UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

~~(Mark One)~~

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the quarterly period ended September 30, ~~2017~~2023

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

Commission File Number: 001-36729

FRESHPET, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

20-1884894

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)


400 Plaza Drive, 1^st Floor, Secaucus, New Jersey	07094

(Address of principal executive offices)

(~~Address of principal executive offices)~~Zip Code)

~~(Zip Code)~~

Registrant’s telephone number, including area code: (201) 520-4000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock	FRPT	NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐☒	Accelerated filer		☒
			☐
Non-accelerated filer	☐ ~~(Do not check if a small reporting company)~~	Smaller reporting company		☐
Emerging growth company	☐
~~Emerging growth company~~	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November ~~3, 2017,~~2, 2023 the registrant had ~~34,861,198~~48,241,898 shares of common stock, $0.001 par value per share, outstanding.

TABLE OF CONTENTS

		Page No.
Part I. Financial Information		5
Item 1.	Financial Statements (Unaudited)	~~Financial Statements~~5	3
		Condensed Consolidated Balance Sheets	3 5
		Condensed Consolidated Statements of Operations and Comprehensive ~~(Loss) Income~~Loss	46
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	58
		Notes to Condensed Consolidated Financial Statements	69
Item 2.		Management’s Discussion and Analysis of Financial ~~Conditions~~Condition and Results of Operations	1320
Item 3.		Quantitative and Qualitative Disclosures ~~About~~about Market ~~Risks~~Risk	2635
Item 4.		Controls and Procedures	2736
Part II. Other Information		2837
Item 1.		Legal Proceedings	2837
Item 1A.		Risk Factors	2837
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	37
Item 5.	Other Information	37
Item 6.		Exhibits	2939

2Forward-Looking Statements

This report contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this report are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” "target," “intend,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

	•	our ability to meet our sustainability targets, goals, and commitments, including due to the impact of climate change;
	•	changes in global economic and financial market conditions generally, such as inflation and interest rate increases;
	•	the impact of various worldwide or macroeconomic events, such as the ongoing conflict between Russia and Ukraine and the current conflict in Israel and the Gaza Strip, on the U.S. and global economics, our employees, suppliers, customers and end consumers, which could adversely and materially impact our business, financial condition and results of operations;
	•	our ability to successfully implement our growth strategy, including related to implementing our marketing strategy and building capacity to meet demand, such as through the timely expansion of certain of our Freshpet Kitchens (as defined below);
	•	our ability to successfully implement new processes and systems as we continue to stabilize and improve our new ERP;
	•	our ability to timely complete the construction at our Freshpet Kitchens South and Freshpet Kitchens Ennis (our Freshpet Kitchens Bethlehem, Freshpet Kitchens South and Freshpet Kitchens Ennis collectively, “Freshpet Kitchens") and achieve the anticipated benefits therefrom;

•

the loss of key members of our senior management team;

	•	allegations that our products cause injury or illness or fail to comply with government regulations;
	•	the loss of a significant customer;

	•	the entrance of new competitors into our industry;
	•	the effectiveness of our marketing and trade spending programs;

	•	our ability to introduce new products and improve existing products;
	•	our ability to match our manufacturing capacity with demand;

	•	the impact of government regulation, scrutiny, warnings and public perception;
	•	the effect of false marketing claims;
	•	adverse weather conditions, natural disasters, pestilences and other natural conditions affecting our operations;

•

our ability to develop and maintain our brand;

	•	the effect of potential price increases and shortages on the inputs, commodities and ingredients that we require, including those effects caused by inflation;
	•	our ability to manage our supply chain effectively;

	•	global or local pandemic, such as COVID-19;
	•	the failure of our information technology systems to perform adequately, including as a result of any interruptions, intrusions, cyber attacks or physical or electronic security breaches of such systems;
	•	actions of activist stockholders;

	•	volatility in the price of our common stock; and
	•	other factors discussed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and the headings "Risk Factors," "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2022 and our subsequent Quarterly Reports on Form 10-Q.

While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

FRESHPET, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

~~(Unaudited)~~(Unaudited, In thousands, except per share data)

							*September 30,*			*December 31,*
	September 30, 2017			December 31, 2016			*2023*			*2022*
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,069,344		$	3,908,177		$	338,107		$	132,735
Accounts receivable, net of allowance for doubtful accounts		12,390,110			8,886,790			54,415			57,572
Inventories, net		8,690,803			5,402,735			59,063			58,290
Prepaid expenses		598,499			741,091			8,813			9,778
Other current assets		876,792			304,560			1,992			3,590
Total Current Assets		24,625,549			19,243,353			462,390			261,965
Property, plant and equipment, net		101,422,104			101,493,080			924,720			800,586
Deposits on equipment		4,057,627			3,620,444			2,256			3,823
Operating lease right of use assets								3,990			5,165
Equity method investment								—			25,418
Long term investment in equity securities								23,528			—
Other assets		2,021,805			2,094,339			27,449			28,426
Total Assets	$	132,127,085		$	126,451,216		$	1,444,333		$	1,125,383
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable		8,231,738			6,884,155		$	40,908		$	55,088
Accrued expenses		6,660,234			4,531,139			39,377			33,016
Accrued warrants		—			253,391
Borrowings under Credit Facilities		5,500,000			7,000,000
Current operating lease liabilities								1,445			1,510
Current finance lease liabilities								2,043			—
Total Current Liabilities	$	20,391,972		$	18,668,685		$	83,773		$	89,614
Other liabilities		236,878			—
Convertible senior notes								392,562			—
Long term operating lease liabilities								2,846			4,200
Long term finance lease liabilities								26,596			—
Total Liabilities	$	20,628,850		$	18,668,685		$	505,777		$	93,814
Commitments and contingencies								—			—
STOCKHOLDERS' EQUITY:
Common stock — voting, $0.001 par value, 200,000,000 shares authorized, 34,835,698 and 33,961,650 issued and outstanding on September 30, 2017 and December 31, 2016, respectively		34,835			33,961
Common stock — voting, $0.001 par value, 200,000 shares authorized, 48,240 issued and 48,226 outstanding on September 30, 2023, and 48,051 issued and 48,037 outstanding on December 31, 2022								48			48
Additional paid-in capital		308,969,771			299,477,706			1,283,744			1,325,524
Accumulated deficit		(197,506,371	)		(191,729,136	)		(344,021	)		(295,117	)
Accumulated other comprehensive (loss) income								(959	)		1,370
Treasury stock, at cost — 14 shares on September 30, 2023 and on December 31, 2022								(256	)		(256	)
Total Stockholders' Equity		111,498,235			107,782,531			938,556			1,031,569
Total Liabilities and Stockholders' Equity	$	132,127,085		$	126,451,216		$	1,444,333		$	1,125,383

See accompanying notes to the unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE ~~(LOSS)/INCOME~~LOSS

	For the Three Months Ended						For the Nine Months Ended						*For the Three Months Ended*						*For the Nine Months Ended*
	September 30,						September 30,						*September 30,*						*September 30,*
	2017			2016			2017			2016			*2023*			*2022*			*2023*			*2022*
NET SALES	$	41,199,780		$	34,536,151		$	115,682,698		$	98,992,060		$	200,621		$	151,333		$	551,474		$	429,511
COST OF GOODS SOLD		21,697,051			19,185,274			62,206,855			53,841,492			134,328			106,788			375,177			289,187
GROSS PROFIT		19,502,729			15,350,877			53,475,843			45,150,568			66,293			44,545			176,297			140,324
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES		19,303,705			14,542,680			57,844,411			48,916,509			73,371			60,449			221,638			190,241
(LOSS)/INCOME FROM OPERATIONS		199,024			808,197			(4,368,568	)		(3,765,941	)
OTHER INCOME/(EXPENSES):
Other Income/(Expenses), net		41,435			41,601			(515,473	)		(93,036	)
LOSS FROM OPERATIONS														(7,078	)		(15,904	)		(45,341	)		(49,917	)
OTHER EXPENSES:
Interest and Other Income, net														4,130			256			9,185			492
Interest Expense		(465,253	)		(214,067	)		(830,932	)		(490,097	)		(4,148	)		(1,817	)		(10,648	)		(4,060	)
		(423,818	)		(172,466	)		(1,346,405	)		(583,133	)		(18	)		(1,561	)		(1,463	)		(3,568	)
(LOSS)/INCOME BEFORE INCOME TAXES		(224,794	)		635,731			(5,714,973	)		(4,349,074	)
LOSS BEFORE INCOME TAXES														(7,096	)		(17,465	)		(46,804	)		(53,485	)
INCOME TAX EXPENSE		20,754			15,000			62,261			45,000			70			41			210			123
NET (LOSS)/INCOME		(245,548	)		620,731			(5,777,234	)		(4,394,074	)
NET (LOSS)/INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(245,548	)	$	620,731		$	(5,777,234	)	$	(4,394,074	)
NET (LOSS)/INCOME PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
LOSS ON EQUITY METHOD INVESTMENT														-			943			1,890			2,969
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS													$	(7,166	)	$	(18,449	)	$	(48,904	)	$	(56,577	)
OTHER COMPREHENSIVE LOSS:
Change in foreign currency translation													$	(296	)	$	(592	)	$	(2,329	)	$	895
Unrealized gain on available for sale investments													$	-		$	271		$	-		$	271
TOTAL OTHER COMPREHENSIVE (LOSS) INCOME														(296	)		(321	)		(2,329	)		1,166
TOTAL COMPREHENSIVE LOSS													$	(7,462	)	$	(18,770	)	$	(51,233	)	$	(55,411	)
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
-BASIC	$	(0.01	)	$	0.02		$	(0.17	)	$	(0.13	)	$	(0.15	)	$	(0.39	)	$	(1.02	)	$	(1.24	)
-DILUTED	$	(0.01	)	$	0.02		$	(0.17	)	$	(0.13	)	$	(0.15	)	$	(0.39	)	$	(1.02	)	$	(1.24	)
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING USED IN COMPUTING NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING
-BASIC		34,666,180			33,717,676			34,316,161			33,603,535			48,194			47,856			48,123			45,545
-DILUTED		34,666,180			34,171,036			34,316,161			33,603,535			48,194			47,856			48,123			45,545

See accompanying notes to the unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN STOCKHOLDERS’ EQUITY

For the Nine Months Ended

September 30,

2017

2016

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss
$
(5,777,234
)

$
(4,394,074
)
Adjustments to reconcile net loss to net cash flows provided by operating activities:

Provision for loss/(gains) on accounts receivable

30,953

(7,147
)
Loss on disposal of equipment and deposits on equipment

97,692

169,797

Share-based compensation

3,292,362

3,459,094

Fair value adjustment for outstanding warrants

334,628

(19,007
)
Change in reserve for inventory obsolescence

315,006

113,581

Depreciation and amortization

9,411,173

6,958,113

Amortization of deferred financing costs and loan discount

398,648

109,678

Changes in operating assets and liabilities

Accounts receivable

(3,534,273
)

(1,631,493
)
Inventories

(3,603,074
)

419,060

Prepaid expenses and other current assets

(347,876
)

(550,392
)
Other assets

(162,488
)

(324,893
)
Accounts payable

2,307,943

571,388

Accrued expenses

2,129,095

2,445,710

Other liabilities

236,878

—

Net cash flows provided by operating activities

5,129,433

7,319,415

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturities of short-term investments

—

3,250,000

Acquisitions of property, plant and equipment, software and deposits on equipment

(10,835,532
)

(26,083,581
)
Net cash flows used in investing activities

(10,835,532
)

(22,833,581
)
CASH FLOWS FROM FINANCING ACTIVITIES:

Debt issuance costs

(245,291
)

—

Exercise of options to purchase common stock

5,612,557

1,981,066

Proceeds from borrowings under Credit Facilities

7,500,000

10,000,000

Repayment of borrowings under Credit Facilities

(9,000,000
)

(1,000,000
)
Net cash flows provided by financing activities

3,867,266

10,981,066

NET CHANGE IN CASH AND CASH EQUIVALENTS

(1,838,833
)

(4,533,100
)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

3,908,177

8,029,413

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
2,069,344

$
3,496,313

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid
$
489,738

$
363,991

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Property, plant and equipment purchases in accounts payable
$
497,209

$
472,362

Conversion of warrants to common stock
$
588,019

$
—

	Common Shares		Common Stock		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive (Loss) Income			Treasury Shares		Treasury Stock			Total Stockholders' Equity
BALANCES, June 30, 2023		48,185	$	48	$	1,275,510		$	(336,855	)	$	(663	)		14	$	(256	)	$	937,784
Exercise of options to purchase common stock		40		—		1,111			—			—			—		—			1,111
Vesting of restricted stock units		15		—		(9	)		—			—			—		—			(9	)
Share-based compensation expense		—		—		7,132			—			—			—		—			7,132
Foreign currency translation		—		—		—			—			(296	)		—		—			(296	)
Net loss		—		—		—			(7,166	)		—			—		—			(7,166	)
BALANCES, September 30, 2023		48,240	$	48	$	1,283,744		$	(344,021	)	$	(959	)		14	$	(256	)	$	938,556

See accompanying notes to the unaudited condensed consolidated financial statements.

Note 1 – Nature of the Business and Summary of Significant Accounting Policies:

Nature of the Business – Freshpet, Inc. (hereafter referred to as “Freshpet”, the “Company”, “we,” "us" or ~~the “Company”~~“our”), a Delaware corporation, manufactures and markets natural fresh meals and treats for dogs and cats. The Company’s products are distributed throughout the United States, Canada and other international markets, into major retail classes including Grocery (including online), Mass and ~~Mass (which includes internet and club) as well as~~Club, Pet Specialty, and Natural retail.

