EFTA01427451.pdf

Form S-1 S-1 1 d734898ds1.htm FORM S-1 Table of Contents As filed with the Securities and Exchange Commission on June 10, 2015 Registration No. 333UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 BLUE BUFFALO PET PRODUCTS, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 2047 (Primary Standard Industrial Classification Code Number) 11 River Road Wilton, CT 06897 (203) 762-9751 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) Michael Nathenson Chief Financial Officer Blue Buffalo Pet Products, Inc. 11 River Road Wilton, CT 06897 (203) 762-9751 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) Copies to: Kenneth B. Wallach, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 Kirk A. Davenport II, Esq. Jason M. Licht, Esq. Latham & Watkins LLP 885 Third Avenue New York, New York 10022 (212) 906-1200 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. EFTA01427451 If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer x Non-accelerated filer Accelerated filer (Do not check if a smaller reporting company) CALCULATION OF REGISTRATION FEE Title of Each Class of Securities to be Registered Common Stock, $0.01 par value per share Proposed Maximum Aggregate Offering Price(1)(2) $500,000,000 (1) Includes shares of common stock to be sold upon exercise of the underwriters' over-allotment option to purchase additional shares. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] Amount of Registration Fee $58,100 Smaller reporting company 46-0552933 (I.R.S. Employer Identification Number) EFTA01427452 Form S-1 The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427453 Form S-1 Table of Contents Subject to completion, dated June 10, 2015 I Prospectus Blue Buffalo Pet Products, Inc. Shares This is an initial public offering of common stock of Blue Buffalo Pet Products, Inc. The selling stockholders are selling shares of common stock and we will be issuing shares of common stock to certain non-management employees without cost to such employees. We will not be selling any shares in this offering and will not receive any proceeds from the sale of shares by the selling stockholders or from the issuance of shares to certain non- management employees. The estimated initial public offering price is between $ and $ per share. We have applied to have our common stock approved for listing on the NASDAQ Global Select Market under the symbol "BUFF". We are an "emerging growth company" as defined by the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings. Per Share Total Initial public offering price $ $ Underwriting discounts and commissions (1) $ $ Proceeds to the selling stockholders, before expenses $ $ (1) Only payable with respect to the shares to be sold by the selling stockholders. No underwriting discounts or commissions are payable with respect to the shares to be issued to certain non-management employees. http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427454 Form S-1 See "Underwriting" for additional information regarding underwriting compensation. The selling stockholders have granted the underwriters a 30-day over- allotment option to purchase up to an additional shares of common stock. Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 17. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The underwriters expect to deliver the shares to purchasers on or about , 2015. J.P. Morgan I Citigroup Barclays I Deutsche Bank Securities I Morgan Stanley Wells Fargo Securities LOYAL3 Securities The date of this prospectus is , 2015 Love Them Like Family. Feed Them Like Family.TM The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not an offer to buy these securities in any state where the offer or sale is not permitted. http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427455 Form S-1 Table of Contents Love Them Like Family. http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427456 Form S-1 Table of Contents Healthy Holistic THE BLUE BUFFALO CO. BLUE Life Protection Formula With LifeSource Bits CHICKEN AND BROWN RICE RECIPE ADULT 100% GRAIN FREE BLUE WILDERNESS Natural Evolutionary Diet Chicken recipe With LifeSource Bits ADULT FREEDOM Grain - Free free of gains, glutens and artificial preservatives Indoor chicken recipe for cats Grain-free Real turkey basics Limited-ingredient grain-free formula Indoor adult turkey & potato recipe Feed them like family.TM http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427457 Form S-1 http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427458 Form S-1 Table of Contents Blue Buffalo: An Authentic Brand Inspired by their family dog Blue, who was batting cancer, the Bishops founded Blue Buffalo. Using high-quality natural ingredients, BLUE is made by pet parents, for pet parents. BLUE OUR FOUNDER A Strong Company Culture That Has Driven Results The Blue Buffalo herd is composed of passionate pet parents whose dogs roam freely about the office. By focusing only on pet products and adhering to our N.A. policy, the Buff has delivered strong business results. NET REVENUE GROWTH ($Millions) 5 13 25 58 94 190 346 523 720 918 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20% 2014 OPERATING INCOME MARGIN http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427459 Form S-1 Table of Contents A New Breed of CPG A Unique Go-To-Market