4th quarter & full year 2016 supplemental presentation...
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4th Quarter & Full Year 2016 Supplemental Presentation
Strategic Operational and Financial UpdateMarch 9, 2017
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Forward Looking Statements
This presentation contains “forward-looking” statements that involve risks, uncertainties andassumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, theCompany’s results may differ materially from those expressed or implied by such forward-lookingstatements. All statements other than statements of historical fact could be deemed forward-looking,including, but not limited to, the Company’s intentions, beliefs or current expectations concerning,among other things, the Company’s results of operations, financial condition, liquidity, prospects,growth, strategies and the industry in which we operate and any statements of assumptions underlyingany of the foregoing. These statements are based on estimates and information available to us at thetime of this presentation and are not guarantees of future performance.
These forward-looking statements are based on certain assumptions and are subject to risks anduncertainties, including those described in the “Risk Factors” section and elsewhere in the preliminaryprospectus for this offering. You should read the prospectus, including the Risk Factors set forth thereinand the documents that the Company has filed as exhibits to the registration statement, of which theprospectus is a part, completely and with the understanding that if any such risks or uncertaintiesmaterialize or if any of the relevant assumptions prove incorrect, the Company’s actual results coulddiffer materially from the results expressed or implied by these forward-looking statements. Except asrequired by law we assume no obligation to update these forward-looking statements publicly, or toupdate the reasons why actual results could differ materially from those anticipated in the forward-looking statements, even if new information becomes available in the future.
Safe Harbor
100 Day Review Conclusion: Significant Potential to Grow . . . but we have underinvested in marketing
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• Expansion complete
• New lines running at parity
• Major investment in technical
capability
• Strong focus on quality
• Significant capacity to support
growth
• High repeat & brand passion
• Low awareness
• Low Penetration
• Strong marketing model
• Outstanding message
• Extensive network & scale
• Established & broad product portfolio
• Highly motivating retailer metrics
• Established sales & marketing team
• Significant white space
Longer Term Potential = $300 Million in Net Sales as soon as 2020
Consumer
Appeal &
Marketing Model
Customer
Support for
Distribution
Operations
Capabilities &
Opportunities
4
Freshpet Lives at the Intersection of
Two Very Powerful Macro-Trends in CPG
Humanization
of
Pets
Fresh,
Wholesome,
All-Natural
Foods
5
Freshpet Proprietary Position
Only Chilled Pet Food
Distribution System
Only Fresh Pet Food
Manufacturing
Capability in the U.S.
16,600+ Freshpet FridgesProven Marketing
Message
Demonstrable Product
Preference
6
We Operate DifferentlyDelighting consumers with fresh food & our company ideology
Environmentally
Focused
Employee
Engagement
Community &
Consumer
Engagement
Freshpet Has Seen Significant Growth Over the Past Four Years,
Driven by Both Distribution and Same Store Sales
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Distribution & Sales Growth
May 2012 – Dec 2016Total US Multi Outlet IRI (4 wk.)
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
55.00
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
Ma
y 2
0, 2
01
2
Ju
l 15
, 20
12
Se
p 9
, 20
12
No
v 4
, 2
01
2
De
c 3
0,
20
12
Feb
24,
201
3
Ap
r 2
1, 2
01
3
Ju
n 1
6,
20
13
Au
g 1
1, 2
013
Oct 6
, 20
13
De
c 1
, 2
01
3
Ja
n 2
6,
20
14
Ma
r 2
3,
201
4
Ma
y 1
8, 2
01
4
Ju
l 13
, 20
14
Se
p 7
, 20
14
No
v 2
, 2
01
4
De
c 2
8,
20
14
Feb
22,
201
5
Ap
r 1
9, 2
01
5
Ju
n 1
4,
20
15
Au
g 9
, 20
15
Oct 4
, 20
15
No
v 2
9,
20
15
Ja
n 2
4,
20
16
Ma
