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 to do so on 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 or , and future offerings of equity securities, which may be senior to our common stock for the purposes of dividend and distributions, may 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 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 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 retail space, e-commerce and direct-to-consumer 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 and private label brands. 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 to increase prices to reflect cost pressures. We may not be to compete 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 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 market share or in sales or result in significant price or margin , which would have a material 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, use of social media 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 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 to maintain perception of our brands, our business, financial condition and results of operations could be 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 2025, ten customers, who purchase either directly from us or through distributors, collectively accounted for approximately 68.0% 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 , our customers and/or distributors may face financial , or other business 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 in our distributor network which could impact our net sales and results of operations or subject us to . 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 impacted. If our sales of products to one or more of our significant customers or distributors are reduced, this reduction could have a material 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 , livestock disease or pestilence, any of which could affect our results of operation." If we are to maintain or increase prices for our products (or if we must increase promotional activity), our results of operations could be affected. Furthermore, price increases generally result in volume , as consumers purchase fewer units. If such (also referred to as the elasticity impact) are than expected or if we 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 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, of product inventory, and sales due to the of the product for a period of time, which could reduce and cash flow. In addition, a product or withdrawal may require significant management attention and result in production , as was the case with a voluntary of a single lot of product that we initiated in June 2022. Product , product liability (even if unmerited or ), or any other events that cause consumers to no longer associate our brands with high quality and safe products may also result in publicity or legal , the value of our brands, lead to a in consumer confidence in and demand for our products, and lead to increased , , or other by federal and state regulatory agencies of our operations, which could have a material 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 us are not or are not fully pursued, these could our brand image, be and time-consuming and may require management to spend time the 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 publicity surrounding them could 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 product quality, to streamline operations, or to control or reduce costs. Failure to successfully implement such initiatives could adversely affect our results of operations.
Our ability to introduce new products and execute our growth strategy depends, in part, on our ability to successfully launch new proprietary technologies. If these technologies fail to perform as expected, we encounter unexpected difficulty training employees on use of these technologies, or we or our business partners are unable to implement these technologies in the time frame, at the cost, or with anticipated efficiencies and beneficial impact on product quality, our results of operations could be adversely affected. 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. As many of our costs, such as energy and logistics costs, packaging costs and ingredients, 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 to identify and complete initiatives designed to control or reduce costs and increase operating on time or within budget, our results of operations could be impacted. In addition, if the cost savings initiatives we have implemented to date, or any future cost-savings initiatives, do not generate expected and cost savings, our business, financial condition and results of operations could be 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. 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 pricing, 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 , including ongoing global geopolitical , labor strikes and the financial health of our suppliers.
The U.S. presidential administration has in the past year announced the imposition of tariffs on imports from many countries, including but not limited to Canada, Mexico and China, and certain of those countries subsequently announced retaliatory tariffs in response, with citizens of several countries calling for boycotts of U.S. products. Although to date Freshpet has not experienced a material adverse impact on our business and results of operations as a result of such tariffs and foreign trade relations, we continue to monitor and assess their potential impact. 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 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 (such as meat and poultry products, vegetables, fruits, and whole grains) 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, the raising of cattle, and the manufacturing and processing of our products, all require 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 the cost of beef, vegetables and fruits, as well as our results of operations. Competing manufacturers may be affected differently by weather conditions and natural depending on the location of their supplies or operations. If our supply of ingredients is reduced, we may not be to find enough supplemental supply sources on terms, if at all, which could impact our ability to supply product to our customers and affect our business, financial condition and results of operations. Increased costs for ingredients or other inputs could also 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 , livestock disease or pestilence, any of which could 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 or similar pathogens 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 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 , such as establishing a new arrangement with another provider. During economic , our co-packers and distributors may be more to experiencing such financial , or other business . A new co-packing or distribution arrangement may not be available on terms as 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 in response to consumer behavior. Global or local pandemics could also have adverse impacts on our business operations. In addition, tariffs imposed by the U.S. presidential administration or retaliatory tariffs announced by other countries could result in a trade war. 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’ (AAFCO) model pet food regulations or variations thereof, which generally regulate the information manufacturers provide about pet food. Complying with government regulation, including state by state adoption of AAFCO guidelines, 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, to comply with applicable laws and regulations could subject us to civil remedies, including , , or seizures, as well as potential sanctions, which could have a material effect on our business, financial condition and results of operations. Both international regulations and state regulations have Extended Producer Responsibility (EPR) laws which do, and in the future, may impact our business. These EPR regulations require annual reporting and fees. to pay these authorities in a timely manner can result in large .