Model - EDUCATION - Educating pet parents about pet food ingredients in a friendly and factual manner is the cornerstone of BLUE's brand communication. Every week Pet Detectives, BLUE brand ambassadors, meet and interact with tens of thousands of pet parents at the point of purchase. TV, print and internet messaging encourages pet parents to compare ingredients and decide for themselves. - INNOVATION - BLUE has the broadest product portfolio of any natural pet food brand in the U.S., so pet parents can select the product that's best for their dog or cat. Product Type BLUE Line Lifestage Breed Size Features Dry Wet Treat LPF Wilderness Basics Freedom Puppy/Kitten Adult Senior/Mature Toy Small Medium Large Function Flavor Form - INVESTMENT - We are currently the #1 advertiser in the Wholesome Natural market segment, by a wide margin, and one of the top advertised brands in the industry. BLUE Life Protection Formula, Wilderness, Freedom and Basics are all supported in key communication vehicles. http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427460 Form S-1 http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427461 Form S-1 Table of Contents Company A Pure Play In a Big Category with Strong Fundamentals One of the largest CPG categories in the U.S. Long-term trend toward humanization Is driving premiumization of pet food 63% Of U.S. households purchased pet food in 2014 $26 BILLION 2014 U.S. Retail Sales IRI Home Advantage panel Company Estimate 2014 A Clearly Defined Growth Strategy 1. Build Market Share In the U.S. Currently feeding less than 4% of dogs and 2% of cats Expand availability of BLUE products Grow with younger pets and younger pet parents, where we over-index 2. Capitalize On Select International Opportunities 3. Enter the Therapeutic Market Segment with Differentiated Products PET FOOD MARKET $49 BILLION OUTSIDE OF THE U.S. Euromonitor 2014 A Commitment to Finding a Cure for Pet Cancer The leader in funding pet cancer research and raising awareness Core to our company's mission Donating $2 million to B.B.F.C.R. in recognition of our IPO http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427462 Form S-1 http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427463 Form S-1 Table of Contents TABLE OF CONTENTS Industry and Market Data Letter from our Founder Prospectus Summary Risk Factors Special Note Regarding Forward-Looking Statements Trademarks, Trade Names and Service Marks Use of Proceeds Dividend Policy Capitalization Selected Consolidated Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Business Management Executive Compensation Certain Relationships and Related Party Transactions Principal and Selling Stockholders Description of Capital Stock Description of Certain Indebtedness Shares Eligible for Future Sale Certain United States Federal Income and Estate Tax Consequences to Non-U.S. Holders Underwriting Legal Matters Experts Where You Can Find Additional Information Index to Consolidated Financial Statements Page ii 17 38 38 39 40 41 42 46 62 94 99 109 111 113 121 124 126 EFTA01427464 129 137 137 137 F-1 You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. Neither we, the selling stockholders nor the underwriters have authorized anyone to provide you with different information. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus, or any free writing prospectus, as the case may be, or any sale of shares of our common stock. For investors outside the United States: the selling stockholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. Neither we, the selling stockholders nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States. Numerical figures included in this prospectus have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them. http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427465 Form S-1 Table of Contents INDUSTRY AND MARKET DATA Certain of the market data and other statistical information contained in this prospectus (such as the size, growth and share of the pet food industry and its constituent market segments) are based on information from independent industry organizations and other third-party sources, including Euromonitor International, or Euromonitor, Nielsen, GfK, Information Resources Inc., or IRI, American Pet Products Association, Competitrack and other industry publications, surveys and forecasts. Some market data and statistical information contained in this prospectus are also based on management's estimates and calculations, which are derived from our review and interpretation of the independent sources listed above, our internal research and our knowledge of the pet food industry. While we believe such information is reliable, we have not independently verified any third-party information and our internal data has not been verified by any independent source. Our market size estimate of $26 billion for the U.S. pet food industry across all channels in 2014 is based on a combination of independent third-party data and our knowledge of the pet food industry. Our estimate is similar to Euromonitor's $27 billion estimate of the U.S. pet food industry in 2014. For the purposes of this prospectus: • "AAFCO" refers to the Association of American Feed Control Officials, which is a voluntary, non-governmental membership association of local, state and federal