Freshpet Inc (FRPT) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Freshpet fourth-quarter and full-year 2014 conference call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session and instructions will be given at that time.

(Operator Instructions).

As a reminder, today's conference is being recorded.

I would now like to turn the call over to Katie Turner.

Thank you.

Good afternoon, and welcome to Freshpet's fourth-quarter and full-year 2014 earnings conference call and webcast.

On today's call are Richard Thompson, Chief Executive Officer, and Dick Kassar, Chief Financial Officer.

Scott Morris, Chief Marketing Officer, will also be available for Q&A.

Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws.

These statements are based on management's current expectations and beliefs, and involve significant risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements.

Please refer to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission today, March 31, 2015, and the Company's press release issued today, for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements.

Finally, please note that on today's call, management will refer to certain non-GAAP financial measures, such as EBITDA and adjusted EBITDA.

While the Company believe these non-GAAP financial measures will provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute from the financial information presented in accordance with GAAP.

Please refer to today's press release for a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP.

And now I would like to turn the call over to Richard Thompson, Chief Executive Officer.

Thank you, Katie.

Good afternoon, everyone, and thank you for joining us on today's call.

I will begin with an overview of our 2014 financial and business highlights.

And Dick will review our financial performance in more detail, and provide our outlook for Q1 and full-year 2015.

Finally, Dick, Scott and I will be available to answer your questions.

We are excited about reporting our first annual results as a public company.

We believe we ended 2014 well-positioned for the future, as we bring the power of fresh food and fresh thinking to more pets and pet parents.

For the year, we generated net sales of $86.8 million, a 37.4% increase compared to 2013.

This was driven by a 23.5% increase in Freshpet fridges in addition to increasing velocity for fridge.

Our robust net sales growth has consistently outpaced distribution growth.

Sales momentum helped fuel our cost and expense leverage with greater efficiencies from our Freshpet Kitchens, even with our ongoing investment back into the business to support current and future growth.

Adjusted EBITDA improved $5.7 million to $5.5 million for the year compared to a loss in 2013.

We have accomplished tremendous growth in 2014, and importantly, each of our financial metrics came in ahead of our expectations.

We appreciate all the dedication and efforts of our Freshpet team.

Without their contributions, we would not be able to execute our business plan to achieve our goals.

So, thank you, team.

As we all know, individuals and families are increasing focus on health and wellness, and more than ever before, pet parents are looking for fresh, natural pet food.

At the same time, Freshpet is now available across a broader retail sales network.

Our Freshpet fridge network includes grocery, mass, club, pet specialty, and natural channels.

In fact, in addition to growing distribution, we believe we are seeing strong consumer fundamentals, expanding consumer penetration at the same time as we increase consumer loyalty rates, which we believe further demonstrate the strength of our business.

The pet category is over $20 billion and growing.

The number of people owning pets is increasing in the US, and at the same time, are increasingly treating these pets as another family member.

This is why we believe Freshpet is truly positioned in the right place at the right time with the right products.

We believe this is demonstrated by our long-term ability to be one of the fastest-growing pet food companies in North America.

At Freshpet, it's not only about our commitment to serving fresh, natural food to dogs and cats, but also about how we connect with pet parents.

In the fourth quarter of 2014, our digital and TV marketing initiatives helped us reach more pet parents, resulting in strong velocity growth for the quarter.

Over 28 million people viewed our digital Freshpet holiday feast video, and our new TV campaign, Letters, is seeing the best quantitative response since we started advertising on national television in 2011.

Looking ahead, we believe we have a considerable opportunity to expand our distribution footprint, increasing brand awareness, and growing our market share.

The fact is, when walking through the pet food isle, Freshpet is hard to miss.

Our competitors' products are placed on the standard store shelf, while Freshpet is displayed in colorful, branded, brightly-lit fridges that attract consumers.

In addition, we are committed to keeping our prices competitive to remain accessible to the average consumer, delivering fresh, healthy and delicious meals with locally-sourced fresh meats and fresh vegetables.

