimate 12 months. This disciplined enlargement allowed us to concentrate on the operational enhancements had to force profitability in addition to we had been in a position to overcome our longer-term objectives for enter, high quality, and logistics prices, in addition to adjusted gross margin. We added 650 foundation issues of adjusted gross margin this 12 months and greater than 1,000 foundation issues of adjusted gross margin over the past two years, with the bottom logistics prices as a % of gross sales ever, high quality prices at their perfect stage since 2018, and enter prices as a % of internet gross sales that had been the bottom ranges within the ultimate 8 years. We started to look development in G&A leverage, too.
Adjusted SG&A, except media and logistics, is ready part of the place it was once in 2017 as a % of internet gross sales and 340 foundation issues underneath what it was once in 2020 regardless of sizable incentive comp this 12 months. In 2024, we additionally completed sure internet source of revenue for the primary time, producing $0.94 in keeping with percentage of EPS and generated $154 million in running money go with the flow. Additionally, we be capable of stay the expansion going. As we will listen later this morning right through our CAGNY presentation, we imagine Freshpet has a protracted runway of enlargement forward and are very enthusiastic about the longer term.
We all know Freshpet is a singular logo with a differentiated product providing and an insulated industry fashion. We view the long-term traits of the humanization of pets and the focal point on herbal, more energizing meals as tailwinds. The world over, individuals are additionally ready longer to have youngsters or having fewer youngsters and opting for to get a puppy as a substitute. This bodes nicely for Freshpet.
Regardless of that, we nonetheless have an excessively small percentage of an excessively huge class. In step with Nielsen omnichannel information, for the 52 weeks ended 12/28/24, we compete within the $54 billion U.S. dog food class, and we now have just a 3.4% marketplace percentage throughout the $37 billion U.S. pet food and treats phase.
In Nielsen Mega Channel, we now have a 96% marketplace percentage throughout the gently cooked recent/frozen branded pet food phase. Taken in combination, this efficiency and possible display that Freshpet has transform a successful enlargement corporate with a protracted runway for long term enlargement and profitability enhancements. The group we now have constructed delivered the type of effects that one would be expecting of this kind of distinctive and strong logo and industry fashion, and we imagine that the chance for long term enlargement and benefit development is somewhat huge. Now, I would like to supply some highlights from the fourth quarter and the total 12 months.
We had sturdy enlargement within the fourth quarter with internet gross sales of $263 million, up 22% 12 months over 12 months, pushed basically by means of quantity enlargement. Recall, we intentionally backloaded our media funding in fiscal 12 months ’24 to reside inside our capability constraints, and that ended in a gentle aid in our enlargement price all over the 12 months. When we cleared that capability limitation in September, we higher our promoting funding for the stability of the 12 months, with the most important build up coming in December, and we predict that can lead to a gentle build up in our enlargement price as we transfer thru fiscal 12 months ’25. It takes time for the promoting funding to generate new families and for the ones new families to develop into significant Nielsen-measured gross sales.
However we’re seeing the early indicators that it’s starting to occur because it has such a lot of occasions up to now. Family penetration is rising, and our buyer acquisition value, or CAC, stays wholesome. Adjusted gross margin within the fourth quarter was once 48.1% in comparison to 41.1% within the prior-year length. As Todd will provide an explanation for later, this was once an excessively sturdy efficiency, even if it was once helped by means of our efforts to construct stock in October and November in order that lets take manufacturing traces down for upgrades at year-end.
Adjusted EBITDA within the fourth quarter was once $52.6 million, up roughly $21 million 12 months over 12 months. For the 12 months, we had internet gross sales of $975 million, up 27% 12 months over 12 months, in keeping with our steering of roughly $975 million. Fiscal 12 months ’24 adjusted gross margin was once 46.5%, up 650 foundation issues 12 months over 12 months, and full-year adjusted EBITDA was once $161.8 million, up 143% or $95 million 12 months over 12 months. We’re somewhat happy that we had been in a position to ship our fiscal 12 months ’27 adjusted gross margin goal 3 years early, and we’re somewhat bullish that there’s extra alternative for us there, which I can contact on in a while.
From a retail standpoint, we added greater than 1,300 new shops in 2024, bringing our general to twenty-eight,141 shops, 22% of that have a couple of refrigerators within the U.S. At year-end, we had a complete of 36,544 refrigerators or roughly 1.9 million cubic toes of retail area throughout our community and a median of 20.5 SKUs, and we now have more space to develop. Our distribution and gross price, the place we are the pet food marketplace chief, was once handiest 77% ACV at year-end, and in XAOC, it was once handiest 66%. Conversations with retail consumers are very encouraging, and the shift in mindset about this class has been palpable.