agencies that are charged by law with the regulation of the sale and distribution of animal feed, including pet food; • "cold-formed" refers to the processing of our LifeSource Bits during which they are exposed to levels of heat that are lower than the heat levels that dry pet food, including the kibble we produce, typically are exposed to during processing. By reducing the amount of heat to which the LifeSource Bits are exposed, numerous heat-sensitive vitamins and antioxidants contained in the LifeSource Bits avoid the degradation that would be caused by exposure to higher temperatures; • • "CPG" refers to consumer packaged goods in the packaged foods, beverages, household and personal care, pet care and tobacco industries; "chicken by-product meal" or "poultry by-product meal" refers to the AAFCO definition for pet food ingredients that consist of "ground, rendered clean parts of the carcasses of slaughtered chicken and poultry, such as necks, feet, undeveloped eggs and intestines." Chicken by-product meal and poultry by-product meal typically cost less than chicken meal, which is made from whole chicken meat and skin; • EFTA01427466 "major pet food company" refers to the top five U.S. pet food companies, which together had a 78% market share of branded pet food sales in Tracked Channels in 2014; "meat meal" refers to whole meat turned into dry matter, which is used as an ingredient in pet food manufacturing; "natural" refers to AAFCO's ingredient definitions and labeling guidelines, which designates a pet food as natural if it contains only ingredients that are derived solely from plant, animal or mined sources, has not been subject to a chemically synthetic process and does not contain any chemically synthetic additives. A "natural" pet food under AAFCO, however, may contain synthetically derived vitamin, minerals or trace nutrients that are added to enhance nutrition if the label discloses these ingredients; • "pet food" refers to dry foods, wet foods and treats for dogs and cats only, and does not include rawhide, vitamins, supplements, cat litter or foods for other companion animals; ii http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427467 Form S-1 Table of Contents • • "retail sales" or "sales at retail" refers to the dollar value of sales at retail by our retail partners to consumers, and not to our sales to retailers or our revenues; "Tracked Channels" refers to stores and other outlets within channels in which a third-party industry source collects and reports sales data on an ongoing basis with stock keeping unit, or SKU, level detail. In our industry, Tracked Channels include Food-DrugMass, or FDM, included in Nielsen's xAOC data, as well as pet stores (including national pet superstores, regional pet store chains and neighborhood pet stores) and veterinary clinics, or Vet, included in data from GfK; • "Untracked Channels" refers to stores and other outlets within channels in which no third-party industry source collects and reports sales data on an ongoing basis with SKU level detail. In our industry, Untracked Channels include FDM retailers that do not participate in Nielsen tracking (e.g., Costco and Whole Foods), farm and feed stores, eCommerce retailers, hardware stores and military outlets; and • "whole meat" refers to flesh with or without accompanying skin and bones of animal proteins such as chicken, lamb or fish in fresh, frozen or slurry form. In addition, references in this prospectus to AAFCO definitions or guidelines refer to those found in the AAFCO 2015 Official Publication. In this prospectus, references to "share" and "market share," unless otherwise indicated, are to market share based on retail sales rather than volume sold. Our market share based on volume sold is typically lower than our market share based on retail sales as our products are priced at a premium to many of our competitors' products. We calculate the percentage of dogs and cats eating our products based on our share of volume sold in Tracked Channels. Statements in this prospectus regarding our growth and share of the pet food industry and its constituent market segments are for the United States only, unless otherwise indicated, and are based on data from Tracked Channels for 2014. Market Segments There are no standard market segment definitions in the pet food industry. We segment pet foods into Wholesome Natural, Engineered, Private Label and Therapeutic market segments. This market segmentation is based on the ingredient profile of pet foods, with the exception of Private Label and Therapeutic pet foods, for the reasons discussed below. While others may segment the market in different ways, we believe this market segmentation is most helpful in understanding the industry and its market dynamics. Our definition of the Wholesome Natural market segment incorporates the AAFCO definition of "natural," but imposes further criteria EFTA01427468 based on the type of ingredients used to achieve nutritional targets. We believe this specific and ingredient-focused market segmentation reflects consumer preferences and how consumers make their purchase decisions, as evidenced by the disparity among the growth rates of the different market segments. While all BLUE products satisfy the criteria specified for the Wholesome Natural market