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 issues. Such actions, if in whole or in part, may affect our ability to compete or could materially 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 intellectual property in some foreign countries. to protect our intellectual property could 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, but have no assurance 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 or branding 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. If these agreements fail to provide meaningful protection in the event of any unauthorized use, misappropriation or disclosure of our trade secrets, know-how or other proprietary information, our business 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 637 stores. Should 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, 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 evolving views or concerns regarding climate change may increase environmental risks and environmental regulation of such 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, evolve or are reinterpreted, our compliance costs may 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.
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. Although the current presidential administration has taken steps to reassess and scale back existing environmental regulation, future presidential administrations could adopt a different policy, in which case federal regulations limiting greenhouse gas emissions and energy inputs could increase in coming years, which may increase our costs associated with compliance.
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Compliance with evolving environmental legislation and regulations at the international, federal, 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 reinterpreted, 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 , physical theft or , , cyber-attacks and viruses. Any such or could have a material 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 of our security could result in a 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 of confidence in our security measures, which could have an effect on our business, financial condition and results of operations.
Our increasing use of artificial intelligence ("AI") technologies presents operations, legal, ethical and reputational risks that could adversely affect our business.
We use and plan to increase our use of AI across multiple parts of the business, including in our manufacturing process. While AI technologies offer efficiencies and performance improvements, their adoption can present significant risks with respect to data quality, reliability and bias, cybersecurity and data security, intellectual property, regulatory and reputational risk.
AI outputs depend on the quality, representativeness and timeliness of the training data and prompts. Errors, 'hallucinations', model drift or degraded performance can lead to faulty decisions, product defects or inaccurate consumer-facing content. Detection and remediation can be costly and time-consuming and may not be successful. Additionally, any outputs or efficiencies generated by AI, including with respect to our manufacturing process, could potentially infringe third party intellectual property or create inventions or content that is not capable of protection under intellectual property laws. AI systems can also produce biased or discriminatory outcomes which may be inconsistent with applicable laws, intent or expectations, or be otherwise inconsistent with our stated policies.
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Increased adoption of AI within Freshpet's operations can amplify cyber risk across our systems and create new opportunities for bad actors to test and exploit system vulnerabilities, which could result in a cyber security incident or otherwise compromise data security. A security incident involving AI inputs, outputs or model artifacts could result in regulatory scrutiny, litigation and reputational harm. Training or deploying AI within our systems may involve the collection or processing of personal information. If our controls are ineffective or insufficient, we could face regulatory investigations, fines, private litigation or loss of public trust. Furthermore, the legal framework governing AI is rapidly evolving across international, federal and state jurisdictions and such regulations may impose restrictions relating to risk assessments, documentation, human oversight and use. New or expanded obligations or on our ability to use AI could increase costs, limit certain features or necessitate changes in our data practices or supply chain, and any of such regulations could affect our business, reputation, and results of operations.
These and similar risks related to rapidly evolving adoption of AI technology by us or third parties on whom we rely could result in litigation and remediation may require costly re-engineering, additional human review or curtailing certain uses, which could result in decreased operational efficiencies and increased costs.
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, 2025, we had federal net operating loss (“NOLs”) carryforwards of approximately $391.1 million and state NOLs of approximately $275.4 million available to offset future taxable income. Our ability to utilize these NOLs may be limited under Section 382 ("Section 382") of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), which restricts the use of pre-change NOLs following an "ownership change." An ownership change generally occurs when the ownership of 5% shareholders increases by more than 50 percentage points over a three‑year testing period. The annual limitation is determined, in part, by the value of the company immediately prior to the ownership change and the applicable federal long‑term tax‑exempt rate.
We have completed several Section 382 analyses in prior years, which concluded that limitations apply. We have incorporated those limitations into the NOL carryforwards we expect to utilize in future periods. However, additional ownership changes can occur based on market trading activity outside our control, and future transactions or fluctuations in the ownership of 5% shareholders could trigger additional limitations. Such limitations may materially restrict our ability to use our NOLs and could cause some NOLs to expire unused, adversely affecting our financial condition.
Section 382 calculations are inherently complex and require ongoing monitoring, including periodic analysis of testing dates, movements in 5% shareholders, and constructive‑ownership rules. Future analyses may differ from prior conclusions.
In addition, (i) NOLs generated in taxable years beginning after December 31, 2017 are limited to offsetting 80% of taxable income in taxable years beginning after December 31, 2020, and (ii) NOLs generated in taxable years beginning after December 31, 2020 may not be carried back to prior taxable years. State NOLs are also subject to separate limitations and may not be available to offset income in other jurisdictions.
If these limitations apply, we may not be able to realize the full value of our NOLs, which could result in increased tax liabilities and potential valuation allowances in future periods.
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.
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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.
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 arise in the future, 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.
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