Freshpet(FRPT) - 2023 Q4 - Annual Report

Market Presence and Sales - As of December 31, 2023, Freshpet's household penetration in the U.S. was approximately 11.5 million, with a target of reaching 20 million households by 2027[14]. - Freshpet operates in approximately 26,777 stores, with about 22% of these stores featuring second and third Freshpet Fridge placements[53]. - In 2023, Walmart accounted for 23.4% of Freshpet's net sales, while the largest distributor, Animal Supply Co., represented 9.0% of net sales[54]. - Freshpet's network includes approximately 26,777 retail locations, enhancing brand visibility and consumer engagement[63]. - The company has expanded into the UK market, selling products in approximately 544 stores, indicating growth in international operations[127]. Financial Performance - Net sales increased by $171.6 million, or 28.8%, to$ 766.9 million for the twelve months ended December 31, 2023, compared to the prior year, primarily driven by volume gains of 20%[188]. - Gross profit was $250.9 million, or 32.7% of net sales, for the twelve months ended December 31, 2023, an increase from$ 186.0 million, or 31.2% of net sales, in the prior year[189]. - Adjusted EBITDA was $66.6 million, or 8.7% of net sales, for the twelve months ended December 31, 2023, compared to$ 20.1 million, or 3.4% of net sales, in the prior year[198]. - The net loss decreased by $25.9 million to$ 33.6 million for the twelve months ended December 31, 2023, compared to a net loss of $59.5 million in the prior year[197]. - The company reported a net loss of$ 33.6 million for 2023, an improvement from a net loss of $59.5 million in 2022[206]. Manufacturing and Operations - Freshpet's manufacturing network includes three facilities, with the Ennis, Texas facility expected to complete its second phase by the end of Q3 2024[44]. - Approximately 99.1% of Freshpet's product volume was manufactured using Freshpet-owned equipment in 2023[45]. - Manufacturing capacity expansion is crucial; failure to align manufacturing capabilities with demand could materially affect business operations[104]. - The company's Freshpet Fridges are critical to success; any harm to their operating capacity could negatively impact brand reputation and sales[108]. Marketing and Brand Strategy - Freshpet's marketing strategy focuses on educating consumers about the benefits of fresh refrigerated pet food and increasing brand awareness through various channels[61]. - Freshpet aims to increase brand loyalty and consumer trial through effective marketing strategies and community engagement[64]. - The company emphasizes the importance of its trademarks and intellectual property in building brand recognition and competitive advantage[77]. Challenges and Risks - The pet food industry is highly competitive, with major competitors including Nestlé Purina, Mars Pet Care, and others, impacting market share[66]. - The company faces risks related to competition, including pricing pressures and the need for effective marketing to maintain market share[90]. - Input costs for ingredients are subject to volatility and shortages, which could adversely impact production schedules and profitability[105]. - Adverse weather conditions and natural disasters can disrupt operations, affecting ingredient supply and production schedules[107]. - The company may face product recalls or adverse publicity if products are alleged to cause injury or illness, which could lead to significant unexpected expenditures[99]. Employee and Corporate Governance - Freshpet employs 1,083 employees as of December 31, 2023, with a focus on diversity, equity, and inclusion in the workplace[71]. - The company faces challenges in attracting and retaining qualified employees, which could increase operational costs[115]. - Compliance with extensive government regulations may increase production costs and legal expenses[118]. Financial Instruments and Capital Structure - The company issued approximately$ 402.5 million in convertible notes in March 2023 to meet capital needs[212]. - The company has 48,263,097 shares of common stock outstanding as of December 31, 2023, with authorization to issue up to 200 million shares[146]. - The company has not declared or paid any cash dividends since becoming publicly traded in 2014 and does not anticipate doing so in the foreseeable future[165]. Cybersecurity and IT Risks - The company is subject to cybersecurity risks, with a dedicated information security organization in place to manage these threats[151]. - Cybersecurity risks are increasing, and breaches could lead to significant legal and financial exposure[135]. - Information technology systems are essential for operations, and failures could disrupt business processes and result in transaction errors[134].