segment described below, in order to account for variation in our competitors' portfolios of products, a pet food brand or product line is categorized in a particular market segment if 90% or more of the products under such brand or product line as measured by retail sales (rather than by volume) satisfy the market segment criteria specified. We define the market segments as follows: • Wholesome Natural brands achieve their nutritional targets using only natural ingredients (as defined by AAFCO), and may include added vitamins, minerals and other trace nutrients. All Wholesome Natural dry foods have whole meats and/or meat meals, with the type of animal protein clearly identified, as their principal ingredients. Wholesome Natural products (dry foods, wet foods and treats) do not include chicken or poultry by-product meals, which we believe pet parents do not iii http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427469 Form S-1 Table of Contents desire. Wholesome Natural products also do not rely on grain proteins, such as corn gluten meal, wheat gluten and soybean meal, as principal sources of protein, as grain proteins have a narrower array of amino acids compared to animal proteins. In addition, these products also do not use corn, wheat, soy or fractionated grains, such as brewer's rice, as sources of starch. • Engineered brands achieve their nutritional targets without fulfilling all the requirements of the Wholesome Natural market segment. They typically do not contain whole meat or meat meal as their principal ingredients and/or they use lower cost proteins (such as chicken by-product meal, corn gluten meal or wheat gluten) and lower-cost starches (such as corn, wheat or fractionated grains). Engineered products may or may not include artificial ingredients or preservatives. • Private Label brands are owned by retailers. While the vast majority of Private Label products fall within the Engineered market segment, some Private Label products fall within the Wholesome Natural market segment based on their ingredients. However, consistent with retail industry practice, market data providers do not identify the specific Private Label SKUs. As a result, Private Label market segment sales are not categorized into either the Wholesome Natural or the Engineered market segment. • Therapeutic (Rx) brands are formulated to support treatment for certain medical conditions and are prescribed by veterinarians. Certain Therapeutic pet foods that claim to diagnose, cure, mitigate or prevent diseases are regulated by the U.S. Food and Drug Administration, or FDA, as animal drugs rather than as pet food, and are subject to FDA pre-market approval. In light of this regulatory process and the distinct Vet channel for the sale of Therapeutic pet foods, there is no Private Label participation in this market segment. iv http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427470 Form S-1 Table of Contents LETTER FROM OUR FOUNDER Love them like family. Feed them like family. Now you can join our family too. Dear Prospective Investors and New Family Members, We've come a long way from our humble beginnings in the back of a barn, but have never forgotten our roots and why we started Blue Buffalo in the first place. We see this initial public offering, or IPO, as an opportunity to welcome new members to our growing family, so just like we tell our story to each new team member who joins the Buff, we think it's only fitting for you to learn about our history and what we stand for. The word "family" is at the center of just about everything related to Blue Buffalo. In fact, the simple act of treating pets, pet parents and employees like family has enabled our BLUE brand to become the #1 natural pet food and the #1 specialty channel brand in only ten years. Looking back, it's clear that the concept of treating pets like family was the driving force behind the establishment of Blue Buffalo. We (the Bishop family) always considered our dog Blue to be a family member, so when he had a bout with cancer, we got a lot more involved in his diet and took a hard look at pet food ingredients. As concerned pet parents, my wife Jackie and I were disturbed to learn that many well-known brands contained things like chicken byproduct meal, corn gluten meal and artificial flavors and colors. Not exactly ingredients that we wanted to feed our boy Blue. And since we were pretty certain that many other pet parents would share our feelings, we decided to develop a pet food that would provide a diet of high-quality, natural ingredients. We also decided to take the risk that we could build a business that people would actually care about by educating pet parents on what we believe is a major disconnect between the ingredients they are expecting to be in the dog and cat food they are buying and the ones that are actually in the bag. So working with animal nutritionists and a great holistic veterinarian, we created a pet food that was made with only high-quality, natural ingredients plus the extra supplementation of our exclusive LifeSource Bits — a blend of antioxidants and nutrients that are cold-formed to preserve their potency. We called this two-part food our Life Protection Formula and decided to name our brand "BLUE" in honor of the family member who inspired its creation. And