Basis of ~~Consolidation~~Presentation – The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”). The unaudited condensed consolidated financial statements include the accounts of the Company as well as the Company’s wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

~~Basis of Presentation~~ – The accompanying consolidated balance sheet as of September 30, 2017, statements of operations and comprehensive (loss) income for the three and nine months ended September 30, 2017 and 2016, and statements of cash flows for the nine months ended September 30, 2017 and 2016 are unaudited. The interim unaudited condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements and in accordance with the rules and regulations of the United States Securities and Exchange ~~Commission.~~Commission (the “SEC”). In the opinion of management, the interim unaudited financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair ~~statement~~presentation of the Company’s financial position as of September 30, ~~2017,~~2023, the results of its operations and changes to stockholders’ equity for the three and nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, and its cash flows for the nine months ended September 30, ~~2017~~2023 and ~~2016. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2017 and 2016 are unaudited.~~2022. The results for the three and nine months ended September 30, ~~2017~~2023, are not necessarily indicative of results to be expected for the year ending December 31, ~~2017,~~2023, or any other interim periods, or any future year or period. All amounts included herein have been rounded except where otherwise stated. As figures are rounded, numbers presented throughout this document may not add up precisely to the totals we provide and percentages may not precisely reflect the absolute figures.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II, “Financial Statements and Supplementary Data,” of our Annual Report on Form ~~10-K~~10-K for the year ended December 31, ~~2016.~~2022.

Investment in unconsolidated company – The Company utilizes the equity method to account for investments when the Company possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when an investor possesses more than 20% of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is restricted.

In applying the equity method, the Company records the investment at cost and subsequently increases or decreases the carrying amount of the investment by our proportionate share of the net income or loss. The Company has elected to record its share of equity in income (losses) of equity method investment on a one-quarter lag based on the most recently available financial statements.

On March 10, 2022, the Company invested $3,300 to maintain our 19% interest in a privately held company that operates in our industry, with our investments to date totaling $31,200. The Company concluded that it is not the primary beneficiary, which is primarily the result of the Company's conclusion that it does not have the power to direct activities that most significantly impact economic performance. Thus, in 2022, the Company accounted for the investment under the equity method of accounting based on our ability to exercise significant influence, based on our representation on and the makeup of the investee's Board of Directors, even though the Company's percentage of ownership is below 20%. The basis difference between the Company's carrying value of its investment and the amount of underlying equity in net assets of the privately held company is not material to the Company's consolidated financial statements.

On March 30, 2023, the Company no longer had representation on the investee's Board of Directors, and therefore determined that significant influence had been lost as of that date. As such, as of March 30, 2023, the Company stopped accounting for the investment as an equity method investment and began to account for the investment under ASC Topic 321 ("ASC 321"), Investments - Equity Securities. Because the investee is a privately held company, there is not a means to obtain a readily determinable fair value of the entity. The Company follows ASC Topic 321 using the measurement alternative to measure investments in investees that do not have readily determinable fair value and over which the Company does not have significant influence. Under ASC 321, the initial carrying value of the investment is equal to the previous carrying amount of the investment under the equity method. As the Company has historically recorded their proportionate share of income or loss from the investee on a one-quarter lag, the final adjustment to the carrying value of the investment was recorded in June 2023. The carrying amount of the investment is subsequently adjusted for any impairment or adjustments resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any. Dividends and distributions, if any, from the investee would be recognized in the period in which they are received and recorded in other income on the consolidated statement of operations. The Company performs a qualitative assessment of whether the investment is impaired at each reporting date. If a qualitative assessment indicates that the investment is impaired, the Company estimates the investment’s fair value in accordance with the principles of ASC Topic 820 (“ASC 820”), Fair Value Measurements and Disclosures. If the fair value is less than the investment’s carrying value, the entity recognizes an impairment loss in earnings equal to the difference between the carrying value and fair value. There were no observable price changes, impairment or other matters that would require adjustment to the investment during the quarter ended September 30, 2023.

March 2023 Issuance of $402.5 million of 3.00% Convertible Senior Notes (the "Convertible Senior Notes") - In conjunction with the issuance of the $402.5 million Convertible Notes in March 2023, the Company evaluated the debt instrument and its embedded features to determine if the contract or the embedded components of the contract qualified as a derivative that would be required to be separately accounted for in accordance with the relevant accounting literature.

The Company accounts for the Convertible Senior Notes as a single liability measured at amortized cost. The Company uses the effective interest rate method to amortize the debt issuance costs to interest expense over the respective term of the Convertible Senior Notes.

Estimates and Uncertainties – The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used in determining, among other items, trade incentives, share-based compensation and useful lives for long-lived assets. Actual results, as determined at a later date, could differ from those estimates.

~~Foreign Currency Contracts~~ –The Company may enter into forward exchange contracts to reduce the Company’s exposure to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies. The foreign currency forward contracts have not been designated as hedges and, accordingly, any changes in their fair value are recognized on the Consolidated Statements of Operations and Comprehensive Loss in Other income/(expenses), net, and carried at their fair value in the Consolidated Balance Sheet with assets reported in Prepaid expenses and other current assets and liabilities reported in Accrued expenses.

Fair Value of ~~September 30, 2017,~~Financial Instruments – Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements and Disclosure guidance specifies a hierarchy of valuation techniques based on whether the ~~notional value~~inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The three levels of ~~foreign currency forward contracts outstanding was 0.7 million pounds sterling. The fair value of the foreign currency forward contracts are measured using Level 2 inputs in~~ the fair value hierarchy ~~because they~~ are determined based on a market approach utilizing externally quoted forward rates for similar contracts. For the three months and nine months ended September 30, 2017 the net loss recognized on forward contracts was less than $0.1 million.as follows:

~~Reclassifications~~ – ~~Certain prior period amounts were reclassified to conform to the current year’s~~ ~~presentation.~~

In May 2014, the Financial Accounting Standard Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In connection with this ASU, the FASB also issued ASU No. 2016-10 regarding identification of performance obligations and licensing considerations, ASU No. 2016-12 regarding narrow scope improvements and practical expedients- and ASU No. 2016-08 which clarifies the implementation of guidance on principal versus agent considerations. In August 2015, the FASB deferred the effective date of ASU No. 2014-09 to fiscal years beginning after December 15, 2017, with early adoption permitted only for fiscal years beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method.

The Company is currently utilizing a comprehensive approach to assess the impact of this guidance by reviewing current accounting policies to identify the potential impact of the new requirements on its revenue contracts. The Company does not currently expect this guidance to have a material impact on its consolidatedOur financial statements. The new standard will be effective as of January 1, 2018. The Company currently anticipates adopting Topic 606 using the modified retrospective transition approach that may result in a cumulative adjustment to beginning retained earnings as of January 1, 2018. Based on the Company’s analysis to date, the Company expects the new standard will require accelerated recognition of trade promotions and customer incentives. These transactions are currently recognized at the later of the sale of goods or agreement, however under the new standard the Company will estimate incentives to be offered to customers as part of the sales price. The Company does not expect the change to be material.

~~In February 2016, the FASB issued ASU No. 2016-02, "Leases,” which requires lessees to recognize the~~ assets and liabilities ~~that arise from leases on~~include cash and cash equivalents, receivables, accounts payable and accrued liabilities, the ~~balance sheet. A lessee should recognize~~fair values of which approximate their carrying values due to the short-term nature of these instruments. The Company holds certain financial assets within cash and cash equivalents in the ~~statement~~form of ~~financial position a liability~~held-to-maturity treasury bills as we have the ability and intent to ~~make lease payments (the lease liability) and a right-of-use asset representing its right~~hold them to ~~use the underlying asset~~maturity, as such, they are not fair valued each reporting period but instead measured at amortized cost. The fair value of these assets is based on quoted market prices for the same or similar securities within less active markets, which the Company determined to be Level 2 inputs. As of September 30, 2023, the fair value of these treasury bills approximates their carrying value due to the short-term nature of these instruments.

Certain financial and non-financial assets, including the equity method investment/investment in equity securities, operating lease ~~term. The new guidance is effective~~right-of-use assets and property, plant and equipment are reported at their carrying values and are not subject to recurring fair value measurements. We review our long-lived assets for ~~financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The amendments should be applied at~~impairment whenever events or changes in circumstances indicate that the ~~beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning~~carrying amount of an interim or annual reporting period. The Company is assessing the impact of ASU No. 2016-02 on its corporate office lease, and upon adoption of this guidance, expects to record the lease on its consolidated balance sheetasset may not be recoverable in accordance with ~~ASU No. 2016-02.~~ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets.

As of September 30, 2023, the Company maintained Level 1 and Level 2 assets and liabilities.

Cash Equivalents – ~~Inventories:~~ The Company holds treasury bills with original maturities when purchased of less than three months, within cash and cash equivalents, carried at amortized cost on the Consolidated Balance Sheet. Treasury bills have been classified as held-to-maturity as we have the ability and intent to hold them to maturity. As of September 30, 2023, the Company had $149,393 of treasury bills within cash equivalents, which included $759 of amortized discount.

Short-Term Investments – The Company, from time to time, holds treasury bills with original maturities when purchased of greater than three months, within short-term investments, carried at amortized cost on the Consolidated Balance Sheet. Treasury bills have been classified as held-to-maturity as we have the ability and intent to hold them to maturity. As of September 30, 2023, all of the Company's treasury bills within short-term investments matured at $115,000, which includes $1,559 of interest income.

Trade accounts receivable – The allowance for doubtful accounts is based on the Company's assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances and current economic conditions that may affect a customer's ability to pay.

Implementation Costs of Cloud Computing Arrangement – As of September 30, 2023 and December 31, 2022, the Company's deferred implementation costs of our new ERP system associated with our cloud computing arrangement, which were reflected within prepaid and other assets, were $10,192 and $9,444, respectively. The cost will be recognized over the term of the agreement, which began in the first quarter of 2022.

Net Sales - Information about the Company’s net sales by class of retailer is as follows:

^(a) Online sales associated with each class of retailer are included within their respective total.

The Company did not adopt any new Accounting Standard Updates during the quarter ended September 30, 2023.

~~Property, plant and equipment, net are summarized as follows:~~Equipment, net:

Depreciation and amortization expense related to property, plant and equipment ~~totaled $3,154,623 and $9,235,932~~ for the three and nine months ended September 30, ~~2017,~~2023 totaled $16,399 and $45,139, respectively, of which ~~$1,447,992~~$12,495 and ~~$4,329,624~~$33,834, respectively, was recorded to cost of goods sold ~~for the three and nine months ended September 30, 2017, respectively,~~ with the remainder of depreciation ~~and amortization expense recorded to selling, general and administrative expense.~~

Depreciation expense related to property, plant and equipment totaled $2,669,278 and $6,830,780 for the three and nine months ended September 30, 2016, respectively, of which $1,241,563 and $2,660,340 was recorded to cost of goods sold for the three and nine months ended September 30, 2016, respectively, with the remainder of depreciation and amortization expense recorded to selling, general and administrative expense.

Depreciation expense related to property, plant and equipment for the three and nine months ended September 30, 2022 totaled $8,485 and $24,264, respectively, of which $5,159 and $14,208, respectively, was recorded to cost of goods sold with the remainder of depreciation expense recorded to selling, general and administrative expense.

September 30, 2017

December 31, 2016

Accrued Compensation

$
2,893,834

$
1,895,443

Accrued Chiller Cost

1,343,951

1,010,018

Accrued Freight

838,665

359,009

Accrued Marketing

460,018

282,784

Accrued VAT

278,817

—

Accrued Utility

150,000

124,000

Accrued Leadership Transition Expenses (1)

66,505

428,150

Other Accrued Expenses

628,444

431,735

$
6,660,234

$
4,531,139

(1) Accrued Leadership Transition Expenses represent costs detailed within our former Chief Executive Officer’s separation agreement as well as incremental costs associated with leadership transition.

~~Note 6 – Debt:~~

On November 13, 2014, the Company entered into senior secured credit facilities (the “Debt Refinancing”) comprised of a five-year $18.0 million term facility (the “Term Facility”), a three-year $10.0 million revolving facility (the “Revolving Facility”) and a $12.0 million additional term loan commitment earmarked primarily for capital expenditures (the “Capex Commitments” and together with the Term Facility and Revolving Facility, the “Credit Facilities” and such loan agreement, the “Loan Agreement”).

On ~~December 23, 2014,~~ February 19, 2021, the Company ~~repaid~~entered into the ~~outstanding $18.0 million~~Sixth Amended and ~~modified~~Restated Loan and Security Agreement ("Credit Agreement"), which amended and restated in full the ~~terms~~Company's Fifth Amended and Restated Loan and Security Agreement, dated as of April 17, 2020. The Credit Agreement provided for a $350,000 senior secured credit facility (as amended the "Credit Facility"), encompassing a $300,000 delayed draw term loan facility (the "Delayed Draw Facility") and a $50,000 revolving loan facility (the "Revolving Loan Facility"), which replaced the Company's prior $130,000 delayed draw term loan facility and $35,000 revolving loan facility. The Company incurred an additional $3,263 of fees associated with the debt modification, of which $2,797 of the ~~$40.0 million Credit Facilities.~~fees were related to the Delayed Draw Term Loan ("DDTL") (as defined below) with the remaining balance relating to the Revolving Loan Facility (as defined below). The ~~$18.0 million term facility was extinguished,~~Company’s policy is to record the ~~three-year $10.0 million Revolving Facility remained unchanged and~~debt issuance cost related to the ~~$12.0 million term loan commitment earmarked~~Delayed Draw Term Loan, net of debt, for ~~capital expenditures was increased to $30.0 million.~~the portion of the Delayed Draw Term Loan that is outstanding, with the remaining amount recorded within assets.

The ~~New Revolver matures in September 2020~~ Credit Facility had an original maturity date of February 19, 2026 and borrowings thereunder ~~will bear~~bore interest at variable rates depending on the ~~Company’s~~Company's election, either at a base rate or at the ~~London Interbank Offered Rate (“LIBOR”)~~adjusted term SOFR (which rate was to be calculated based upon a one-month tenor in effect on such date and was to be determined on a daily basis), in each case, plus an applicable margin. Subject to the ~~Company’s~~Company's leverage ratio, the applicable margin ~~will vary~~varies between 0.75% and ~~1.25%~~2.25% for base rate loans and 1.75% and ~~2.25%~~3.25% for ~~LIBOR~~SOFR loans. The Company had the option to borrow term loans under the Delayed Draw Facility ("Delayed Draw Term Loans") until August 19, 2023, subject to certain conditions.

