Freshpet, Inc.

Your 2020 earnings call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Jeff Sonick, and public investigations with ICR may begin.

Thank you, good afternoon, and welcome to Fresh Pets' fourth quarter 2021 earnings call and webcast. On today's call are Billy Cyr, Chief Executive Officer, and Heather Pomerantz, Chief Financial Officer. Scott Morris, Chief Operating Officer, will also be available for Q&A. Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to the company's annual report on Form 10-K with the SEC and the company's press release issued today for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please note that on today's call, management will refer to certain non-GAAP financial measures, such as EBITDA and adjusted EBITDA, among others. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release on how management defines such non-GAAP measures, a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP, and limitations associated with such non-GAAP measures. Finally, the company has produced a presentation that contains many of the key metrics that will be discussed on this call. The presentation can be found on the company's investor website. Management's commentary will not specifically walk through the presentation on the call, but rather it's a summary of the results and guidance they will discuss today. Now I'd like to turn the call over to Billy Sear, Chief Executive Officer.

Thank you, Jeff, and good afternoon, everyone. I'm speaking with you from Bethlehem, Pennsylvania, the home of the Fresh Pet Kitchens, and Scott and Heather are in our offices in Secaucus, New Jersey. We will do our best to not trip over each other on the call, and as always, please excuse any barking in the background and any other technical issues we might encounter. It is hard to believe that one year ago, we gathered with many of you at NASDAQ in New York City to outline our five-year strategic plan and what a year it was. I'm so proud of our team's resilience through these trying times. Fortunately, Fresh Pet was able to navigate the shifting environment while still making significant progress against our long-term strategic goals. In fact, the last year, despite its numerous challenges, has seen an acceleration of our business progress towards our 2025 goals. As such, we're going to update those long-term goals to both reflect the fast start we had in 2020 and also to include the impact of some of our most recent learnings. But first, I want to go back to where I started our Investor Day presentation one year ago. In that presentation, I asserted that Fresh Pet had the potential to join the pantheon of iconic brands that changed the world, brands that changed things we do every day and reflected significant changes in society's values and priorities. Brands that leverage technology to make the previously impossible possible or more broadly available. Brands like Nike, Starbucks, Gatorade, Netflix, and Apple. That may have seemed like a lofty ambition then, and to be clear, it remains a very lofty ambition today. But Fresh Pet is on that path and accelerating. Fresh Pet is changing the way people feed their pets. That change reflects the fundamental shift in how society views both pets and food. Our pets are no longer creatures who sleep in dog houses and backyards. They are the favorite child who sleeps in our beds. And our food needs to be fresh and natural, not dehydrated and preserved. Those fundamental changes in society's values and priorities are here to stay. And Fresh Pet will lead the transition to fresh and natural food for our pets. Like those other iconic brands that changed the world, Fresh Pet is growing quickly from our infancy through our juvenile and prepubescent years towards the teenage years and then to adulthood. In many ways, Fresh Pet is like an 11-year-old boy who wears size 15 sneakers. He's growing really fast, and everyone expects him to be big. But along with that explosive growth, there can be some awkwardness. Our challenge is to do everything we can to achieve our enormous growth potential while insulating ourselves from some of the bumps along the way. In pursuit of that goal, I think it is worthwhile to highlight a few of the critical achievements we had last year that demonstrate both our capability and the foundation that we are building to achieve even greater goals. Number one, we accelerated our growth for the fourth consecutive year. posting 30% net sales growth for full year 2020 and ended the year with 38% consumption growth in Q4. Number two, we increased our adjusted EBITDA growth rate for the third consecutive year, growing adjusted EBITDA by 61%. Third, we increased household penetration by 24%, reaching almost 4 million users for the first time and increased the buying rate by 7% at the same time. Number four, Despite the retail challenges presented by COVID, we added 1,146 net new stores and, more importantly, installed double fridges in another 1,640 stores and upgraded 795 stores. Five, we doubled our installed production capacity and broke ground on a project that will result in a tripling of our capacity by the end of next year. Those capacity additions included completing the construction and startup of Kitchens 2.0, adding more than $200 million in new capacity with significant increases in automation, and breaking ground on Kitchens 3.0 in Ennis, Texas. We also opened Kitchen South in conjunction with a long-term partner. And sixth, we increased our organization headcount from 450 to just under 600, including the hiring and onboarding of three important new leaders, Heather, our CFO, Tembi Macaba, our SVP of HR, and Ricardo Moreno, our new VP of manufacturing. In each case, we were able to attract first-rate talent because of the power of the Fresh Pet proposition and the opportunity to change the way people feed their pets. We got all this done while sheltering in place, working remotely, and devoting significant energy to protecting the safety of our team. I'm incredibly proud of the number of people who stepped up and played critical leadership roles for our company when the situation required it. They demonstrated the qualities that should give all of us confidence that we can overcome almost any obstacle and achieve great things. Like that rapidly growing teenager I mentioned earlier, there were some awkward moments too. We struggle to keep up with demand and end the year with nearly empty fridges in many stores. That means that we are spending the first quarter of 2021 digging out of a trade inventory hole we dug rather than putting our foot on the gas to grow faster. The good news is that we are making great progress against that. Since January 1st, our manufacturing output has grown, and it is now averaging 26% more per day than during Q4 2021.