We proceed to be expecting the majority of our enlargement going ahead to be from the addition of 2d and 3rd refrigerators within the highest-velocity shops quite than new shops. Our family penetration at year-end was once 13.5 million families, up 17% 12 months over 12 months and in keeping with our projections, pushed by means of our media funding. We imagine we’re forward of the tempo had to meet our 20 million family objective by means of 2027. Our general purchase price continues to develop as nicely, up 6% 12 months over 12 months to $104.89.
Please be aware that going ahead, we will be reporting our development on a narrower and extra necessary workforce of shoppers than the HIPPOHs that we up to now reported on. We will be able to focal point on a bunch that we name MVPs or Maximum Treasured Puppy Folks, who’re our tremendous heavy and extremely heavy customers, as this workforce represents our largest alternative for incremental utilization. MVPs accounted for two.1 million of our families and represented 69% of our gross sales in 2024. They spend $474 in keeping with 12 months on Freshpet on moderate and are rising quicker than our general families at 27% 12 months over 12 months.
Freshpet gross sales are more and more concentrated in our heaviest customers, and there is a important alternative to extend this proportion and develop our general industry. We will be able to percentage extra element in this workforce later lately. Turning to an replace on our capability, we effectively began up our 5th and 6th roll traces throughout our community in September and December, and the following bag line in Kitchen South is predicted to begin up later within the first quarter of 2025. Our capability enlargement plans are repeatedly evolving as we discover tactics to force better capital potency.
As we have now mentioned up to now, we’re intensely fascinated about maximizing the throughput of our present traces, maximizing the capability of our 3 present websites, and creating and enforcing new applied sciences that generate extra throughput in keeping with line. When absolutely constructed out, we predict the 3 kitchens we now have lately with the intention to enhance as much as $3 billion in gross sales. We decide to incremental capability from a brand new line about 18 to 24 months out, so we don’t seem to be dedicated to all $3 billion of capability lately and would possibly not be for a number of years. Now, for our outlook for fiscal 12 months 2025.
We predict internet gross sales of roughly 1.18 billion to at least one.21 billion or roughly 21% to 24% enlargement 12 months over 12 months, adjusted EBITDA of a minimum of $210 million, and capital expenditures of roughly $250 million. Todd will stroll thru extra main points of our 2025 steering in a couple of mins, however I sought after to deal with contemporary scanner information traits. Our media within the fourth quarter of 2024 was once closely weighted to December, and it at all times takes time for the expanding family penetration to go with the flow thru to our Nielsen-measured gross sales. We watch the expansion traits very carefully for any trace that our plan isn’t as efficient as it’s been in years previous, and we now have the equipment and versatility to stay it on the right track if it slows.
As a reminder, we also are lapping higher visibility and distribution within the membership channel ultimate 12 months, from which we noticed a vital receive advantages. Expanding visibility and availability has at all times been part of our enlargement fashion, amplifying our promoting, and attaining new shoppers. The massive features in retail visibility are available in spurts, as they did ultimate 12 months. Over the following two years, we wait for different important new refrigerator placements that might supply equivalent visibility and availability advantages and assist us succeed in our long-term internet gross sales targets.
On the other hand, the ones huge additions will take a little time to materialize. As you’re going to listen later this morning, outlets are absolutely engaged, and we now have new refrigerator placement choices that experience the possible to switch the best way shoppers take into consideration searching for their pets. In fiscal 12 months ’25, we do be expecting a gradual nutrition of the standard new retailer and 2d refrigerator placements and a few assessments or small-scale implementations of a few extra impactful, greater placements. Internet, we imagine the long-term traits stay powerful.
And whilst the dog food class traits don’t seem to be the place we would really like them to be at the beginning of 2025, Freshpet and different recent/frozen manufacturers, together with DTC manufacturers, proceed to seriously outperform the class, and we don’t foresee that converting anytime quickly. And one cannot get away the truth that Freshpet has been a remarkably dependable enlargement industry. Our Nielsen-measured gross sales, quantity enlargement, and family penetration features have carried out nicely over an excessively lengthy time period and thru all kinds of eventualities, together with value will increase, media timing adjustments, aggressive entries, macroeconomic pressures, and popular out-of-stocks. And that and the scale of the full addressable marketplace is why we’re assured that we’re on the right track for the $1.8 billion in internet gross sales in fiscal 12 months ’27.