for those of you who might be wondering about the "Buffalo" in our name, think back to when buffalos freely roamed the Great Plains, that was a time when everything was pure, natural and healthy. Some Native American tribes even considered buffalos to be the protectors of animals, so you can see why we thought the buffalo would be a perfect symbol for the brand and the company we wanted to build. Having been in the brand building business for many years, I knew that many great ideas never reach their full potential because the entrepreneurs behind them don't have the financial support to get their story heard and to compete with well-established industry leaders. To get our message through, I knew we had to spend like the big companies and take the lead in educating pet parents about the differences in pet foods, EFTA01427471 so I was very excited when we met our financial partners, the folks at Invus, in 2006. They shared our vision, were long-term oriented and had the wherewithal to fund our mission. So armed with the right ideas and the resources behind it, we took our message to the public. From day 1 our whole marketing approach has been built on transparency and has been about education. It's simple, it's straightforward, and it's fact-based, just the way you'd address the subject with a family member. Take a moment to compare the ingredients in your brand with the ingredients in BLUE, and make your own decision on which one you want to feed your furry family members. v http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427472 Form S-1 Table of Contents Believing in what we do and doing it the right way is what Blue Buffalo is all about, so it's no coincidence that we've been able to build a dedicated team of like-minded animal lovers as our company has grown. We refer to ourselves as "Herd members." We enjoy working in an environment where dogs wander freely (our cats prefer to stay at home), and we are sharply focused on executing the company's mission of educating pet parents and providing high-quality, natural food for their dogs and cats. We live by the famous saying that "who you ride the river with is just as important as where you're going." There are no "employees" at Blue Buffalo_ everyone is a Herd member. Herd members are friends and Herd members are part of the Buff team. Our culture is summed up by our "N.A. Policy." Unlike some of our mega corporation competitors, pet products is the only business we're in. When we wake up every morning and come to work, dogs and cats are our single focus. And we do everything we can to be the best at what we do. While we're proud of what we do and the way we do it, there's another side to Blue Buffalo that we're just as proud of_our commitment to finding a cure for pet cancer. Through our Blue Buffalo Foundation for Cancer Research we're sponsoring some critical studies at the top veterinary medical schools in the United States. The latest one, which we're particularly excited about, is a study that may help advance treatments for a type of cancer that affects both dogs and children. I believe we're now the #1 supporter of pet cancer awareness and research in the United States, which is a fitting tribute to the family member who inspired everything we do, our boy Blue. In recognition of our IPO and our mission to help find a cure, working with our underwriters, Blue Buffalo will be donating $2 million to the Blue Buffalo Foundation for Cancer Research. That's on top of $2.4 million we raised through our fund-raising efforts in 2014, a record fundraising year for our cause. We also want to give an opportunity to the many loyal pet parents (and business associates), who discovered BLUE long before Wall Street did, to participate in our IPO. After all, they're a big part of the Buff family. So we've partnered with LOYAL3 to allow them to buy shares at the same price as Wall Street, with no fees. You can learn more about this program in this prospectus. And of course, we're not forgetting about the Herd members who have brought us to where we are today. Treating Herd members as owners has always been an important part of how we've operated, so in recognition of our IPO, we will be gifting shares to every one of our Herd members (both part-timers and full-timers) who are not part of the management team. In addition, we will continue to have long-term incentive plans for our management team to make sure they continue to think and act like owners and serve our ever growing family in the best possible way. We have assembled a leadership team of True Blue Believers, and they have what it takes to make this happen. vi http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- EFTA01427473 d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427474 Form S-1 Table of Contents I sincerely believe Blue Buffalo is a very special company. We have a unique culture and a way of doing business that has made us successful and served pets, our passionate pet parents, Herd members and owners well to date. And with Invus we've had the good fortune of being able to work with a like-minded business partner who has enabled us to stay true to our mission. We won't stray from our path just because we're going public. In fact, we hope becoming a public company will lead to greater visibility and to more