Borrowings under the Credit Facility were secured by substantially all of the Company's and certain of its subsidiaries' assets. The Credit Agreement required compliance with various covenants customary for agreements of this type, including financial covenants and negative covenants that limit, among other things, the Company's ability to incur additional debt, create or incur liens, engage in mergers or consolidations, sell, transfer or otherwise dispose of assets, make voluntary prepayments to subordinated debt, permit a change of control, pay dividends or distributions, make investments, and enter into certain transaction with affiliates. The Credit Agreement also included events of default customary for agreements of this type. The Credit Facility included a quarterly commitment fee on any unused amounts at a per annum rate between 0.30% to 0.50% depending on the aggregate principal outstanding.

On ~~September 21, 2017,~~ April 29, 2022, the Company ~~further amended~~entered into the ~~Loan~~First Amendment to the Credit Agreement, ~~(the “New Loan Agreement”)~~ which ~~modified~~amendment, among other things, (i) made amendments to allow for the ~~$10.0 million Revolving Facility to $30.0 million (the “New Revolving Facility”)~~Company's projected capital expenditures without either triggering mandatory prepayment obligations or violating the covenant and ~~extinguished~~(ii) replaced the ~~$30.0 million Capex Commitments. The New Loan Agreement has~~LIBOR interest rate for U.S. dollar loans with a term Secured Overnight Financing Rate ("Term SOFR").

On March 13, 2023, the Company notified City National Bank, of Freshpet's intent to terminate the Credit Agreement, with such termination to become effective as of March 15, 2023 (the "Termination Date"), in connection with the offering of the Convertible Notes (as defined below).

As of March 13, 2023, the Termination Date and December 31, 2022, the Company had no borrowings outstanding under the Credit Facility. There was $0 and $922 of accrued interest on the credit facilities as of September 30, 2023 and December 31, 2022, respectively. Interest expense and fees totaled $0 and $2,785 for the three ~~years~~ and nine months ended September 30, 2023, respectively. Interest expense and fees totaled $1,817 and $4,060 for the three and nine months ended September 30, 2022, respectively. Interest expense for the nine months ended September 30,2023, included debt issuance costs written off in conjunction with the termination of the Credit Facility of $2,478 in March 2023.

In March 2023, we issued $402,500 aggregate principal amount of 3.0% convertible senior notes due 2028 (the “Convertible Notes”). The Convertible Notes were issued in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The net proceeds from the sale of the Convertible Notes were approximately $391,492 after deducting offering and issuance costs related to the Convertible Notes and before the 2023 Capped Call transactions, as described below.

The Convertible Notes are our senior, unsecured obligations and accrue interest at a rate of 3.0% per annum, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2023. The Convertible Notes will mature on April 1, 2028 unless earlier converted, redeemed or repurchased by us. Before January 3, 2028, noteholders will have the right to convert their Convertible Notes only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ended on June 30, 2023 (and only during such calendar quarter), if the last reported sale price of our common stock, par value $0.001 per share (the "common stock"), for each of at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five consecutive business day period immediately after any 10 consecutive trading day period (the "measurement period") in which the trading price per $1,000 principal amount of notes, as determined following a request by a holder or holders of the Convertible Notes in the manner described in indenture pursuant to which the Convertible Notes were issued and are governed (the “Indenture”), for each trading day of the measurement period, was less than 98% of the product of the last reported sale price of our common stock and the ~~ability~~conversion rate on each such trading day; (3) if we call any or all of the Convertible Notes for redemption, but only with respect to the convertible notes called (or deemed called) for redemption; or (4) upon the occurrence of specified corporate events (e.g., a fundamental change or the making of certain distributions). On or after January 3, 2028, until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert its Convertible Notes at any time, regardless of the foregoing circumstances.

We will settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The initial conversion rate for the Convertible Notes is 14.3516 shares of common stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $69.68 per share of common stock. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events. In addition, in connection with a make-whole fundamental change (as defined in the Indenture), which shall include among other things the Company's delivery of a notice of redemption, the Company will, in certain circumstances, increase the ~~New Revolving Facility by $10.0~~conversion rate for a holder who elects to convert its notes in connection with such a corporate event or redemption, as the case may be.

We may not redeem the Convertible Notes prior to April 3, 2026. We may redeem for cash all or any portion of the Convertible Notes, at our option, on or after April 3, 2026 and on or before the 40^th scheduled trading day immediately preceding the maturity date, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we send the notice of redemption, at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. However, we may not redeem less than all of the outstanding Convertible Notes unless at least $100 million ~~with borrowings bearing~~aggregate principal amount of Convertible Notes are outstanding and not called for redemption as of the time we send the related redemption notice.

Upon the occurrence of a fundamental change (as defined in the Indenture), holders may require the Company to repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid additional interest, ~~at variable rates.~~if any, to, but excluding, the fundamental change repurchase date.

The effective interest rate for the Convertible Notes is 3.59%. Transaction costs of $11,008 attributable to the issuance of the Convertible Notes were recorded as a direct deduction from the related debt liability in the Consolidated Balance Sheet and are amortized to interest expense over the term of the Convertible Notes using the effective interest method.

The Company ~~had $7.5 million outstanding under~~measures the ~~existing Credit Facilities prior~~fair value of its Convertible Notes for disclosure purposes. The fair value is based on observable market prices for this debt, which is traded in less active markets and is therefore classified as a Level 2 fair value measurement. The following table discloses the carrying value and fair value of the Company's Convertible Notes as of September 30, 2023:

(1) The carrying amounts presented are net of unamortized debt issuance costs of $9,938 as of September 30, 2023.

Lender fees that were paid upfront to ~~closing, which~~the lenders and debt issuance fees paid to third parties are recorded as a discount to the carrying amount of debt and are being amortized to interest expense over the life of the debt. The total interest expense for the three and nine months ended September 30, 2023, recognized related to the Convertible Notes consists of the following:

As of September 30, 2023, the interest expense incurred to date of $6,406 was ~~repaid~~paid in full, with $0 of accrued interest expense as of the quarter end. Of this amount, approximately $333 and $514 of interest expense was capitalized to construction in progress, as of the three and nine months ended September 30, 2023, respectively, as the proceeds from the ~~New Revolving Facility and cash~~sale of the Convertible Notes are being used to fund construction on ~~hand. Upon closing,~~ the ~~Company had $5.5 million outstanding and $24.5 million available under~~Company's manufacturing facility expansion in Ennis, Texas. As of September 30, 2023, $136 of the ~~New Revolving Facility.~~$514 was reclassified from construction in progress to assets placed in service.

In connection with ~~this amendment,~~the pricing of the Convertible Notes issued in March 2023, we used $66,211 of the net proceeds from the Convertible Notes to enter into privately negotiated capped call transactions (collectively, the “Capped Call Transactions”) with certain financial institutions.

The Capped Call Transactions are generally expected to reduce potential dilution to holders of our common stock upon any conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of the Convertible Notes upon conversion of the Convertible Notes in the event that the market price per share of our common stock is greater than the strike price of the Capped Call Transactions, with such reduction and/or offset subject to a cap.

The Capped Call Transactions have an initial cap price of approximately $120.23 per share, which represents a premium of 120% over the last reported sale price of our common stock of $54.65 per share on March 15, 2023, and is subject to certain adjustments under the terms of the Capped Call Transactions. Collectively, the Capped Call Transactions cover, initially, the number of shares of our common stock underlying the Convertible Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes.

The Capped Call Transactions are accounted for as freestanding derivatives and recorded at the initial fair value in additional paid-in-capital in the Consolidated Balance Sheet with no recorded subsequent change to fair value as long as they meet the criteria for equity classification. As of September 30,2023, the instrument continued to qualify for equity classification.

We have various noncancelable operating lease agreements for office and warehouse space with original remaining lease terms of two years to nine years, some of which include an option to extend the lease term for up to four years. Because the Company ~~accelerated~~is not reasonably certain to exercise the ~~amortization~~renewal options on these lease arrangements, the options are not considered in determining the lease term and associated potential option payments are excluded from lease payments. The Company’s leases generally do not include termination options for either party to the lease or restrictive financial or other covenants.

As of ~~$0.3 million~~July 2023, we also entered into a finance lease agreement for manufacturing equipment with an initial term of ~~unamortized debt issuance costs~~ten years, which includes an option to extend the lease term for up to ten years, which the Company is not reasonably certain to exercise. The agreement did not include termination options for either party to the lease or restrictive financial or other covenants. In connection with the manufacturing equipment lease, which is a new asset class, we elected the practical expedient to combine lease and non-lease components to determine the right of use asset and lease liability.

For the finance lease, the right of use asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of the useful life of the underlying asset or the end of the lease term. Amortization of the right of use asset is recognized and presented separately from interest expense on the lease liability.

The right of use asset for the finance lease is periodically reviewed for impairment losses. The Company uses the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether a right of use asset is impaired, and if so, the amount of the impairment loss to recognize. No such loss was recognized as of September 30, 2023.

The Company monitors for events or changes in circumstances that require a reassessment of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding right of use asset.

Weighted-average remaining lease term (in years) and discount rate related to operating and finance leases were as follows:

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the ~~existing Loan Agreement. These~~information available at the commencement date to determine the present value of lease payments.

Maturities of lease liabilities under noncancelable operating leases and finance lease as of September 30, 2023 were as follows:

A summary of lease costs ~~are included in Interest Expense in~~for the three and nine months ended September 30, ~~2017.~~2023 and 2022 was as follows:

Supplemental balance sheet information as of ~~various covenants, including financial covenants, and includes events of default that are customary for facilities of this type. As of~~ September 30, ~~2017, the Company was in compliance with all the covenants in the New Loan Agreement.~~

~~Borrowings under our Credit Facilities totaled $7.5 million~~ 2023 and ~~repayments totaled $9.0 million for the nine months ended September 30, 2017. The Company had $5.5 million in debt outstanding under the Credit Facilities.~~

~~Interest expense and fees totaled $0.5 million and $0.8 million for the three and nine months ended September 30, 2017, respectively, of which $0.2 million was~~ December 31, 2022 related to new debt issuance costs. Interest expense and fees totaled $0.2 million and $0.5 million for the three and nine months ended September 30, 2016, respectively. There was less than $0.1 million of accrued interest on the Credit Facilitiesleases are as ~~of September 30, 2017 and December 31, 2016.~~follows:

Supplemental cash flow information and non-cash activity relating to operating and finance leases are as follows:

In connection with an agreement we entered into with operators of Freshpet Kitchens South during the third quarter of 2022 in exchange for services, we issued our partner warrants to purchase up to an aggregate of 194,000 shares of voting common stock of the Company at a purchase price of $0.01 per share. The Company determined these warrants are accounted for under FASB ASC 718 Stock Compensation. The warrants were recorded as a prepaid expense as the warrants were exercisable at the grant date. The prepaid expense will be amortized within Cost of Goods Sold as services are provided by the supplier. As of September 30, 2023, there were $3,354 of warrants in prepaid expense and $0 of warrants in other assets. As of December 31, 2022, there were $5,750 of warrants in prepaid expense and $1,438 of warrants in other assets.

During 2022, 194,000 warrants were both issued and exercised, respectively. The grant date fair value of warrants granted during 2022 was $50.32 per share.

Total amortization associated with partner warrants for the three and nine months ended September 30, 2023 was $958 and $3,834, respectively.

Total compensation cost for share-based payments recognized for the three and nine months ended September 30, ~~2017~~2023 was $7,132 and ~~2016 was $1,132,852~~$21,118, respectively and $~~787,675, respectively. Total compensation cost for share-based payments recognized~~ for the three and nine months ended September 30, ~~2017~~2022 was $6,671 and ~~2016~~ ~~was $3,292,362 and $3,490,754,~~$19,260, respectively.

~~2006 Stock Plan—In December 2006,~~ During the Company approved the 2006 Stock Plan (the “2006 Plan”) under which options to purchase approximately 624,223 shares of the Company’s common stock were granted to employees and affiliates of the Company. These options are time-based (vest over five years). Certain option awards provide for accelerated vesting if there is a change in control (as defined in the 2006 Plan). At nine months ended September 30, ~~2017, there were zero shares available for grant as the 2006 Plan is frozen.~~

~~2010 Stock Plan—In December 2010, the Company approved the 2010 Stock Plan (the “2010 Plan”) under which options to purchase approximately 2,146,320~~shares of the Company’s common stock were granted to employees and affiliates of the Company (in 2012, the 2010 Plan was amended to allow for the granting of approximately 2,220,280 options to purchase shares of the Company’s common stock). The outstanding options are time-based (vest between two and four years). The options granted have maximum contractual terms of 10 years. The Board of Directors froze the 2010 Plan such that no further grants may be issued under the 2010 Plan.

~~2014 Omnibus Incentive Plan~~—In November 2014, the Company approved the 2014 Omnibus Incentive Plan (the “2014 Plan”) under which 1,479,200 shares of common stock may be issued or used for reference purposes as awards granted under the 2014 Plan. In September 2016, the 2014 Plan was amended to allow for the granting of an additional 2,500,000 shares of common stock to be issued or used for reference purposes as awards granted, for a total of 3,979,200 shares. These awards may be in the form of2023, 203 thousand stock options ~~stock appreciation rights, restricted stock, as well as other stock-based and cash-based awards. As of~~ were exercised. During the nine months ended September 30, ~~2017, the awards granted were either time-based, performance-based (vest when performance targets are met, as defined in the stock option grant agreement), or~~2023, 154 thousand service period restricted stock units ~~(employee RSUs vest over three years and non-employee director RSUs vest over one year).~~

~~At September 30, 2017, there were 2,092,881 shares of common stock available to be issued or used for reference purposes under the 2014 Plan.~~

~~NASDAQ Marketplace Rules Inducement Award—During fiscal year 2016, stock-based awards~~ were granted to the Company’s Chief Executive Officer as an inducement under the NASDAQ Marketplace Rules, and therefore outside of any Plan. Under the terms of the agreement, the grant is governed as if issued under the 2014 Omnibus Plan. As of September 30, 2017, the awards granted were time-based (cliff vest over four years) and performance-based (vest when performance targets are met, as defined in the stock option grant agreement).