r 2
0,
201
6
Ma
y 1
5, 2
01
6
Ju
l 10
, 20
16
Se
p 4
, 20
16
Oct 3
0, 2
01
6
De
c 2
5,
20
16
ACV Wtd Dist Dollar Sales
8
Recent Financial Performance 2013-2016
$63
$88
$111
$128
39%
27%
15%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
$180,000,000
$200,000,000
2013 2014 2015 2016
Gro
wth
Sa
les (
$ in
mill
ion
s)
Fresh Growth vs YAG
Fresh Pet Food Sales and Growth Rates
Increasing Repeat Rate & Strong Consumer Affinity
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58% 60% 62%
71%
2013 2014 2015 2016
Freshpet ConsumerRepeat Rates
10
Our Biggest Opportunity
Freshpet Rachel RayBlue
BuffaloPurina ONE Cesar
Awareness
(Aided)35% 52% 86% 82% 70%
Penetration1.4% 3.6%
(dry)
~8%
(est)
5.2%
(dry)
3.4%
(wet)Source: 2016 Brand Tracker, IRI 2016 HH Panel
35%
52%
86%82%
70%
1.4% 3.6%8.0%
5.2% 3.4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%Awareness
Penetration
Freshpet Awareness & Penetration are a Key Focus
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Key Learning: Time to Shift to Rapid Scaling
• On trend product
• Reasonable margins
• Low awareness / high repurchase rate
• Ample plant capacity
• Financial flexibility
• Established business model
• Proven marketing program
• Installed Freshpet Fridge base
Opportunity
Capacity
Capability
12
Organization
Capability and
Focus
DISTRIBUTION
FOOD PET
MASS
OPERATIONS
SCALE &
EFFICIENCY
EDUCATION
AWARENESS
RESEARCH &
DEVELOPMENT
13
Sharpen Focus & Drive the Core
UK
Baked
Refrigerated Pet Specialty
~19%
Refrigerated Food/Mass/Club
~77%
Focus on US Refrigerated: 96% of Current Net Sales
% net sales breakdown by class of trade/product line as of 12/31/16
Freshpet Net Sales by
Class of Trade/Product
Line
14
Strategy Tactics Result
Drive HH
Awareness &
Penetration
• TV & Digital Advertising• Accelerates
Penetration Growth
Accelerate Fridge
Placements
• Change Selling Approach
• Make Freshpet Essential
• New Fridge
Placements Growth
Accelerates in 2018
Strengthen Gross
Margin
• Convert From Building to
Optimization/Efficiency
• Drive Yield, Throughput,
Reliability
• Adjusted Gross Margin
Grows Several
Percentage Pts. by
2020
15
Investment in Media
Velocity Increase
(+Revenue)
Distribution Increase
(+Revenue)
Plant Leverage
(Incr. Pounds Produced)
SG&A Leverage
Cost
Savings
16
Growing Into Our Scale
27.0%
25.2%
23.4%
21.6%
19.8%
18.0%
17.0%
19.0%
21.0%
23.0%
25.0%
27.0%
29.0%
$150 $189 $210 $240 $270 $300
Infrastructure as Percentage of Sales*
*- Leverage adjusted for projected inflationary growth of infrastructure
Sales ($ in millions)
17
1Q17 Strategic Tests Implemented
Advertising and Communications
• Strong and consistent returns driving POS records
New Selling Approach
• Developed new plans for several top customers
Cost Savings Opportunities
• Identified several points of cost savings opportunities
0
20
40
60
80
100
120
140
160
$1,3 00,00 0
$1,4 00,00 0
$1,5 00,00 0
$1,6 00,00 0
$1,7 00,00 0
$1,8 00,00 0
$1,9 00,00 0
$2,0 00,00 0
$2,1 00,00 0
$2,2 00,00 0
Same Store Sales Growth & Advertising TRP’s
2017 TRPs
Advertising Model
• Advertising has driven significant and
consistent growth over the past 4 years
• Q1 testing supports model and provides us
with investment return metrics to build out
Same Store Sales
18
Over the Past Six Months Growth Has Started to Return to the
Business Primarily Driven by Advertising
$2,300,000
$2,400,000
$2,500,000
$2,600,000
$2,700,000
$2,800,000
$2,900,000
$3,000,000
$3,100,000
IRI Multi OutletWeekly Dollar Sales
Rolling 4wks
Adv. flight Adv. flight
Q1 Has Provided Us with
Insight Around Additional
Testing
19
Growth is Accelerating Behind AdvertisingLatest 4 Week Period IRI Consumption +23.3% vs. YA in MULO
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00
55.00
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
May 2
0, 2
01
2
Ju
l 15
, 20
12
Se
p 9
, 20
12
No
v 4
, 2
01
2
De
c 3
0,
20
12
Feb
24,
201
3
Ap
r 2
1, 2
01
3
Ju
n 1
6,
20
13
Au
g 1
1, 2
013
Oct 6
, 20
13
De
c 1
, 2
01
3
Ja
n 2
6,
20
14
Ma
r 2
3,
201
4
May 1
8, 2
01
4
Ju
l 13
, 20
14
Se
p 7
, 20
14
No
v 2
, 2
01
4
De
c 2
8,
20
14
Feb
22,
201
5
Ap
r 1
9, 2
01
5
Ju
n 1
4,
20
15
Au
g 9
, 20
15
Oct 4
, 20
15
No