pet parents hearing about us and our mission. We also want to be clear with our new public family members (i.e., shareholders) that we intend to stay true to who we are. We'll focus on the long-term and not make short-sighted decisions. We will never cheapen our products to boost profits or cut back on the investments required to accomplish our mission and maintain the quality and safety standards that our pet parents trust us to deliver. We'll also continue to invest in our business like the investments we're making this year to enter into new markets, with a view towards the long-term growth of our company. In short, we will keep doing things the Blue Buffalo way. We're delighted that you're considering an investment in Blue Buffalo. It's the dawn of an exciting chapter for our family and we look forward to sharing the future with our new extended family. Yours truly, Bill Bishop Founder and Chairman vii http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427475 Form S-1 Table of Contents PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before deciding to invest in our common stock. You should read the entire prospectus carefully, including "Risk Factors" and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. In this prospectus, the terms "Blue Buffalo," "we," "us," "our" and the "Company" refer to Blue Buffalo Pet Products, Inc. and our consolidated subsidiaries and the term "BLUE" refers to the BLUE brand. Blue Buffalo: A New Breed We are the fastest growing major pet food company in the United States, selling dog and cat food made with whole meats, fruits and vegetables, and other high-quality, natural ingredients. BLUE is a billion dollar brand based on sales at retail and is the #1 brand in the Wholesome Natural market segment. We currently have approximately 6% share of the overall pet food industry and feed only 2-3% of the 164 million pets in the United States. With a proven new user acquisition strategy, we are committed to converting more pet parents into True Blue Believers and continuing to increase our share of the attractive $26 billion U.S. pet food market. We were founded in 2002 by Bill Bishop and his two sons, Billy and Chris. As lifelong pet lovers, the Bishops' interest in natural pet foods was inspired by their love for their family dog, Blue. When Blue had a bout with cancer at a young age, the Bishop family became very concerned with the quality of his food. In the process of learning all they could about pet food ingredients, they discovered what they believed was a major disconnect between what pet parents wanted to feed their dogs and cats and what they were actually feeding them. The Bishops made it their mission to bring transparency to the pet food industry by educating pet parents to look beyond the pictures on the packaging and to focus on the actual ingredients in the food they were feeding their pets. Tapping into this unmet consumer demand, the Bishops started Blue Buffalo to develop and market pet foods made with the kind of ingredients they would want to feed their own furry family members. We believe we have built an exceptional company with a breakthrough brand and an innovative business model. Backed by our mission and belief in a large unmet consumer demand for pet food with high - quality, natural ingredients, we invested heavily in our brand well ahead of our scale. As a result of this investment strategy, we did not turn profitable until 2010. Our net sales have grown from $190 million in 2010 to $918 million in 2014, which represents a compound annual growth rate, or CAGR, of 48%. During this period, our operating income grew from $15 million to $179 million, which represents a CAGR of 86%, while our net income grew from $23 million to $102 million, which represents a CAGR of 45%. Given the size and scale we have reached, we expect our growth rates to moderate in the future. We believe that only a few public U.S. CPG companies have our combination of scale, EFTA01427476 significant growth and strong margins. The following chart illustrates our growth in net sales, operating income and net income from 2005 to 2014. 1 http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427477 Form S-1 Table of Contents The Industry Where We Operate: Large and Attractive Pet food is one of the largest CPG categories in the United States. We estimate the U.S. pet food industry had approximately $26 billion in retail sales in 2014. According to Euromonitor, the pet food industry had $49 billion in additional retail sales outside the United States in 2014, bringing the total size of the global pet food industry to over $75 billion. U.S. pet food retail sales grew 62% between 2004 and 2014, which represents a CAGR of 5%, based on data from Euromonitor. The industry growth over this period has been fueled by the "humanization" of pets, as pets are increasingly regarded as family members. This humanization trend has led pet parents to increasingly evaluate pet foods in the same way they scrutinize their own food choices. As more pet parents seek better, more wholesome options for themselves, they also seek these types of options for their pets. As a result, a significant number of pet parents have demonstrated a willingness to pay a premium for pet food that they believe will enhance the well-being of their