~~The following table includes activity related to outstanding service period stock options during the nine months ended September 30, 2017.~~

~~The following table includes activity related to outstanding performance-vested stock options during the nine months ended September 30, 2017.~~

~~(1) As of September 30, 2017, 516,877 performance-vested stock options~~ at a weighted average ~~exercise price~~grant-date fair market value of ~~$9.79 have performance metrics that are probable of achievement. These shares are included in share-based compensation costs for~~$60.39. During the ~~three and~~ nine months ended September 30, ~~2017.~~

~~The following table includes activity related to outstanding~~2023, 12 thousand time-options were granted at a fair value of $27.06. During the nine months ended September 30,2023, 58 thousand restricted stock units ~~during the nine months ended September 30, 2017.~~

Note 811 – Earnings Per ~~Share:~~Share Attributable to Common Stockholders:

Basic net ~~loss~~earnings (loss) per share of common stock is calculated by dividing net ~~loss~~income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net ~~loss~~earnings (loss) per share of common stock is computed by giving effect to all potentially dilutive securities.

For purpose of determining diluted earnings per common share, the ~~three~~treasury stock method is used for stock options, warrants, and ~~nine months ended September 30, 2017~~RSUs, and ~~2016, there were no adjustments between net loss~~the if-converted method is used for convertible instruments such as convertible debt as prescribed in FASB ASC Topic 260. In conjunction with the issuance of the $402.5 million Convertible Notes in March 2023, the Company used $66.2 million of the proceeds to purchase capped call instruments. In accordance with FASB ASC 260, antidilutive contracts, such as purchased put options and ~~net loss attributable to common stockholders.~~

~~The potentially dilutive securities~~purchased call options are ~~as follows:~~

~~For~~excluded from the ~~three months ended September 30, 2017 and nine months ended September 30 2017 and 2016,~~computation of diluted net loss per ~~share~~share. Accordingly, any potential impact resulting from capped call transaction is excluded from our computation of diluted net loss per share. Diluted net loss per common ~~stock~~share is the same as basic net loss per ~~share of~~ common ~~stock,~~share, due to the fact that potentially dilutive securities would have an antidilutive effect as the Company incurred a net loss ~~during such periods.~~for the three and nine months ended September 30, 2023 and 2022.

~~For~~The potentially dilutive securities excluded from the ~~three months ended September 30, 2016,~~determination of diluted ~~net income~~loss per share, ~~of common stock~~as their effect is ~~calculated~~antidilutive, are as ~~follows:~~follows (in thousands):

~~For the three months ended September 30, 2016, there were 450,189 anti-dilutive service period stock options excluded from the diluted earnings per share calculation.~~

Payments of $2,016,716 and $6,323,016 for the three and nine months ended September 30, 2017, and $1,484,600 and $4,666,495 for the three and nine months ended September 30, 2016, were made to one stockholder for the purchase of raw materials. The Company believes that all payments made to the shareholder are at market value and thus at arms-length.

Concentration of Credit Risk—The Company maintains its cash balances in financial institutions ~~which~~that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to ~~$250,000~~$250 each. At times, such balances may be in excess of the FDIC insurance limit.

~~Net Sales By Class of Retailer~~Note 13 – ~~The following table sets forth net sales by class of retailer:~~ Commitments and Contingencies:

Commitments - In August 2023, we entered into a lease arrangement for a to-be constructed office space, which will contribute right of use assets and lease liabilities upon lease commencement, which is expected to be the end of 2024. As of September 30, 2023, the future commitments related to this arrangement are not determinable as they are variable in nature. Our current headquarters lease in Secaucus, NJ expires in June 2024.

Contingencies -We are currently involved in various claims and legal actions that arise in the ordinary course of our business, including claims resulting from employment related matters. None of these claims or proceedings, most of which are covered by insurance, are expected to have a material adverse effect on our business, financial condition, results of operations or cash flows. However, a significant increase in the number of these claims or an increase in amounts owing under successful claims could materially and adversely affect our business, financial condition, results of operations or cash flows.

On April 8, 2022, Phillips Feed Service, Inc., d/b/a Phillips Feed And Pet Supply ("Phillips") filed a complaint against the Company in U.S. District Court for the Eastern District of Pennsylvania (Allentown Division) for damages allegedly sustained as a result of the termination of the Company's distribution arrangement with Phillips, a former distributor of Freshpet products. Phillips asserts a claim for breach of contract, and seeks monetary damages in excess of $8,300 based on a claimed "termination payment" under a 2018 "Letter Of Intent" and additional damages based on a claim for improper notice of termination. Phillips also claims a right of setoff with respect to monies owed by Phillips to the Company.

On July 5, 2022, the Company answered the complaint disputing the claimed damages, assertions of breach of contract, and the right of offset. In addition, the Company counterclaimed breach of contract for amounts owed to Freshpet earned while Phillips served as an authorized distributor of Freshpet product.

As of December 31, 2022, due to the claims and counterclaims between the parties, the Company reclassified the amounts due from Phillips of $8,971 to other noncurrent assets.

As of October 31, 2023, the court ordered discovery period has ended and the parties continue to depose witnesses.

Based on information currently available and advice of counsel, we do not believe that the outcome of any of this matter is likely to have a material adverse effect on our business, financial condition, results of operations or liquidity. However, in the event of unexpected further developments, it is possible that the ultimate resolution of this matter, if unfavorable, may be materially adverse to our business, financial condition, results of operations or liquidity. Legal costs such as outside counsel fees and expenses are charged to selling, general and administrative expenses in the period incurred.

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are ~~issued. Based upon the evaluation, the~~issued for recognition or disclosures.

The Company did not identify any recognized or unrecognized subsequent events that have required adjustment or disclosure in the financial statements.

I~~tem~~Item 2. Management’s Discussion and Analysis ofof Financial ~~Conditions~~Condition and Results of Operations

The following discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes in Item 1 and with the audited consolidated financial statements and the related notes included in ourAnnual Report on Form ~~10-K.~~10-K for the year ended December 31, 2022 (our "Annual Report").

In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations, and ~~intentions set forth under the sections entitled "Forward-Looking Statements" in this report and "Risk Factors" in our Annual Report on Form 10-K.~~intentions. Our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section entitled "Forward-Looking Statements" in this report and in the section entitled "Risk Factors" in our Annual Report and subsequent Quarterly Reports on Form ~~10-K.~~10-Q.

We started Freshpet with a single-minded mission to bring the power of real, fresh food to our dogs and cats. We were inspired by the rapidly growing view among pet owners that their dogs and cats are a part of their family, leading them to demand healthier pet food choices. Since Freshpet's inception ~~of the company~~ in 2006, we have created a comprehensive business model to deliver wholesome pet food that pet parents can trust, and in the process we believe we have become one of the fastest growing pet food companies in North America. Our business model is difficult for others to replicate and we see significant opportunity for future growth by leveraging the unique elements of our business, including our brand, our product know-how, our Freshpet Kitchens, our refrigerated distribution, our Freshpet Fridge and our culture.

During the third quarter of 2017, we amended our Credit Facilities to replace our Term Facility and Capex Commitments of $30.0 million and $10.0 million Revolving Facility with a straight $30.0 million revolver (the “New Revolving Facility”) and the ability to increase the New Revolving Facility by an additional $10.0 million. The New Revolving Facility will mature in September 2020. At closing, we had total borrowings of $5.5 million under the $30.0 million New Revolving Facility, with $24.5 million available. We expect to fund our business through cash provided by operations for the remainder of 2017, while continuing to reduce the facility usage. This represents a reduction in the unused rate of between 25 and 75 basis points and a reduction in the total rate of between 200 and 250 basis points. The existing facility, which had $7.5 million outstanding, was repaid with proceeds from the new revolver and cash on hand.

Our net sales are derived from the sale of ~~pet food~~products that are sold to ~~our customers, who purchase either directly from us or~~retailers through ~~third-party distributors.~~broker and distributor arrangements. Our products are sold to consumers through a fast-growing network of company-owned branded refrigerators, known as Freshpet Fridges, located in our customers’ stores. We continue to roll out Freshpet Fridges ~~across~~at leading retailers across North America and parts of Europe and have installed Freshpet Fridges in ~~over 17,600~~approximately 26,385 retail stores as of September 30, ~~2017. All of our~~2023. Our products are sold under the Freshpet brand name with ingredients, packaging and labeling customized by class of retail. Sales are recorded net of discounts, ~~slotting,~~ returns and promotional allowances.

We believe that as a result of the above key factors, we will continue to penetrate the pet food marketplace and increase our share of the pet food category.

Our gross profit is net of costs of goods sold, which include the costs of product manufacturing, product ingredients, packaging materials ~~spoils~~ and inbound freight. In 2016, we undertook a capital expansion project at our Freshpet Kitchens facility that we believe will further increase our production capacity by at least 130%. Over time, growing capacity utilization of our new facility will allow usfreight, as well as depreciation and amortization and non-cash share based compensation.

We expect to ~~leverage fixed costs and thereby expand our gross profit margins.~~

~~Our gross profit margins are also impacted by the cost of ingredients and packaging materials. We expect~~continue to mitigate any adverse movement in input costs through a combination of cost management and price increases.

~~Selling, general and administrative costs.~~ ~~Selling, general & administrative (“SG&A”) costs as~~

Outbound freight. We use a percentage of net sales have historically decreased from 81.3% in the year ended 2012, 62.7% in 2013, 55.7% in 2014, 50.2% in 2015 and to 47.0% in 2016. Due to our Feed the Growth initiative, which increases our investment in media, we do not expect our SG&A as a percentage of net sales to change significantly in the near term future, which is noted within our slight increase of SG&A costs as a percentage of net sales increase from 49.4% in the nine months ended September 30, 2016 to 50.0% in the nine months ended September 30, 2017. We believe that as we begin to realize the benefits of our Feed the Growth initiative SG&A expenses will once again decrease as a percentage of net sales.

~~Outbound freight.~~ ~~Prior to the second quarter of 2016,~~third-party logistics provider for outbound freight ~~from our Freshpet Kitchens was managed by a national~~that ships directly to retailers as well as third-party refrigerated and frozen human food manufacturer. During the second quarter of 2016, we transitioned to a new third-party logistics provider. We have realized cost efficiencies in logistics through our new third-party logistics provider’s infrastructure. Additionally, we sell through third-party distributors for the grocery, mass, club, pet specialty and natural classes in the United States, Canada, and in the United Kingdom.distributors.

Marketing & advertising. Our marketing and advertising expenses primarily consist of national television media, digital marketing, social media and grass roots marketing to drive brand awareness. These expenses may vary from quarter to quarter depending on the timing of our marketing and advertising campaigns. Our Feed the Growth initiative ~~will focus~~focuses on growing the business through increased marketing investments.

Freshpet Fridge operating costs. Freshpet Fridge operating costs consist of repair costs and depreciation. The purchase and installation costs for new Freshpet Fridges are capitalized and depreciated over the estimated useful life. All new refrigerators are covered by a manufacturer warranty for three years. We subsequently incur maintenance and freight costs for repairs and refurbishments handled by third-party service providers.

Research & development. Research and development costs consist of expenses to develop and test new products. The costs are expensed as incurred.

Brokerage. We ~~utilize~~use third-party brokers to assist with monitoring our products at the point-of-sale as well as representing us at headquarters for various customers. These brokers visit our retail customers’ store locations to ensure items are appropriately stocked and maintained.

Share-based compensation. We account for all share-based compensation payments issued to employees, directors and non-employees using a fair valuemethod. Accordingly, share-based compensation expense is measured based on the estimated fair value of the awards on the grant date. Werecognize compensation expense for the portion of the award that is ultimately expected to vest over the period during which the recipient renders therequired services to us using the straight-line single option method.

Other general & administrative costs. Other general and administrative costs include non-plant personnel salaries and benefits, as well as corporate general & administrative costs.

We had federal net operating loss (“NOL”) carry forwards of approximately ~~$160.7~~$340.3 million as of December 31, ~~2016,~~2022, of which approximately $175.4 million, generated in 2017 and prior, will expire between 2025 and ~~2036.~~2037. The NOLs generated from 2018 through 2022, of approximately $164.9 million, will have an indefinite carryforward period but can generally only be used to offset 80% of taxable income in any particular year. We may be subject to certain limitations in our annual utilization of NOL carry forwards to off-set future taxable income pursuant to Section 382 of the Internal Revenue Code, which could result in ~~NOL carry forwards~~NOLs expiring unused. At December 31, ~~2016,~~2022, we had approximately ~~$132.4~~$259.4 million of ~~State NOL carry forwards,~~state NOLs, which expire between ~~2017~~2023 and ~~2036.~~2041, and had $14.3 million of foreign NOLs which do not expire. At December 31, ~~2016,~~2022, we had a full valuation allowance against our net deferred tax assets as the realization of such assets was not considered more likely than not.

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Amount

% of
Net Sales

Amount

% of
Net Sales

Amount

% of
Net Sales

Amount

% of
Net Sales

(Dollars in thousands)

(Dollars in thousands)

Net sales
$
41,200

100
%

$
34,536

100
%

$
115,683

100
%

$
98,992

100
%
Cost of goods sold

21,697

53

19,185

56

62,207

54

53,841

54

Gross profit

19,503

47

15,351

44

53,476

46

45,151

46

Selling, general and administrative
expenses

19,304

47

14,543

42

57,844

50

48,917

49

(Loss)/Income from operations

199

0

808

2

(4,368
)

(4
)

(3,766
)

(4
)
Other income/(expenses):

Other income/(expenses), net

41

0

42

0

(516
)

(0
)

(93
)

(0
)
Interest expense

(465
)

(0
)

(214
)

0

(831
)

(0
)

(490
)

(0
)
(Loss)/Income before income taxes

(225
)

(1
)

636

2

(5,715
)

(5
)

(4,349
)

(4
)
Income tax expense

21

0

15

0

62

0

45

0

Net (Loss)/Income
$
(246
)

(1
)%

$
621

2
%

$
(5,777
)

(5
)%

$
(4,394
)

(4
)%

Three Months Ended September 30, ~~2017~~2023 Compared to Three Months Ended September 30, ~~2016~~2022

Three Months Ended September 30,

2017

2016

Amount

% of
Net Sales

Store Count

Amount

% of
Net Sales

Store Count

(Dollars in thousands)

Grocery, Mass and Club* (1)

$
33,562

81
%

12,777

$
27,551

80
%

11,454

Pet Specialty, Natural and Other (2)

7,638

19

4,873

6,985

20

4,807

Net Sales

$
41,200

100
%

17,650

$
34,536

100
%

16,261

~~(1)Stores at September 30, 2017 and~~Net sales increased $49.3 million, or 32.6%, to $200.6 million for the three months ended September 30, ~~2016 consisted of 8,872 and 7,669~~2023 as compared to $151.3 million in the same period in the prior year. The $49.3 million increase in net sales was driven by growth in the Grocery ~~and 3,905 and 3,785~~(including Online), Mass, and Club ~~respectively.~~

~~(2)Stores at September 30, 2017 and September 30, 2016 consisted~~refrigerated channel of ~~4,539 and 4,505~~$46.4 million, with the remaining growth in Pet Specialty and ~~334~~Natural. The net sales increase was driven by both volume gains and ~~302 Natural, respectively.~~higher pricing.