Nowadays, we also are elevating our 2027 margin objectives along with our CAGNY presentation later this morning. Given the enhancements we have now made on our operations, we really feel very assured that we will exceed our earlier long-term objectives for adjusted gross margin and changed EBITDA margin. For adjusted gross margin, we now be expecting a 48% margin by means of fiscal 12 months ’27 as opposed to 45% up to now. And for adjusted EBITDA margin, we now be expecting a 22% margin by means of fiscal 12 months ’27 as opposed to 18% up to now.
Now we have made nice development on scaling the industry, and our present plans to force better efficiencies give us self assurance in our skill to ship those new targets. We imagine we now have established a strong tempo of enlargement that allows us to capitalize at the once-in-a-generation dog food transition from kibble and canned to Freshpet meals and concurrently ship the earnings that make that a lovely mission. Long run, we imagine that Freshpet can keep growing internet gross sales at an excessively sturdy price and that there’s nonetheless further room for margin development. Past fiscal 12 months ’27, it might no longer wonder us if Freshpet delivered an adjusted EBITDA margin within the mid-20s.
It would possibly not occur in a single day, however the alternatives for benefit development from added scale, new applied sciences, and running efficiencies are sizable, and the TAM continues to develop well. We imagine Freshpet has the possible to have an excessively top marketplace percentage in a lovely class with a well-insulated place and structurally sexy economics. In abstract, 2024 was once a great 12 months and one we are very happy with as a company. We’re repeatedly striving to be higher and elevating the bar for ourselves, each financially for our buyers and with our merchandise for our shoppers.
We goal to have the appropriate stability of enlargement, capital funding, and money era, and we’re more and more assured that we will be able to be unfastened money go with the flow sure by means of 2026. We intend to self-fund our enlargement efforts going ahead. Now, let me flip it over to Todd to stroll you thru the main points of the fourth quarter and whole 12 months 2024 effects and our 2025 steering. Todd?
Todd Cunfer — Leader Monetary Officer
Thanks, Billy, and excellent morning, everybody. As Billy discussed, we’re more than happy with our 2024 effects and our skill to regulate enlargement whilst using benefit development. Now, I will provide you with some extra colour on our financials and up to date steering for the 12 months. Fourth-quarter internet gross sales had been $262.7 million, up 22% 12 months over 12 months.
We noticed broad-based intake enlargement throughout channels. For Nielsen-measured greenbacks, we noticed 23% enlargement in XAOC, 22% in general U.S. puppy retail plus, 20% in U.S. meals, and 10% enlargement in puppy strong point.
The unmeasured channel contributed roughly two issues of enlargement. Our enlargement was once in part offset by means of a small business stock aid. Fiscal 2024 internet gross sales had been $975 million, up 27% 12 months over 12 months. Fourth-quarter adjusted gross margin was once 48.1% in comparison to 41.1% within the prior-year length.
This build up was once pushed by means of decrease enter value, decreased high quality value, and progressed leverage on plant bills. Please be aware that the fourth-quarter gross margin had a one-time production good thing about 150 foundation issues. We strategically constructed extra stock at year-end with a purpose to take down a number of traces within the community for a couple of weeks to improve apparatus and support running potency. Stock will go back to customary ranges within the first quarter of 2025, which is able to lead to a 150-basis-point unfavorable affect to gross margin for the primary quarter.
Fiscal 12 months 2024 adjusted gross margin was once 46.5%, an build up of 650 foundation issues in comparison to the prior 12 months. Fourth-quarter adjusted SG&A was once 28% of internet gross sales in comparison to 26.6% within the prior-year length. We spent 8.9% of internet gross sales on media within the quarter, up from 6.3% of internet gross sales within the prior-year length because the media spend was once extra flippantly unfold all over the 12 months as opposed to the prior 12 months. The most important portion of the This fall build up got here in December.
Logistics prices had been 6.2% of internet gross sales within the fourth quarter, flat in comparison to the prior-year length. Fiscal 12 months 2024 adjusted SG&A was once 29.9% of internet gross sales in comparison to 31.3% within the prior-year length. Media as a % of internet gross sales was once 11.4% in comparison to 11.1% within the prior 12 months, whilst logistics progressed 150 foundation issues 12 months over 12 months to six%. Fourth-quarter adjusted EBITDA was once $52.6 million or 20% of internet gross sales in comparison to $31.3 million or 14.5% of internet gross sales within the prior-year length.