v 2
9,
20
15
Ja
n 2
4,
20
16
Ma
r 2
0,
201
6
May 1
5, 2
01
6
Ju
l 10
, 20
16
Se
p 4
, 20
16
Oct 3
0, 2
01
6
De
c 2
5,
20
16
Feb
19,
201
7
ACV Wtd Dist
Dollar Sales
Latest 4 Weeks
Ending Feb 19, 2017
Latest 12 Weeks
Ending Feb 19, 2017
Latest 52 Weeks
Ending Feb 19, 2017
Dollar Sales% Change
YoYDollar Sales
% Change
YoYDollar Sales
%
Change
YoY
Total US - Food $6,611,633 25.0% $19,105,230 23.6% $76,773,072 19.2%
Total US - Multi Outlet $11,884,581 23.3% $34,626,176 21.1% $139,945,312 17.0%
MULO + Petco $13,297,545 20.5% $38,762,540 18.5% $157,836,080 14.8%
20
1. Better align with key retailers on their strategies using their data to make Freshpet more strategic for the category and store
• Help retailers achieve their broader objectives
• Create unique and flexible assets to drive business at each customer
• Freshpet Fridge as a beacon of quality
2. Leverage increased media investment to drive velocity and support new fridge placements
• Increased penetration from media justifies expanded distribution
• Demonstrate that Freshpet sells well against a broad range of demos
3. Deliver exceptional service via remodeled Acosta relationship and fridge maintenance program
• Reduce out-of-stocks and improve in-store appearance
Revamped Selling Approach is Gaining Traction
Freshpet becomes a strategic necessity, not an opportunistic
luxury, in the pet food aisle
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• Increase:
− Yield
− Reliability
− Throughput
• Drive simplification and standardization
Drive Cost Savings and Adjusted Gross Margin
Improvements
Adj. Gross Margin is a non-GAAP measure. See the Company’s March 9, 2017 Press Release or 10-K for more info and reconciliation from GAAP to non-GAAP measures.
Goal: Over time, increase adjusted gross margin to pay for
increased marketing investment by converting technical talent
from building capacity to optimizing efficiency
22
Strong innovation at Freshpet Kitchens provides revolutionary offerings and a broad product platform
Freshpet R&D - meeting consumer needs and driving production optimization
Rolls
Single Serve Treats
Roasted
MealsShredded
• Optimization
• Improvement
• Efficiencies
• Scale
RESEARCH &
DEVELOPMENT
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0
5
10
15
20
25
30
0
20
40
60
80
100
120
140
160
180
200
Gro
wth
Rate
TR
Ps
TRPs Growth Rate
Q4 2017Q3 2017Q2 2017Q1 2017Q4 2016
Digital Support Plan
TV Plan TV Plan
Accelerating Growth Rate
Investments in advertising, distribution gains and new
products will accelerate growth rate throughout 2017
2017 Advertising Plans
and Growth Rate by Quarter
13%Change vs YAG
20 %Change vs YAG
24
Future Economic Model: Profitable in 2018
FY 2016 FY 2020Growth Rate 15% 15-20%
Stores 16,609 23,000+
Adj. Gross Margin (1) 49.6% ~52%
Adj. SG&A (2) 43.1% ~33%
Adj. EBITDA Margin 13% 20+%
Media Investment ~6% of sales ~9% of sales
Advertising Payback 1.5 yrs. --
Free Cash Flow $(13.9)M ~15% of sales
(1) Gross Margin adjusted for Depreciation and plant start up expense
(2) SG&A adjusted for option expense, CEO transition expense, and warrant expense
25
1. Accelerates growth rate from 13% in Q4 2016 to 20% in Q4 2017
• Proven advertising campaign investment drives the growth
• Strengthens the company’s barriers to entry/competitive advantages
2. Improves the structural economics of the business
• More quickly absorb the fixed infrastructure costs
• Increase the adjusted gross margin run rate by 1.5 points by end of 2017
3. Sets the company up for significantly higher revenue and adjusted EBITDA in 2018 and beyond
• Year end run rate adjusted EBITDA will be 50% higher
Summary
The Feed the Growth Plan more rapidly scales the business – creating a
stronger and more attractive company in 2018 and beyond
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Rapid Scaling Delivering Sustainable Competitive Advantage
Established
& Broad
Product
Portfolio
Impeccable
Consumer
Fundamentals
First
MoverOn Trend
Brand &
Company
Manufacturing
& Distribution
Scale
Installed
Distribution
Network
Free Cash
Flow
Marketing
Model
Operating
Expertise
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