* Includes sales from Freshpet Baked product of $0.4 million and $0.9Gross Profit

Gross profit was $66.3 million, or ~~1.0% and 3.0%~~33.0% as a percentage of ~~total~~ net sales, for the three months ended September 30, ~~2017 and 2016, respectively.~~

~~Net sales increased $6.7~~2023, compared to $44.5 million, or ~~19%,~~29.4% as a percentage of net sales, in the prior year period. The increase in gross profit as a percentage of net sales was primarily due to ~~$41.2 million for~~decreased unabsorbed plant cost as we grow into the Ennis facility, reduced quality and input cost as a percentage of net sales, partially offset by increased depreciation expense associated with the Company's capacity expansion and increased share-based compensation. For the three months ended September 30, ~~2017~~2023, Adjusted Gross Profit was $80.6 million, or 40.2% as a percentage of net sales, compared to the same period in the prior year. The $6.7 million increase in net sales was driven by growth of $6.8 million in our Grocery, Mass, and Club refrigerated channel and $0.7 million in our Pet Specialty, Natural, and Other refrigerated channel, partially offset by declines in Baked of $0.8 million. Net sales excluding baked increased $7.1$52.2 million, or ~~21.2%, to $40.8 million for the three months ended September 30, 2017~~34.5% as ~~compared to the same period in the prior year. Our Freshpet Fridge store locations grew by 8.5% from 16,261 as~~a percentage of ~~September 30, 2016 to 17,650 as of September 30, 2017.~~

Gross profit increased $4.2 million, or 27%, to $19.5 million for the three months ended September 30, 2017 as compared to the same period in the prior year. The increase in gross profit was primarily driven by higher net sales, ~~and an increase in gross profit margin.~~

~~Our gross profit margin of 47.3% for the three months ended September 30, 2017 increased 290 basis points compared to the same period~~ in the prior year primarily related to cost savings and margin improvement through scale and plant startup costs in the prior year, partially offset by a decrease due to additional depreciation of our Freshpet Kitchens expansion.period.

Adjusted Gross Profit was $21.0 million and $17.1 million in the three months ended September 30, 2017 and 2016, respectively. Adjusted Gross Profit Margin was 50.9% and 49.6% in the three months ended September 30, 2017 and 2016, respectively. Adjusted Gross Profit excludes $1.4 million of depreciation expense in the three months ended September 30, 2017, and $1.2 million of depreciation expense and $0.5 million of non-capitalizable plant start-up costs in the three months ended September 30, 2016.

See “—Non-GAAP Financial Measures” for how we define Adjusted Gross Profit, ~~and~~ a reconciliation of Adjusted Gross Profit to ~~Gross Profit,~~gross profit, the closest comparable U.S. GAAP ~~measure.~~measure, certain limitations of Non-GAAP measures and why management has included such Non-GAAP measures.

Selling, general and administrative expenses ~~increased $4.8 million, or 33%, to $19.3~~("SG&A") were $73.4 million for the three months ended September 30, ~~2017 as~~2023, compared to ~~the same period~~$60.4 million in the prior year. Key components of the dollar increase include higher media spend of $1.9 million, higher stock-based compensation expenses of $0.3 million, higher freight costs due to volume of $0.8 million, higher non-recurring expenses related to leadership transition expenses of $0.4 million, higher depreciation expense of $0.3 million and incremental operating expenses of $1.1 million. The increased operating expenses were primarily due to new hires and increased employee benefit costs, which include variable compensation.

year period. As a percentage of net sales, ~~selling, general and administrative expenses increased~~SG&A decreased to ~~46.9%~~36.6% for the three months ended September 30, ~~2017 from 42.1%~~2023, compared to 39.9% in the prior year period. The decrease of 330 basis points in SG&A as a percentage of net sales was mainly a result of reduced logistics costs as a percentage of net sales, decreased cost related to the ERP implementation, and increased leverage on depreciation and share-based compensation as the business scales, partially offset by activism engagement charges and increased variable compensation accrual.

Adjusted SG&A for the three months ended September 30, ~~2016. Adjusted SG&A increased~~2023, was $57.4 million, or 28.6% as a percentage of net sales, ~~to 44.0% in the third quarter of 2017 as~~ compared to ~~40.8%~~$48.9 million, or 32.3% as a percentage of net sales, in the third quarter of 2016. Adjusted SG&A excludes $1.1 million and $0.7 million for stock-based compensation expense in the third quarter of 2017 and 2016, respectively, and $0.1 million incremental costs and $0.3 million change in estimate related to leadership transition expenses in the third quarter of 2017 and 2016, respectively. prior year period.

See “—Non-GAAP Financial Measures” for how we define Adjusted SG&A, ~~and~~ a reconciliation of Adjusted SG&A to SG&A, the closest comparable U.S. GAAP ~~measure.~~measure, certain limitations of Non-GAAP measures and why management has included such Non-GAAP measures.

As a result of the factors discussed above, loss from ~~Operations~~operations decreased ~~$0.6~~by $8.8 million ~~or 75%,~~ to ~~$0.2~~a loss from operations of $7.1 million for the three months ended September 30, ~~2017~~2023 as compared to a loss from operations of $15.9 million for the same period in the prior ~~year as a result~~year.

The Company recorded Interest and Other Income (Expense), net of ~~the factors discussed above.~~

Interest expense relating primarily to our Credit Facilities was $0.5 million and $0.2 million in the three months ended September 30, 2017 and 2016, respectively. Interest expense in the three months ended September 30, 2017 includes $0.3 million of accelerated amortization of debt issuance costs related to the amendment of our Credit Facilities.

~~Other income, net decreased less than $0.1~~$4.1 million for the three months ended September 30, ~~2017.~~2023 as a result of interest income generated from cash and short-term investments.

Interest expense increased ~~$0.8~~$2.3 million to ~~$0.2~~interest expense of $4.1 million for the three months ended September 30, ~~2017~~2023 as compared to ~~income~~interest expense of ~~$0.6~~$1.8 million for the same period in the prior year.

16 The increase was primarily driven by a $1.7 million increase as a result of interest incurred on our Convertible Notes compared to the interest incurred on the Credit Agreement that existed in the prior period, as well as a $0.6 million increase related to the interest on our finance lease liability.

Our loss on equity method investment for the three months ended September 30, 2023 was $0 as compared to a loss on equity method investment of $0.9 million in the prior year period from the Company's 19% interest in a privately held company, as discussed in Note 1.

Net loss decreased $11.3 million to a net loss of $7.2 million for the three months ended September 30, 2023, as compared to a net loss of $18.4 million for the same period in the prior year due to contribution profit from higher sales, partially offset by increased SG&A including increased media spend of $5.1 million.

Adjusted EBITDA was $23.2 million for the three months ended September 30, 2023, compared to $3.5 million in the prior year period. The increase in Adjusted EBITDA was a result of higher Adjusted Gross Profit due to sales growth and leverage on plant cost and decreased quality and input costs, partially offset by higher Adjusted SG&A expenses.

See "—Non-GAAP Financial Measures" for how we define Adjusted EBITDA, a reconciliation of Adjusted EBITDA to net loss the closest comparable U.S. GAAP measure, certain limitations of Non-GAAP measures and why management has included such Non-GAAP measures; see the section entitled "Forward-Looking Statements" in this report and the section entitled "Risk Factors" in our Annual Report and subsequent Quarterly Reports on Form 10-Q for factors that could cause our results to differ, in some cases materially.

Nine Months Ended September 30, ~~2017~~2023 Compared to Nine Months Ended September 30, ~~2016~~2022

Nine Months Ended September 30,

2017

2016

Amount

% of
Net Sales

Store Count

Amount

% of
Net Sales

Store Count

(Dollars in thousands)

Grocery, Mass and Club* (1)

$
93,703

81
%

12,777

$
77,584

78
%

11,454

Pet Specialty, Natural and Other (2)

21,980

19

4,873

21,408

22

4,807

Net Sales

$
115,683

100
%

17,650

$
98,992

100
%

16,261

~~(1)Stores at~~Net sales increased $122.0 million, or 28.4%, to $551.5 million for the nine months ended September 30, ~~2017 and September 30, 2016 consisted of 8,872 and 7,669~~ 2023 as compared to $429.5 million in the same period in the prior year. The $122.0 million increase in net sales was driven by growth in the Grocery ~~and 3,905 and 3,785~~(including Online), Mass, and Club ~~respectively.~~

~~(2)Stores at September 30, 2017 and September 30, 2016 consisted~~refrigerated channel of ~~4,539 and 4,505~~$114.4 million, with the remaining growth in Pet Specialty and ~~334~~Natural. The net sales increase was driven by both volume gains, and ~~302 Natural, respectively.~~higher pricing.

Gross profit was $176.3 million, or ~~2.0% and 4.0%~~32.0% as a percentage of ~~total~~ net sales, for the nine months ended September 30, ~~2017 and 2016, respectively.~~

~~Net sales increased $16.7~~2023, compared to $140.3 million, or ~~17%,~~32.7% as a percentage of net sales, in the prior year period. The decrease in reported gross profit as a percentage of net sales was primarily due to ~~$115.7 million for~~increased stock compensation expense and depreciation expense associated with the Company's capacity expansion, partially offset by reduced input and quality cost as a percentage of net sales. For the nine months ended September 30, ~~2017~~2023, Adjusted Gross Profit was $218.1 million, or 39.5% as a percentage of net sales, compared to the same period in the prior year. The $16.7 million increase in net sales was driven by growth of $18.0 million in our Grocery, Mass, and Club refrigerated channel and $0.6 million in our Pet Specialty, Natural, and Other refrigerated channel and declines in Baked of $1.9 million. Net sales excluding baked increased $18.6$159.3 million, or ~~19.4%, to $113.9 million for the nine months ended September 30, 2017~~37.1% as ~~compared to the same period in the prior year. Our Freshpet Fridge store locations grew by 8.5% from 16,261 as~~a percentage of ~~September 30, 2016 to 17,650 as of September 30, 2017.~~

Gross profit increased $8.3 million, or 18%, to $53.5 million for the nine months ended September 30, 2017 as compared to the same period in the prior year. The increase in gross profit was primarily driven by higher net sales, ~~and an increase in gross profit margin.~~

~~Our gross profit margin of 46.2% for the nine months ended September 30, 2017 increased 60 basis points compared to the same period~~ in the prior year ~~primarily related to cost savings and margin improvement through scale and plant startup costs in the prior year, partially offset by additional depreciation of our Freshpet Kitchens expansion.~~period.

Adjusted Gross Profit was $57.8 million and $49.0 million in the nine months ended September 30, 2017 and 2016, respectively. Adjusted Gross Profit Margin was 50.0% and 49.5% in the nine months ended September 30, 2017 and 2016, respectively. Adjusted Gross Profit excludes $4.3 million of depreciation expense in the nine months ended September 30, 2017, and $2.7 million of depreciation expense and $1.2 million of non-capitalizable plant start-up costs in the nine months ended September 30, 2016.

Selling, general and administrative expenses ~~increased $8.9 million, or 18%, to $57.8~~("SG&A") were $221.6 million for the nine months ended September 30, ~~2017 as~~2023, compared to ~~the same period~~$190.2 million in the prior year. Key components of the dollar increase include higher media spend of $4.9 million, higher depreciation expense of $0.8 million, increased freight costs due to volume of $1.0 million and higher incremental operating expenses of $3.6 million, offset by lower share-based compensation expense of $0.2 million and lower non-recurring costs related to leadership transition expenses of $1.2 million

year period. As a percentage of net sales, ~~selling, general and administrative expenses increased~~SG&A decreased to ~~50.0%~~40.2% for the nine months ended September 30, ~~2017 from 49.4%~~2023, compared to 44.3% in the prior year period. The decrease of 410 basis points in SG&A as a percentage of net sales was mainly a result of reduced logistics cost as a percentage of net sales, decreased cost related to the ERP implementation, and increased leverage on media, depreciation and share-based compensation as the business scales, partially offset by activism engagement charges and increased variable compensation accrual.

Adjusted SG&A for the nine months ended September 30, ~~2016. Adjusted SG&A increased~~2023, was $182.9 million, or 33.2% as a percentage of net sales, ~~to 47.2% in the first nine months of 2017 as~~ compared to ~~44.8%~~$158.5 million, or 36.9% as a percentage of net sales, in the ~~same period of 2016. Adjusted SG&A excludes $3.1 million and $3.3 million for stock-based compensation expense in the nine months~~

~~ended September 30 2017 and 2016, respectively, and $0.1 million and $1.3 million of costs related to leadership transition expenses in the third quarter of 2017 and 2016, respectively.~~ See “—Non-GAAP Financial Measures” for how we define Adjusted SG&A, ~~and~~ a reconciliation of Adjusted SG&A to SG&A, the closest comparable U.S. GAAP ~~measure.~~measure, certain limitations of Non-GAAP measures and why management has included such Non-GAAP measures.

As a result of the factors discussed above, loss from operations ~~increased $0.6~~decreased by $4.6 million to ~~$4.4~~a loss from operations of $45.3 million for the nine months ended September 30, ~~2017 as compared to the same period in the prior year as a result of the factors discussed above.~~

Interest expense relating primarily to our Credit Facilities was $0.8 million and $0.5 million in the nine months ended September 30, 2017 and 2016, respectively. Interest expense in the nine months ended September 30, 2017 includes $0.3 million of accelerated amortization of debt issuance costs related to the amendment of our Credit Facilities.

Other expenses, net increased $0.4 million to $0.5 million for the nine months ended September 30, 2017, primarily related to the revaluation of warrants of $0.3 million and foreign currency forward contracts of $0.1 million to fair value. The outstanding warrants were converted to common stock during the third quarter of 2017.