pets. The higher demand for natural food products and more specialized formulas for different life-stages, breed sizes, special needs and diet types has fueled premiumization in the industry, leading to the faster growth of products with higher revenue per pound. This premiumization trend has impacted all market segments and product types in the pet food industry. The pet food industry has high penetration in the United States with 63% of households purchasing pet food in 2014. Virtually all pets in the United States are fed packaged pet foods. The continued growth of the industry through the worst economic recession in recent history is a testament to the underlying consumer demand and the strength of the consumer trends driving it. Pet food is also a highly branded industry with low rates of switching due, in part, to potential digestive issues that may occur when switching between different pet food brands. As a result, brands that build a strong relationship with a pet and its pet parents realize significant value over the lifetime of the pet, especially if the pet starts on the brand as a puppy or kitten. We believe the Wholesome Natural and Therapeutic market segments are particularly on trend as pet parents increasingly treat their pets like family. With market shares of 17% and 7%, these two market segments have become significant parts of the U.S. pet food market, and continue to grow faster than the rest of the market. In 2014, specialty channels accounted for 45% of U.S. pet food sales, with the Food-Drug-Mass, or FDM, channel accounting for the other 55%. Specialty channels include a diverse set of retailers with over 20,000 stores (which includes national pet superstore chains (i.e., PetSmart and Petco), regional pet store chains (e.g., Pet Supplies Plus, Pet Supermarket, Petsense and Pet Valu), neighborhood pet stores, farm and feed stores (e.g., Tractor Supply Company and Mid-States), eCommerce retailers (e.g., Amazon, Chewy and Petflow, as well as websites of major retailers), military outlets and hardware stores) and 25,000 veterinary clinics. BLUE is sold across all types of specialty channel EFTA01427478 outlets, although our sales in the Vet channel, which represents 6% of U.S. pet food sales, are currently minimal. We have chosen to sell BLUE in the specialty channels as we believe these channels provide a better environment for us to interact with and educate pet parents, help position BLUE as a premium brand and dedicate more shelf space to pet food, which grants consumers access to a broader range of our products. Pet food sales in specialty channels have grown faster than pet food sales in the FDM channel for the past 20 years as a result of the pet-focused environment and superior product selection. Starting in the second half of 2013, the largest pet food company in the United States initiated a significant increase in its promotional spending focused primarily on the FDM channel, which effectively reduced the average price per pound for its products. Other pet food companies responded by increasing their own promotional spending. Given the steady volumes consumed by pets, this heightened promotional activity drove down the pet food category growth rate in 2013 and 2014. It also reduced traffic to the specialty channels as price gaps widened and consumers stocked up on pet food products as a result of these increased promotional offers. As a result, overall pet food sales growth rate in Tracked Channels decelerated from 5% in 2012 and 4% in 2013 to 1% in 2014. However, despite these FDM-focused promotional activities, specialty channels continued to grow faster than the FDM channel during this period, with a 3% growth rate compared to a decline of 0.3% for the FDM channel as measured in Tracked Channels. As of the first quarter of 2015, sales growth rates have been improving 2 http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427479 Form S-1 Table of Contents but are still not at historical growth rates. We believe Untracked Channels have continued to grow at significantly higher rates than the overall market, as well as specialty channels. Wholesome Natural and Therapeutic market segments also continued to outperform the overall market in 2014, growing at a rate of 14% and 5%, respectively. Doing Things the BLUE Way: Our Strategic Differentiation The Landscape We Found Pet food in 2002 was an established industry dominated by large CPG companies, offering a variety of brands made primarily with ingredients such as poultry by-product meals, corn, wheat and soy. Based on our conversations with many pet parents, we found that the vast majority of them did not read pet food labels and were often unaware of the ingredients they were feeding their pets, even though they were seeking natural foods and products for themselves and their families. A number of small natural pet food brands began to emerge in the neighborhood pet stores, led by entrepreneurs who often did not have the funding to build sizable businesses. In parallel, the pet food retail landscape had evolved significantly with the expansion of national pet superstores. These superstores carried a broad assortment of pet products and foods, anchored by Engineered brands but did not participate in the emerging Wholesome Natural market segment in a