We operate our Freshpet Kitchens utilizing human food standards where the quality and safety are the cornerstone of how we make our foods.

All of our recipes, cooking processes and packaging create a unique combination.

We believe this is a compelling proposition for pet parents.

Freshpet's opportunity is underscored by the fact that our share of the total pet food category is currently less than 1%.

The keys to the growth of our business remain having the best quality every day, and increasing brand awareness in trial.

We continue to believe Freshpet is at an inflection point where we can begin to leverage our organization, our Freshpet Kitchens, and our sales and marketing teams for accelerated sales and profitability.

We own and maintain over 13,500 Freshpet fridges across North America and see significant whitespace for expansion.

Dick will discuss our financial outlook for 2015 in more detail.

But we continue to expect to install approximately 2,000 Freshpet fridges in new store locations each year.

Long-term, we believe 35,000 store locations are achievable.

Within our existing retail partners alone, we have the opportunity to almost double our store count.

Through the efforts of our sales and marketing teams, we will continue to grow Freshpet brand awareness in trial.

Less than 20% of US petfood consumers today have heard of Freshpet.

In 2015, we are continuing to make significant investments behind enhanced TV, digital and merchandising plans to drive brand awareness, trial and consumer education.

Once consumers become aware of our brand and try it, our strong repeat rates develop them into long-term consumers.

Our team is always thinking of fresh ideas and ways that we can bring more fresh, healthy foods to our pets.

We have an impressive history of pioneering new products, as you all know.

As we mentioned last quarter, our new fresh shredded and fresh raw products were in early test stages across certain retailers.

Our new shredded product is designed to look like it just came off the pet parent's dinner table, and we have developed our new fresh raw product specifically for the pet specialty channel to appeal to raw petfood consumers.

The initial product response has been strong from both our retail partners and consumers, as the products are driving incremental sales and stronger consumer purchasing patterns.

These items are now in the process of being rolled out for broader distribution over the next six months.

Ongoing innovation remains a top priority for the Company, and will be a cornerstone of continuing growth.

We believe the Freshpet brand is perceived by consumers as delivering the best quality petfood in the industry, thus giving us a very strong platform for new product development.

We believe some of the most significant opportunities are to expand our product offering and develop a deeper portfolio of products in cat food and treats, two categories where we are currently underdeveloped.

Our goal is to continue the optimization of our Freshpet fridge assortment and space allocation to sell an improved mix of products, which we believe will help drive increased velocity.

In addition, we are in the process of testing a non-refrigerated fresh-baked product that we believe will be unique to the marketplace and appeal to consumers, who mix our fresh product with dry food or have yet to try Freshpet.

We will monitor this test very closely and proceed cautiously to understand the results and incrementality to our business.

In summary, we had a strong end to 2014, and we believe that the momentum is at our backs as we head into 2015.

Our team is focused on driving net sales growth.

We believe our ability to increase our sales volume will allow us to increase our current capacity utilization and fuel consistent future gross margin expansion.

Many of you that have visited our corporate offices in New Jersey or Freshpet Kitchens in Bethlehem, Pennsylvania, have seen that our corporate infrastructure is well-established, and we continue to focus on improving our operating efficiencies to grow our profitability and enhance shareholder value.

Before I turn the call over to Dick, I wanted to provide just a quick update and mention that the construction on Phase II of our Freshpet Kitchens in Bethlehem is well underway, and we are making good progress.

With that overview, I would now like to turn the call over to Dick, our Chief Financial Officer, who will review our financial results in more detail.

Dick?

Thank you, Richard, and good afternoon, everyone.

I will review our fourth-quarter financial results, and provide our quarter-one and full-year outlook for 2015.

For the fourth quarter, consolidated net sales increased 38.3% to $24.5 million.

This growth was driven by a 23.5% increase in Freshpet fridges, which resulted in distribution gains across all retail sales channels and velocity gains in existing stores.

Gross profit for the quarter increased to $12 million, up from $6.4 million during the same period last year.