~~Net Loss increased $1.4 million, or 31%, to $5.8 million for the nine months ended September 30, 2017~~2023 as compared to a loss from operations of ~~$4.4~~$49.9 million for the same period in the prior year.

The Company recorded Interest and Other Income (Expense), net of $9.2 million for the nine months ended September 30, 2023 as a result of interest income generated from cash and short-term investments.

Interest expense increased $6.5 million to interest expense of $10.6 million for the nine months ended September 30, 2023 as compared to interest expense of $4.1 million for the same period in the prior year. The increase was primarily driven by the termination of our Credit Agreement in the current period resulting in the write-off of unamortized fees of $2.5 million which were recorded to interest expense, $3.4 million increase as a result of interest incurred on our Convertible Notes compared to interest incurred on the Credit Agreement that existed in the prior period, as well as a $0.6 million increase related to the interest on our finance lease liability.

Our loss on equity method investment for the nine months ended September 30, 2023, was $1.9 million as compared to a loss on equity method investment of $3.0 million in the prior year period from the Company's 19% interest in a privately held company, as discussed in Note 1.

Net loss decreased $7.7 million to a net loss of $48.9 million for the nine months ended September 30, 2023, as compared to a net loss of $56.6 million for the same period in the prior year due to contribution profit from higher sales, partially offset by increased SG&A including increased media spend of $12.7 million.

Adjusted EBITDA was $35.2 million for the nine months ended September 30, 2023, compared to $1.3 million in the prior year period. The increase in Adjusted EBITDA was a result of increased Adjusted Gross Profit partially offset by higher Adjusted SG&A expense.

See "—Non-GAAP Financial Measures" for how we define Adjusted EBITDA, a reconciliation of Adjusted EBITDA to net loss, the closest comparable U.S. GAAP measure, certain limitations of Non-GAAP measures and why management has included such Non-GAAP measures; see the section entitled "Forward-Looking Statements" in this report and the section entitled "Risk Factors" in our Annual Report and subsequent Quarterly Reports on Form 10-Q for factors that could cause our results to differ, in some cases materially.

Freshpet uses the following non-GAAP financial measures in its financial communications. These non-GAAP financial measures should be considered as supplements to the U.S. GAAP reported measures, should not be considered replacements for, or superior to, the U.S. GAAP measures and may not be comparable to similarly named measures used by other companies.

•~~Adjusted Gross Profit as a percentage of net sales (Adjusted Gross Margin)~~

~~The non-GAAP~~Such financial measures are not financial measures prepared in accordance with U.S. GAAP. We define Adjusted Gross Profit as Gross Profit before ~~non-cash~~ depreciation expense and ~~plant start-up costs.~~non-cash share-based compensation. We define Adjusted SG&A ~~Expenses~~ as SG&A ~~Expenses~~expenses before depreciation and amortization expense, non-cash share-based compensation, ~~leadership transition expenses~~implementation and other costs associated with the implementation of an ERP system, fees related to ~~a secondary offering.~~the Capped Call Transactions purchases, loss on disposal of equipment, and advisory fees related to activism engagement. EBITDA represents net ~~loss~~income (loss) plus interest expense net of interest income, income tax expense and depreciation and ~~amortization, interest expense and income tax expense.~~amortization. Adjusted EBITDA represents EBITDA plus loss on equity method investment, non-cash share-based compensation, implementation and other costs associated with the implementation of an ERP system, loss on disposal of equipment, ~~plant start-up expense, share-based compensation, warrant fair valuation, launch expenses,~~ fees related to ~~a secondary offering~~the Capped Call Transactions purchases, and ~~leadership transition costs.~~advisory fees related to activism engagement.

We believe that each of these non-GAAP financial measures ~~provides an~~provide additional ~~metric~~metrics to evaluate our operations and, when considered with both our U.S. GAAP results and the reconciliation to the closest comparable U.S. GAAP measures, provides a more complete understanding of our business than could be obtained absent this disclosure. We use the non-GAAP financial measures, together with U.S. GAAP financial measures, such as net sales, gross profit margins and cash flow from operations, to assess our historical and prospective operating performance, to provide meaningful comparisons of operating performance across periods, to enhance our understanding of our operating performance and to compare our performance to that of our peers and competitors.

Adjusted EBITDA is also an important component of internal budgeting and setting management compensation.

The non-GAAP financial measures are presented here because we believe they are useful to investors in assessing the operating performance of our business without the effect of non-cash items, and other items as detailed below. The non-GAAP financial measures should not be considered in isolation or as alternatives to net ~~loss,~~ income (loss), income (loss) from operations or any other measure of financial performance calculated and prescribed in accordance with U.S. GAAP. Neither EBITDA nor Adjusted EBITDA should be considered a measure of discretionary cash available to us to invest in the growth of our business. Our non-GAAP financial measures may not be comparable to similarly titled measures in other organizations because other organizations may not calculate non-GAAP financial measures in the same manner as we do.

Our presentation of the non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items. We recognize that the non-GAAP financial measures have limitations as analytical financial measures. For example, the non-GAAP financial measures do not reflect:

Additionally, Adjusted EBITDA excludes (i) non-cash ~~stock based~~share-based compensation expense, which is and will remain a key element of our overall ~~long term~~long-term incentive compensation package, and (ii) certain costs essential to our sales growth and ~~strategy, including an allowance for marketing expenses for each new store added to our network and non-capitalizable freight costs associated with Freshpet Fridge replacements.~~strategy. Adjusted EBITDA also excludes certain cash charges resulting

from matters we consider not to be indicative of our ongoing operations. Other companies in our industry may calculate the non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures.

The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net loss, the most directly comparable financial measure presented in accordance with U.S. GAAP:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

(Dollars in thousands)

Net (Loss)/Income

$
(246
)

$
621

$
(5,778
)

$
(4,394
)
Depreciation and amortization

3,216

2,720

9,411

6,957

Interest expense

465

214

831

490

Income tax expense

21

15

62

45

EBITDA

$
3,456

$
3,570

$
4,526

$
3,098

Loss on disposal of equipment

7

11

98

170

Launch expense (a)

929

728

2,359

2,038

Plant start-up expenses and processing (b)

—

540

—

1,208

Non-cash stock based compensation (c)

1,133

788

3,292

3,459

Warrant fair valuation (d)

(44
)

(47
)

335

(19
)
Leadership transition expenses (e)

100

(253
)

100

1,327

Adjusted EBITDA

$
5,580

$
5,337

$
10,709

$
11,281

(a)Represents new store marketing allowance of $1,000 for each store added to our distribution network as well as the non-capitalized freight costs associated with Freshpet Fridge replacements. The expense enhances the overall marketing spend to support our growing distribution network.

~~(b)Represents additional operating costs incurred in 2016 in connection with the start-up of our new manufacturing lines as part of the Freshpet Kitchens expansion project.~~

~~(d)Represents the change of fair value for the outstanding common stock warrants. All warrants were converted to common stock in the third quarter of 2017.~~

~~(e)Leadership Transition Expenses represent costs detailed within our former Chief Executive Officer’s separation agreement as well as incremental costs associated with leadership transition.~~

The following table provides a reconciliation of Adjusted Gross Profit to Gross Profit, the most directly comparable financial measure presented in accordance with U.S. GAAP:

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2017			2016			2017			2016			2023			2022			2023			2022
Gross Profit (as reported)	$	19,503		$	15,351		$	53,476		$	45,151
Depreciation expense (a)		1,448			1,242			4,330			2,660
Plant start-up expenses and processing (b)		—			540			—			1,208
													(Dollars in thousands)
Gross profit													$	66,293		$	44,545		$	176,297		$	140,324
Depreciation expense														11,767			5,159			33,106			14,208
Non-cash share-based compensation														2,579			2,450			8,696			4,789
Adjusted Gross Profit	$	20,951		$	17,133		$	57,805		$	49,019		$	80,639		$	52,154		$	218,099		$	159,321
Adjusted Gross Profit as a % of Net Sales														40.2	%		34.5	%		39.5	%		37.1	%
Adjusted Gross Profit	$	20,951		$	17,133		$	57,805		$	49,019
Net Sales	$	41,200		$	34,536		$	115,683		$	98,992
Adjusted Gross Profit as a % of Net Sales		50.9	%		49.6	%		50.0	%		49.5	%

~~(b)Represents additional operating costs incurred in 2016 in connection with the start-up of our new manufacturing lines as part of the Freshpet Kitchens expansion project.~~

The following table provides a reconciliation of Adjusted SG&A Expenses to SG&A Expenses, the most directly comparable financial measure presented in accordance with U.S. GAAP:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

��
2016

SG&A expenses (as reported)

$
19,304

$
14,543

$
57,844

$
48,917

Non-cash stock based compensation (a)

1,064

716

3,118

3,282

Leadership transition expenses (b)

100

(253
)

100

1,327

Adjusted SG&A Expenses

$
18,139

$
14,080

$
54,628

$
44,308

Adjusted SG&A Expenses as a % of Net Sales

Adjusted SG&A Expenses

$
18,139

$
14,080

$
54,628

$
44,308

Net Sales

$
41,200

$
34,536

$
115,683

$
98,992

Adjusted SG&A as a % of Net Sales

44.0
%

40.8
%

47.2
%

44.8
%

~~(b)Represents~~ ~~costs detailed within our former Chief Executive Officer’s separation agreement as well as incremental costs associated with leadership transition.~~

To meet our capital needs, we issued approximately $402.5 million in convertible notes in March 2023 (the “Convertible Notes”), used $66.2 million of the proceeds to enter into capped call transactions, and used $11.0 million of the proceeds on debt issuance related costs. Further, on March 13, 2023, in connection with the proposed offering of the Convertible Notes, the Company, notified City National Bank, of Freshpet's intent to terminate the Credit Agreement, and such termination became effective as of March 15, 2023 (the "Termination Date"). The Company had no borrowings outstanding under the Credit Agreement as of the date of the Termination Date.

We expect to make future capital expenditures in connection with the completion of our planned development of Freshpet Kitchens Ennis Phase 1, Ennis Phase 2, Ennis Chicken Processing and Freshpet Kitchens South. During the nine months ended September 30, 2023, we spent approximately $162.0 million of capital to meet our capacity needs as well as recurring capital expenditures. We expect to spend an additional $78.0 million in the remainder of fiscal 2023 for all production projects and also new and replaced fridges, maintenance capex and other expenses.

We expect to rely on our current and future cash flow from operations, ~~and~~may issue additional debt, and/or raise capital through our ~~current available borrowing capacity.~~access to capital markets, if appropriate. 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 other contractual ~~restrictions, such as financial covenants under our debt agreements.~~restrictions.

Our ability to make future minimum interest payments on ~~and~~the Convertible Notes, to refinance any indebtedness ~~under our Credit Facilities~~ and to fund any necessary expenditures for our growth 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. Future third-party financing may not be available on favorable terms or at all.

Our primary cash needs, in addition to our plant expansions, are for purchasing ingredients, ~~purchases and~~ operating expenses, marketing expenses and capital expenditures to procure Freshpet ~~Fridges and expand and improve our manufacturing plant to support our net sales growth.~~Fridges. We believe that cash and cash equivalents, short-term investments, expected cash flow from operations, amounts raised through the issuance of the Convertible Notes and ~~planned borrowing capacity~~our ability to access the capital markets, if appropriate, are adequate to fund our debt ~~service~~ requirements, operating and finance lease obligations, capital expenditures and working capital obligations for the foreseeable future. We believe our sources of liquidity and capital will be sufficient to finance our continued operations, growth strategy and additional expenses we expect to incur for at least the next twelve months. However, our ability to continue to meet these requirements and obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow from operations and our ability to manage costs and working capital successfully. Additionally, our cash flow generation ability is subject to general economic factors, including but not limited to increasing interest rates and inflation, financial, competitive, legislative and regulatory factors and other factors that are beyond our control. 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,~~Expanding certain of our Freshpet Kitchens primarily comprises our material future cash requirements. However, our capital requirements, including our cash 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 able to do so on favorable terms, if at all. Moreover, if we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity or ~~convertible debt securities,~~if the Convertible Notes are converted to common shares, existing stockholders may experience dilution, and such new securities could have rights senior to those of our common stock. These factors may make the timing, amount, terms and conditions of additional ~~financings~~financing unattractive. Our inability to raise capital could impede our growth or otherwise require us to forego growth opportunities and could materially adversely affect our business, financial condition and results of operations.

Working capital consists of current assets net of current ~~liabilities, excluding cash, net of debt.~~liabilities. Working capital increased ~~$3.9~~$206.3 million to ~~$7.6~~$378.6 million atas of September 30, ~~2017~~2023 compared with ~~$3.7~~working capital of $172.4 million atas of December 31, ~~2016.~~2022. The increase was primarily a result of ~~increased accounts receivable~~an increase of $205.4 million in cash and ~~inventory, offset by~~cash equivalents primarily resulting from the sale of the Convertible Notes as we fund our capital expansion plan, an increase in inventory of $0.8 million, and a decrease in accounts payable of $14.2 million as a result of timing and capital expenditures of approximately $21.5 million related to our capital expansion plan. The increase was partially offset by a decrease in accounts receivable of $3.2 million, a decrease in prepaid expenses of $1.0 million, an increase in accrued ~~expenses.~~expenses of $6.4 million due to timing and capital expenditures of approximately $1.5 million related to our capital expansion plan, and an increase in current finance lease liabilities of $2.0 million.

We normally carry three to four weeks of finished goods ~~inventory. The average duration~~inventory and less than 30 days of ~~our~~ accounts ~~receivable is approximately three weeks.~~receivable.

As of September 30, ~~2017,~~2023, our capital resources consisted primarily of ~~$2.1~~$338.1 million of cash and cash equivalents on hand and $24.5 million available under our Credit Facilities. In the third quarter of 2017, we amended our Credit Facilities, under which outstanding borrowings of $5.5 million were refinanced and $2.0 million were repaid. In 2017, as part of our Feed The Growth initiative, we are increasing our investment in marketing and borrowed an additional $2.0 million. On a net basis, we have repaid $6.5 million and have $5.5 million outstanding on our Credit Facilities. hand.