meaningful way. The BLUE Disruption We set out to challenge the status quo set by the incumbent brands. We were convinced that the Wholesome Natural market segment could become a large part of the industry due to a large unmet consumer demand for pet food with high-quality, natural ingredients. We have established our leadership position in the Wholesome Natural market segment through the strength and quality of our products, by broadly sharing our message to encourage pet parents to read ingredient labels and by pricing our products at a reasonable premium to Engineered brands. This approach was in contrast to our major competitors whose business models were tied to the mass production of Engineered brands. We committed to creating wholesome pet food made with whole meats, fruits and vegetables and other high-quality, natural ingredients that we feel good about feeding our own furry family members and to educating fellow pet parents about pet nutrition. We further distinguished our products by creating a two-part dry food, consisting of kibble and our trademarked LifeSource Bits that are cold-formed to help preserve the potency of vitamins, minerals and antioxidants. LifeSource Bits are more expensive and complex to manufacture, but we believe they provide significant benefits and create a visual point of differentiation when we talk to pet parents. We also combined advanced quality control and supply chain capabilities generally consistent with the standards required for human food industries with our deep expertise in pet foods. We believe these competitive advantages, together with our investments in our brand, have distinguished us from our smaller competitors in the Wholesome Natural market segment. We deploy our Pet Detectives, part-time pet-passionate team members, to help EFTA01427480 us fulfill our mission to educate fellow pet parents about pet nutrition. Pet Detectives interact with pet parents one-on-one as they shop for pet food in stores nationwide and in Canada. Our Pet Detective program serves as an educational marketing and sales platform as it is a resource for both pet parents already feeding their pets BLUE and pet parents currently feeding their pets other pet food brands. The Pet Detectives allow us to engage pet parents with our brand story, our mission and our shared love for pets in an authentic manner. From the dynamics we saw in human foods, we knew that consumers were willing to pay a premium for natural products, and we were confident that pet parents would be open to paying a reasonable premium for our natural products for their furry family members. Our price premium compared to Engineered brands varies. For example, virtually all pet parents feeding their medium-sized dog an Engineered brand can switch to BLUE for anywhere from no extra cost to 70 cents more per day. For a cat, they can switch to BLUE for anywhere from no extra cost to 30 cents more per day. As we have grown, we have successfully switched pet parents from feeding their pets various brands across the full range of price points to feeding their pets BLUE, demonstrating our broad appeal and affordability to a large population of pet parents. 3 http://www.sec.gov/Archives/edgar/data/1609989/000119312515218883/- d734898dsl.htm[7/20/2015 10:30:13 AM] EFTA01427481 Form S-1 Table of Contents We believe that our rapid creation of a brand with over a billion dollars of sales at retail is proof that our strategy is working. Building Our Brand We chose to build a master BLUE brand with a strong identity on top and different product lines underneath with distinct benefits and personalities, instead of following a brand portfolio approach like most of our major competitors. We engage pet parents with our brand story, mission and our shared love for pets. We want to build a relationship with our consumers by having them understand what we do and why we do it, rather than just sell them a product. With our transparent approach, we strive to educate them on pet nutrition and ingredients so they can make their own informed choices. Our mantra is "Love them like family. Feed them like family." We carry this message across all our touch points with pet parents — from our advertising to the one-on-one conversations our Pet Detectives have with tens of thousands of pet parents at stores around the United States and Canada every week. In order to reach a broad cross-section of consumers, we started out in national pet superstore chains with large stores around the country. As our brand has grown, we have continued to broaden our distribution within the specialty channels to include, among others, regional and neighborhood pet stores, farm and feed stores and online retailers. Today BLUE is sold at over 10,000 stores across the United States and Canada. Since we started in national pet superstore chains, which have more shelf space dedicated to pet food than either the FDM channel or neighborhood pet stores, we were able to offer a broad portfolio of products at an early stage in our brand development. As our brand grew and our retail sales surpassed even well-known brands, we gained scale and now offer even more tailored product offerings. Today, we have the broadest portfolio of products of any natural pet food brand in the United States. Our goal remains to offer pet