This development was once basically pushed by means of upper gross margin, in part offset by means of upper SG&A bills. Fiscal 12 months 2024 adjusted EBITDA was once $161.8 million or 16.6% of internet gross sales in comparison to $66.6 million or 8.7% of internet gross sales within the prior-year length. In consequence, we now imagine that we will considerably exceed the unique 18% goal for fiscal 12 months ’27. Capital spending for 2024 was once $187.1 million.
Working money go with the flow was once $154.3 million for the 12 months, a year-over-year development of $78.3 million, and we had money readily available of $268.6 million on the finish of the 12 months. As Billy discussed, we imagine that we have got good enough money to self-fund our enlargement shifting ahead, and we will be able to be unfastened money go with the flow sure in 2026. One at a time, we will be able to be converting the best way we method the puppy strong point channel. As , that channel has struggled somewhat slightly over the last few years, and our marketplace percentage is underdeveloped in that channel.
We proceed to imagine it represents a large alternative, however we want to exchange our path to marketplace and put money into some new approaches that may allow the ones consumers to be triumphant. Together with that transfer, we intend to switch our distribution spouse in that channel, and we’re these days within the means of assessing the nonrecurring results that can rise up from exiting our courting with the former distribution spouse. Now, turning to steering in 2025. We predict internet gross sales of roughly $1.18 billion to $1.21 billion or roughly 21% to 24% enlargement 12 months over 12 months.
In relation to cadence, we predict the expansion price to be relatively upper in the second one part of 2025 as we reaccelerate the family penetration enlargement that we constrained ultimate 12 months to reside inside our capability limits. We’re conscious that this enlargement price is underneath the 25% price we up to now defined because the tempo of enlargement we’d moderate thru fiscal 12 months ’27. As , we’re nicely forward of that enlargement price thru fiscal 12 months ’24, so it isn’t vital for us to develop 25% for the following few years to ship a $1.8 billion internet gross sales goal for FY ’27. We imagine the marketplace alternative is there to take care of a better enlargement price, and our advertising and marketing fashion may just ship that enlargement.
On the other hand, elevating our fiscal 12 months ’27 internet gross sales goal and keeping up a 25% enlargement price will require us to decide to carry on extra capability faster. This is able to compromise our skill to be unfastened money go with the flow sure in fiscal 12 months ’26 and motive us to decide to extra traces the use of the present era after we imagine we’re at the verge of a step forward new era that might probably ship much better margins, high quality, and capital potency. So, we’re guiding to 21% to 24% internet gross sales enlargement for fiscal 12 months ’25, and this steering leaves us solidly on the right track to ship our long-term goal of $1.8 billion in fiscal 12 months 2027. For adjusted EBITDA, we predict a minimum of $210 million.
We wait for modest adjusted gross margin enlargement 12 months over 12 months, pushed by means of operational enhancements, and don’t wait for any subject material inflation or pricing movements. As I discussed a couple of moments in the past, we predict adjusted gross margin within the first quarter of 2025 to be negatively impacted by means of roughly 150 foundation issues as stock returns to customary ranges. Capital expenditures are projected to be roughly $250 million this 12 months because of a shift in timing of tasks from ’24 to ’25. The vast majority of the spend is at the set up of recent capability to enhance our enlargement.
In abstract, we’re very happy with our 2024 effects as they display disciplined enlargement, and we made important profitability enhancements. We’re very inspired by means of the development we now have made and at the moment are at ease sufficient with the steadiness of the operations to boost our 2027 margin objectives. That concludes our assessment. Now, I will flip it again to Billy for some final remarks.
Billy Cyr — Leader Government Officer
Thank you, Todd. As a reminder, we’re presenting on the CAGNY convention later this morning at 8:00 a.m. Jap Time, so we will be able to no longer be webhosting a Q&A consultation after the decision this quarter. We stay up for talking with lots of you within the coming days and weeks.
I will depart you with this quote from an unknown creator, paraphrasing a track from The Police. Each and every snack you are making, each and every meal you bake, each and every chunk you’re taking, I will be staring at you. To that, I’d upload, feed your canine Freshpet, and your guilt will disappear. Thanks very a lot.
Length: 0 mins
Name members:
Billy Cyr — Leader Government Officer
Todd Cunfer — Leader Monetary Officer
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