We expect to fund our ongoing operations and obligations with cash and cash equivalents, ~~on hand,~~short-term investments, and cash flow from ~~operations and available funds under our Credit Facilities.~~operations.

The following table sets forth, for the periods indicated, our beginning balance of cash, net cash flows ~~provided by (or~~ used ~~in)~~in operating, investing and provided by financing activities and our ending balance of ~~cash.~~cash:

Cash provided by operating activities consists primarily of net ~~income~~loss adjusted for certain non-cash items (i.e., provision for loss on receivables, ~~loss~~loss/(gain) on disposal of equipment, change in reserve for inventory obsolescence, depreciation and amortization, amortization of deferred financing costs and loan discount, and share-based ~~compensation and the fair valuation of warrants)~~compensation).

Net cash provided by operating activities ~~was $5.1 million, consisting~~ of net income, adjusted for reconciling non-cash items, of $8.1 million and a decrease in operating assets and liabilities of $3.0 million. Net income, adjusted for reconciling non-cash items, excludes $13.9 million of non-cash items primarily relating to

$3.3 million of share-based compensation and $9.4 million of depreciation and amortization. The increase in assets of $7.6 million is primarily related to growth in accounts receivable, which is primarily due to growth in net sales and an increase in the number of stores with a Freshpet Fridge. The increase in liabilities of $4.7 million was primarily due to timing of payments due to increased media spend in the third quarter of fiscal year 2017.

For the nine months ended September 30, 2016, net cash provided by operating activities was $7.3 million, primarily consisting of adjusted net income of $6.4 million, which excludes $10.8 million of non-cash items primarily relating to $3.5 million of share based compensation and $7.0 million of depreciation and amortization. Proceeds were offset by a change in operating assets and liabilities of $0.9 million. Change in assets of $2.1 million is primarily related to growth in accounts receivable, which is primarily due to growth in net sales and an increase in the number of stores with a Freshpet Fridge. The increase in liabilities of $3.0 million was due to timing of payments and accrued leadership transition costs.

~~Net cash used in investing activities was $10.8~~$39.0 million for the nine months ended September 30, ~~2017, relating~~2023, was primarily ~~to capital expenditures~~attributed to:

Net cash used in operating activities of $53.7 million for ~~Freshpet Kitchens of $2.8~~the nine months ended September 30, 2022, was primarily attributed to:

Net Cash Used in ~~fridges and other capital spend of $8.0 million.~~Investing Activities

Net cash used in investing activities ~~was $22.8~~of $161.6 million for the nine months ended September 30, ~~2016, relating~~2023, was primarily to September 30, 2016 capital expenditures for Freshpet Kitchens of $19.8 million (including the Freshpet Kitchens expansion of $17.4 million and recurring capital expenditures of $2.4 million) and investment in fridges and other capital spend of $6.3 million. Theattributed to:

Net cash used in investing activities ~~was partially offset by maturities~~ of ~~short-term investments of $3.3 million.~~

~~Net cash provided by financing activities was $3.9~~$190.6 million for the nine months ended September 30, ~~2017, attributable to the proceeds from borrowings under our Credit Facilities of $7.5 million and cash proceeds from the exercise of stock options of $5.6 million, partially offset~~2022, was primarily attributed to:

Net Cash Provided by ~~repayments of borrowings under Credit Facilities of $9.0 million and payments of debt issuance costs in connection with the amendment of our Credit Facility of $0.2 million.~~Financing Activities

Net cash ~~from~~provided by financing activities of $328.0 million for the nine months ended September 30, 2023, was ~~$11.0~~primarily attributed to:

Net cash provided by financing activities of $411.8 million for the nine months ended September 30, ~~2016, attributable to the exercise of stock options of $2.0 million and the proceeds from borrowing $10.0 million under our Credit Facilities,~~2022, was primarily attributed to:

This was partially offset ~~by repayments of short term borrowing of $1.0 million.~~by:

On November 13, 2014, the Company entered into Debt Refinancing comprised of the Credit Facilities and such Loan Agreement. On December 23, 2014, the Company repaid the outstanding $18.0 million and modified the terms of the $40.0 million Credit Facilities. The $18.0 million term facility was extinguished, the three-year $10.0 million Revolving Facility remained unchanged and the $12.0 million term loan commitment earmarked for capital expenditures was increased to $30.0 million.

~~The New Revolver matures~~For a discussion of our material indebtedness, see Note 5 to our (unaudited) condensed consolidated financial statements included in September 2020 and borrowings thereunder will bear interest at variable rates depending on the Company’s election, either at a base rate or at the London Interbank Offered Rate (“LIBOR”), in each case, plus an applicable margin. Subject to the Company’s leverage ratio, the applicable margin will vary between 0.75% and 1.25% for base rate loans and 1.75% and 2.25% for LIBOR loans. In addition, the Company will be required to pay customary fees and expenses in connection with the New Loan Agreement.this report.

On September 21, 2017, the Company further amended the Loan Agreement (the “New Loan Agreement”) which modified the $10.0 million Revolving Facility to $30.0 million and extinguished the $30.0 million Capex Commitments. The New Loan Agreement has a term of three years and the ability to increase the New Revolving Facility by $10.0 million, with borrowings bearing interest at variable rates.Contractual Obligations

The Company had $7.5 million outstanding under the existing Credit Facilities prior to closing, which was repaid with proceeds from the New Revolving Facility and cash on hand. Upon closing, the Company had $5.5 million outstanding and $24.5 million available under the New Revolving Facility.

In connection with this amendment, the Company accelerated the amortization of $0.3 million of unamortized debt issuance costs related to the existing Loan Agreement. These costs are included in Interest expense in the three and nine months ended September 30, 2017.

The New Loan Agreement provides for the maintenance of various covenants, including financial covenants, and includes events of default that are customary for facilities of this type. As of September 30, 2017, the Company was in compliance with all the covenants in the New Loan Agreement.

Borrowings under our Credit Facilities totaled $7.5 million and repayments totaled $9.0 million for the nine months ended September 30, 2017. The Company had $5.5 million in debt outstanding under the Credit Facilities.

Interest expense and fees totaled $0.5 million and $0.8 million for the three and nine months ended September 30, 2017, respectively, of which $0.2 million was related to new debt issuance costs. Interest expense and fees totaled $0.2 million and $0.5 million for the three and nine months ended September 30, 2016, respectively. There was less than $0.1 million of accrued interest on the Credit Facilities as of September 30, 2017 and December 31, 2016.

There were no material changes to our commitments under contractual obligations, as disclosed in our ~~Form 10-K.~~Annual Report, except as noted in Note 8 and 13.

~~We have no off balance sheet arrangements or any holdings in variable interest entities.~~

Our management’s discussion and analysis of ~~our~~ financial condition and results of operations ~~are~~is based ~~upon~~on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States or ("U.S. ~~GAAP.~~GAAP"). The preparation of these financial statements requires us to make estimates and ~~judgments~~assumptions that affect the reported amounts of assets and liabilities and the ~~related~~ disclosure of contingent assets and liabilities ~~revenue and expenses~~ at the date of the financial ~~statements. Generally,~~statements, as well as the revenue and expenses incurred during the reported periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience and on various other ~~assumptions in accordance with U.S. GAAP~~factors that we believe ~~to be~~are reasonable under the ~~circumstances.~~circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these ~~estimates.~~estimates under different assumptions or conditions.

There have been no material changes to our critical accounting ~~policies and~~ estimates as compared to the critical accounting policies and estimates described in our ~~Form 10-K.~~Annual Report.

See Note 1 of our (unaudited) condensed consolidated financial statements for additional information.

We consider the applicability and impact of all Accounting Standards Updates (ASUs) issued by the Financial Accounting ~~Standard~~Standards Board ~~(“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects~~(FASB). ASUs not listed herein were assessed and determined to be ~~entitled for the transfer of promised goods~~either not applicable or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In connection with this ASU, the FASB also issued ASU No. 2016-10 regarding identification of performance obligations and licensing considerations, ASU No. 2016-12 regarding narrow scope improvements and practical expedients- and ASU No. 2016-08 which clarifies the implementation of guidance on principal versus agent considerations. In August 2015, the FASB deferred the effective date of ASU No. 2014-09 to fiscal years beginning after December 15, 2017, with early adoption permitted only for fiscal years beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method.

The Company is currently utilizing a comprehensive approach to assess the impact of this guidance by reviewing current accounting policies to identify the potential impact of the new requirements on its revenue contracts. The Company does not currently expect this guidanceare expected to have ~~a material~~minimal impact ~~on its~~to our consolidated financial statements. The new standard will be effective as of January 1, 2018. The Company currently anticipates adopting Topic 606 using the modified retrospective transition approach that may result in a cumulative adjustment to beginning retained earnings as of January 1, 2018. Based on the Company’s analysis to date, the Company expects the new standard will require accelerated recognition of trade promotions and customer incentives. These transactions are currently recognized at the later of the sale of goods or agreement, however under the new standard the Company will estimate incentives to be offered to customers as part of the sales price. The Company does not expect the change to be material.

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a

liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is assessing the impact of ASU No. 2016-02 on its corporate office lease, and upon adoption of this guidance, expects to record the lease on its consolidated balance sheet in accordance with ASU No. 2016-02.

Item 3. Quantitative and Qualitative Disclosures ~~About~~about Market Risks

We are sometimes exposed to market risks from changes in interest rates on debt, changes in commodity prices, and changes in ~~commodity prices. Our exposure to interest rate fluctuations is limited to our outstanding indebtedness under our credit agreements, which bears interest at variable rates. As~~fair value of September 30, 2017, we had $5.5 million outstanding under our Credit Facilities. A change in interest rates of 100 basis points would cause a $0.1 million increase or decrease in annual interest expense.short-term investments.

We purchase certain products and services that are affected by commodity prices and are, therefore, subject to price volatility caused by weather, market conditions, including inflation, and other factors which are not considered predictable or within our control. In many cases, we believe we will be able to address material commodity cost increases by either increasing prices or reducing operating expenses. However, increases in commodity prices, without adjustments to pricing or reduction to operating expenses, could increase our operating costs as a percentage of our net sales.

Fluctuations in the currencies of countries where the Company operates outside the U.S. may have a significant impact on financial results. The Company is exposed to movements in the British pound ~~sterling.~~sterling and Euro. The Statements of Financial Position of ~~non U.S.~~non-U.S. business units are translated into U.S. dollars using period-end exchange rates for assets and liabilities and ~~weighted-average~~average exchange rates for revenues and expenses. The percentage of our consolidated revenue for the three and nine months ended September 30, ~~2017~~2023 recognized in ~~the United Kingdom~~Europe was approximately 1%.

The Company may, from time to time, enter into forward exchange contracts to reduce the Company’s exposure to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies. ~~The~~Historically, the foreign currency forward contracts have not been designated as hedges and, accordingly, any changes in their fair value are recognized on the Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) in Other ~~expenses,~~income (expenses), net, and carried at their fair value in the Consolidated Balance Sheet with gains reported in ~~Prepaid~~prepaid expenses and other current assets and losses reported in ~~Accrued~~accrued expenses.

As of September 30, ~~2017, the notional value of foreign currency~~2023, there were no forward contracts outstanding was 0.7 million pounds sterling. The fair value of the foreign currency forward contracts are measured using Level 2 inputs in the fair value hierarchy because they are determined based on a market approach utilizing externally quoted forward rates for similar contracts. For the three and nine months ended September 30, 2017 the net loss recognized on forward contracts was less than $0.1 million.outstanding.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of such date our disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We transitioned to a new enterprise resource planning (ERP) system during the first quarter of 2022. Implementation, integration and transition efforts are continuing. In connection with the implementation, integration and transition, and resulting business process changes, we continue to review and enhance the design and documentation of our internal control over financial reporting processes to maintain effective controls over our financial reporting following the completion of the implementation, integration and transition. To date, the implementation, integration and transition have not materially affected our internal control over financial reporting.

Our management, including our Chief Executive Officer and ~~evaluating the~~Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management ~~recognizes~~does not expect that ~~any~~our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well ~~designed~~conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of ~~achieving~~ the ~~desired~~ control ~~objectives. In addition,~~system are met. Further, the design of ~~disclosure controls and procedures~~a control system must reflect the fact that there are resource constraints, and ~~that management is required to apply judgment in evaluating~~ the benefits of ~~possible~~ controls ~~and procedures~~must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

A securities lawsuit, Curran v. Freshpet, Inc. et al, Docket No. 2:16-cv-02263, was instituted April 21, 2016 in the United States District Court for the District of New Jersey against us and certain of our executive officers and directors on behalf of certain purchasers of our common stock. We were served with a copy of the complaint in June 2016. The plaintiffs seek to recover damages for investors under the federal securities laws. The Company believes that the plaintiffs’ allegations are without merit and intends to vigorously defend against the claims. Because the Company is in the early stages of litigation, the Company is unable to estimate a reasonably possible range of loss, if any, that may result from this matter.

~~In addition, we~~We are currently involved in various claims and legal actions that arise in the ordinary course of our business, including claims resulting from employment related matters. None of these claims or proceedings ~~most of which are covered by insurance,~~ are expected to have a material adverse effect on our business, financial condition, results of operations or cash flows. However, a significant increase in the number of these claims or an increase in amounts owing under successful claims could materially and adversely affect our business, financial condition, results of operations or cash flows. See Note 13 — Commitments and Contingencies for additional discussion of pending litigation.

Except as set forth below, there have been no material changes ~~from~~to the risk factors previously ~~disclosed~~reported under Part I, Item 1A. "Risk Factors" in our Annual Report, as supplemented by the risk factors set forth in Part II, Item 1A. "Risk Factors" in our Quarterly Reports on Form ~~10-K~~10-Q for the ~~year~~quarters ended ~~December~~March 31, ~~2016.~~

282023 and June 30, 2023. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially affect our business, financial condition and/or operating results.

Shareholder activism could cause us to incur significant expense, disrupt our business, result in a proxy contest or litigation and impact our stock price.

We value constructive input from investors and regularly engage in dialogue with our shareholders regarding strategy and performance. Our Board and management team are committed to acting in the best interests of all of our shareholders.

Responding to actions by activist shareholders could be costly and time-consuming, disrupt our operations and divert the attention of our Board, senior management and employees. We have been subject to shareholder activism in the past, and may be subject to it in the future, which could result in substantial costs and divert management's and our Board's attention and resources from our business.

We may be required to incur significant fees and other expenses related to activist shareholder matters, including for third-party advisors. We may be subjected to a proxy contest or to litigation by activist investors and our stock price could be subject to significant fluctuation, or increased volatility, or otherwise be adversely affected by the events, risks and uncertainties of any shareholder activism. Even if we are successful in defending any such proxy contest or litigation by an activist shareholder, our business could be adversely affected by such proxy contest or litigation due to perceived uncertainties as to the future direction of the business, which may result in the loss of potential acquisitions, collaborations or other strategic opportunities.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.

During the fiscal quarter ended September 30, 2023, none of our directors or officers informed us of the adoption or termination of a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as those terms are defined in Regulation S-K, Item 408.


Exhibit No.		Description
10.1		~~Third Amended and Restated Loan and Security~~Cooperation Agreement, ~~dated September 21, 2017,~~ by and ~~among~~between Freshpet, Inc.~~, City National Bank, a national banking association, as~~ and JANA Partners LLC, dated August 21, 2023 (incorporated by reference to Exhibit10.1 to the ~~arranger and administrative agent, and~~Current Report on Form 8-K filed with the ~~lenders party thereto~~SEC on August 21, 2023)
~~31.1~~31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
~~31.2~~31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
~~32.1~~32.1*		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~EX-101.INS~~EX-101.INS*		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.
~~EX-101.SCH~~EX-101.SCH*		Inline XBRL Taxonomy Extension Schema ~~Documents~~Document
~~EX-101.CAL~~EX-101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
~~EX-101.LAB~~EX-101.LAB*		Inline XBRL ~~Labels~~Taxonomy Extension Label Linkbase Document
~~EX-101.PRE~~EX-101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
~~EX-101.DEF~~EX-101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
EX-104		Inline XBRL Formatted Cover Page (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith.

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November ~~7, 2017~~6, 2023	FRESHPET, INC.

	/s/ William B. Cyr William B. Cyr Chief Executive Officer (Principal Executive Officer)

	/s/ ~~Richard Kassar~~Todd Cunfer
	~~Richard Kassar~~Todd Cunfer Chief Financial Officer
	(Principal Financial and Accounting Officer)	~~(Principal Financial and Accounting Officer)~~

	*For the Nine Months Ended*
	*September 30,*
	*2023*			*2022*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(48,904	)	$	(56,577	)
Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities:
Provision for loss (gains) on accounts receivable		9			(23	)
Loss on disposal of equipment		688			203
Share-based compensation		24,952			20,409
Inventory obsolescence		—			3,455
Depreciation and amortization		45,436			24,422
Write-off and amortization of deferred financing costs and loan discount		3,548			596
Change in operating lease right of use asset		1,175			1,021
Loss on equity method investment		1,890			2,969
Changes in operating assets and liabilities:
Accounts receivable		3,148			(22,403	)
Inventories		(773	)		(32,215	)
Prepaid expenses and other current assets		(696	)		1,074
Other assets		(3,495	)		(1,639	)
Accounts payable		2,300			1,430
Accrued expenses		11,109			4,626
Operating lease liability		(1,419	)		(1,028	)
Net cash flows provided by (used in) operating activities		38,968			(53,680	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments		(113,441	)		(19,840	)
Proceeds from maturities of short-term investments		113,441			—
Investments in equity method investment		—			(3,293	)
Acquisitions of property, plant and equipment, software and deposits on equipment		(161,642	)		(167,437	)
Net cash flows used in investing activities		(161,642	)		(190,570	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common shares issued in primary offering, net of issuance cost		—			337,508
Proceeds from exercise of options to purchase common stock		4,172			329
Tax withholdings related to net shares settlements of restricted stock units		(859	)		(1,279	)
Proceeds from borrowings under Credit Facility		—			78,000
Repayment of borrowings under Credit Facilities		—			(2,786	)
Purchase of capped call option		(66,211	)		—
Proceeds from issuance of convertible senior notes		393,518			—
Principal payments under finance lease obligations		(548	)		—
Debt issuance costs		(2,026	)		—
Net cash flows provided by financing activities		328,046			411,772
NET CHANGE IN CASH AND CASH EQUIVALENTS		205,372			167,522
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		132,735			72,788
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	338,107		$	240,310
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	8,691		$	3,152
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Property, plant and equipment purchases in accounts payable and accrued expenses	$	23,030		$	15,486
Non-cash addition of finance lease to property, plant and equipment	$	29,187		$	—
Issuance of partner warrants		—		$	9,775

	*Three Months Ended*				*Nine Months Ended*
	*September 30,*				*September 30,*
	*2023*		*2022*		*2023*		*2022*
Grocery, Mass and Club	$	179,121	$	132,757	$	490,262	$	375,847
Pet Specialty and Natural		21,500		18,576		61,212		53,664
Net Sales (a)	$	200,621	$	151,333	$	551,474	$	429,511

	September 30, 2017			December 31, 2016
Raw Materials and Work in Process	$	2,031,997		$	1,568,789
Packaging Components Material		834,189			908,771
Finished Goods		6,116,330			3,219,634
		8,982,516			5,697,194
Reserve for Obsolete Inventory		(291,713	)		(294,459	)
	$	8,690,803		$	5,402,735

	*September 30,*		*December 31,*
	*2023*		*2022*
Raw Materials and Work in Process	$	18,428	$	20,608
Packaging Components Material		5,898		6,186
Finished Goods		34,737		31,639
		59,063		58,433
Reserve for Obsolete Inventory		-		(143	)
Inventories, net	$	59,063	$	58,290

							*September 30,*			*December 31,*
	September 30, 2017			December 31, 2016			*2023*			*2022*
Refrigeration Equipment	$	68,903,218		$	62,603,188		$	155,402		$	137,875
Machinery and Equipment		46,444,727			45,953,884			224,726			199,504
Building, Land, and Improvements		25,162,046			25,114,611			534,822			458,800
Furniture and Office Equipment		4,228,574			3,941,995			14,741			14,040
Automotive Equipment		319,496			317,615
Leasehold Improvements		360,505			297,681			1,319			1,319
Construction in Progress		4,740,444			2,841,035			150,696			134,338
Finance Lease								29,187			-
		150,159,010			141,070,009			1,110,893			945,877
Less: Accumulated Depreciation and Amortization		(48,736,906	)		(39,576,929	)		(186,173	)		(145,291	)
	$	101,422,104		$	101,493,080
Property, Plant and Equipment, net							$	924,720		$	800,586

	•	Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.
	•	Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). Level 2 includes financial instruments that are valued using models or other valuation methodologies.
	•	Level 3 - Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.

	September 30, 2017		December 31, 2016
Accrued Compensation	$	2,893,834	$	1,895,443
Accrued Chiller Cost		1,343,951		1,010,018
Accrued Freight		838,665		359,009
Accrued Marketing		460,018		282,784
Accrued VAT		278,817		—
Accrued Utility		150,000		124,000
Accrued Leadership Transition Expenses (1)		66,505		428,150
Other Accrued Expenses		628,444		431,735
	$	6,660,234	$	4,531,139

	*As of September 30, 2023*
	*Carrying Value (1)*		*Fair Value*
3.00% Convertible Senior Notes Maturing April 1, 2028		392,562		473,139
Total		392,562		473,139

	*Three Months Ended*		*Nine Months Ended*
	*September 30, 2023*
Contractual interest expense		3,019		6,406
Amortization of issuance costs		507		1,070
Total		3,526		7,476

	Operating Leases			Finance Lease
Weighted-average remaining lease term		3.14			9.75
Weighted-average discount rate		6.17	%		8.6	%

	As of September 30, 2023
	Operating Leases			Finance Lease
2023 (a)	$	453		$	1,172
2024		1,511			4,336
2025		1,210			4,336
2026		1,239			4,336
2027 and beyond		337			28,181
Total lease payments	$	4,750		$	42,361
Less: Imputed interest		(459	)		(13,722	)
Present value of lease liabilities	$	4,291		$	28,639

	Balance Sheet Location	As of September 30, 2023		As of December 31, 2022
Assets:
Operating leases	Operating lease right of use assets	$	3,990	$	5,165
Finance lease, net	Property, plant and equipment, net		28,457		-
Total lease assets		$	32,447	$	5,165


Liabilities:
Current:
Operating lease liabilities	Current operating lease liabilities	$	1,445	$	1,510
Finance lease liabilities	Current finance lease liabilities		2,043		-
Long-term:
Operating lease liabilities	Long term operating lease liabilities		2,846		4,200
Finance lease liabilities	Long term finance lease liabilities		26,596		-
Total lease liabilities		$	32,930	$	5,710

Service Period Stock Options	Shares			Weighted Average Exercise Price
Outstanding at December 31, 2016		2,788,285		$	8.61
Granted		340,618			11.00
Exercised		(776,938	)		7.22
Forfeited		(17,073	)		10.15
Expired		(7,776	)		9.01
Outstanding at September 30, 2017		2,327,116		$	9.41

Performance Based Options	Shares			Weighted Average Exercise Price
Outstanding at December 31, 2016		1,357,561		$	10.24
Granted		110,741			11.00
Forfeited		(35,221	)		10.45
Outstanding at September 30, 2017		1,433,081		$	10.29

Restricted Stock Units	Shares			Weighted-Average Grant-Date Fair Value Per Unit
Outstanding at December 31, 2016		97,515		$	9.05
Granted		115,320			11.00
Issued Upon Vesting		(59,183	)		9.05
Forfeited		(1,433	)		9.98
Outstanding at September 30, 2017		152,219		$	10.52

		~~Three Months Ended~~
		~~September 30, 2016~~
~~Net Income Attributable to Common Stockholders~~		~~$ 620,731~~

~~Weighted Average Common Shares Outstanding, Basic~~		~~33,717,676~~
~~Dilutive Effect of Stock-Based Awards:~~
~~Service Period Stock Options~~		~~381,953~~
~~Restricted Stock Units~~		~~49,283~~
~~Warrants~~		~~22,124~~
~~Weighted Average Common Shares Outstanding, Diluted~~		~~34,171,036~~

~~Basic Earnings per Share~~		~~$ 0.02~~
~~Diluted Earnings per Share~~		~~$ 0.02~~

	Three Months Ended September 30,												Nine Months Ended September 30,
	2023						2022						2023						2022
	Amount			% of Net Sales			Amount			% of Net Sales			Amount			% of Net Sales			Amount			% of Net Sales
	(Dollars in thousands)												(Dollars in thousands)
Net sales	$	200,621			100	%	$	151,333			100	%	$	551,474			100	%	$	429,511			100	%
Cost of goods sold		134,328			67			106,788			71			375,177			68			289,187			67
Gross profit		66,293			33			44,545			29			176,297			32			140,324			33
Selling, general and administrative expenses		73,371			37			60,449			40			221,638			40			190,241			44
Loss from operations		(7,078	)		(4	)		(15,904	)		(11	)		(45,341	)		(8	)		(49,917	)		(12	)
Interest and other income (expense), net		4,130			2			256			0			9,185			2			492			0
Interest expense		(4,148	)		(2	)		(1,817	)		(0	)		(10,648	)		(2	)		(4,060	)		(0	)
Loss before income taxes		(7,096	)		(4	)		(17,465	)		(12	)		(46,804	)		(8	)		(53,485	)		(12	)
Income tax expense		70			0			41			0			210			0			123			0
Loss on equity method investment		-			-			943			1			1,890			0			2,969			1
Net loss	$	(7,166	)		(4	)%	$	(18,449	)		(12	)%	$	(48,904	)		(9	)%	$	(56,577	)		(13	)%

(2)	Stores at September 30, 2023 and 2022 consisted of 5,143 and 5,096 Pet Specialty and 474 and 474 Natural, respectively.
(3)	Online sales associated with each class of retailer are included within their respective total.

	•	our capital expenditures or future requirements for capital expenditures;
	•	the interest expense, or the cash requirements necessary to service interest expense or principal payments, associated with indebtedness;
	•	depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, nor any cash requirements for such replacements; and
	•	changes in our cash requirements for our working capital needs.

	(b)	Represents fees associated with the Capped Call Transactions purchases.
	(c)	Represents advisory fees related to activism engagement.
	(d)	Represents a true up to transition costs related to the organization changes designed to support growth, including several changes in organizational structure designed to enhance capabilities and support long-term growth objectives.

	(a)	Represents implementation, amortization of deferred implementation costs and other costs associated with the implementation of an ERP system.
	(b)	Represents fees associated with the Capped Call Transactions purchases.
	(c)	Represents advisory fees related to activism engagement.
	(d)	Represents a true up to transition costs related to the organization changes designed to support growth, including several changes in organizational structure designed to enhance capabilities and support long-term growth objectives.

	September 30,			December 31,
	2023			2022
	(Dollars in thousands)
Cash and cash equivalents	$	338,107		$	132,735
Accounts receivable, net of allowance for doubtful accounts		54,415			57,572
Inventories, net		59,063			58,290
Prepaid expenses		8,813			9,778
Other current assets		1,992			3,590
Accounts payable		(40,908	)		(55,088	)
Accrued expenses		(39,377	)		(33,016	)
Current operating lease liabilities		(1,445	)		(1,510	)
Current finance lease liabilities		(2,043	)		-
Total Working Capital	$	378,617		$	172,351

	•	$161.6 million of capital expenditures related to Freshpet Kitchens, plant recurring capital expenditures, expenditures relating to investment in fridges, and other capital spend.
	•	$113.4 million purchase of short-term investments.

	•	$167.4 million of capital expenditures related to Freshpet Kitchens, plant recurring capital expenditures, expenditures relating to investment in fridges, and other capital spend.
	•	$19.8 million purchase of short-term investments.

	•	$66.2 million for the purchase of a capped call option.
	•	$2.0 million for debt issuance costs.
	•	$0.9 million for tax withholdings related to net share settlements of restricted stock units.
	•	$0.5 million for principal payments under finance lease obligations.

	•	$337.5 million of proceeds from common shares issued in a primary offering, net of issuance cost.
	•	$78.0 million of proceeds from borrowings under our Credit Facility.

	•	$2.8 million for repayment of borrowings under Credit Facility.
	•	$1.3 million for tax withholdings related to net share settlements of restricted stock units.