Our fourth-quarter gross margin was up 1,270 basis points to 48.9% versus 36.2% in quarter-four 2013.

The increase in our fourth-quarter 2014 gross profit reflects higher net sales, lower manufacturing costs per pound for products produced, and the elimination of transition costs to our new facility in late 2013, partially offset by higher depreciation resulting from our new Freshpet Kitchens.

SG&A expense, adjusted for a failed valuation of warrants and stock compensation, increased as a percentage of net sales to 41.9% from 45.2% of net sales the same quarter last year.

Looking ahead, we expect to generate further leverage SG&A as a percentage of net sales, as we increasingly scale our operating efficiencies and better utilize our existing infrastructure while growing their sales.

We'd also like to turn your attention to two non-cash items, which we recorded during quarter-four, that we will no longer record going forward -- fees on debt guarantee and preferred stock accretion.

In connection with the IPO, we converted our fees on debt guarantee and Series B preferred stock into shares of common stock.

The fees on debt guarantee settlement caused a non-cash market-to-market adjustment in the amount of $15.5 million in the fourth quarter, which totaled $25.9 million during the year.

The Series B preferred stock settlement caused a non-cash market-to-market adjustment related to the dividend accretion of $83.6 million in the quarter, which totaled to $89.7 million during the year.

As a reminder, dividend accretion is not recorded as expense within the P&L, but is included when calculating the net loss attributable to common stockholders.

These non-cash charges will no longer be incurred going forward.

Adjusted EBITDA increased to $4 million.

As a reminder, adjusted EBITDA is a non-GAAP financial measure.

Turning now to the balance sheet.

At December 31, 2014, the Company had cash and cash equivalents of $36.3 million.

In the fourth quarter, the Company [entered] a $40 million credit facility, of which none was outstanding at December 31, 2014.

We expect to use some of our current liquidity to expand our manufacturing facility to meet growing demand and further grow our distribution.

I would now like to review our outlook.

While net sales growth may be lumpy quarter-to-quarter, based on the timing of future fridge expansion along with other factors, we expect to continue to provide net sales, Freshpet fridges, and adjusted EBITDA guidance on an annual basis.

That said, given the timing of this earnings release and conference, with it falling on March 31 -- which is our quarter-one end date, we wanted to provide everyone with a brief quarterly outlook.

We expect quarter-one Freshpet fridges of approximately 14,000, representing an increase of approximately 19.9%, and quarter-one net sales growth of approximately 37% to $26.5 million compared to quarter-one of 2014.

We expect adjusted EBITDA of approximately $2 million, an increase of approximately $1.2 million versus quarter-one of 2014.

As a reminder, quarter-four is historically when we have the lowest media spend.

For example, in quarter-one 2015, we spent approximately $3.3 million on media compared to quarter-four of 2014, when we spent approximately $50,000.

It is important to note that on an absolute basis, we do not expect to spend more on media in 2015 when compared to 2014.

For full-year 2015, we expect Freshpet fridges in the range of $15,100 to $15,600, representing an increase of approximately 13% to 17% compared to the prior year.

We project our net sales to be in the range of $112 million to $114.5 million, representing an increase of 29% to 32% versus 2014, and adjusted EBITDA to be in the range of $16 million to $17.5 million.

Please note our quarter-one and full-year 2015 guidance does not include any potential incremental benefit associated with our non-refrigerated fresh base product test, which Richard discussed earlier on the call.

As a reminder our adjusted EBITDA presents EBITDA plus [less indisposable] equipment, new plant startup expenses and processing, share-based compensation, launch expenses, and warrant expense.

We also expect to invest approximately $23 million to $25 million in capital expenditures, which we expect to use to expand our planned capacity and increase distribution.

Further, we would like to briefly discuss the expected stock compensation expense going forward.

The valuation of options has increased as a result of the higher common stock valuation during the lead-up to the IPO.

We forecast stock compensation for 2015 and 2016 to be approximately $7.5 million and $8.2 million, respectively.

After 2016, we expect our stock compensation to normalize at approximately $3.5 million a year.

That concludes our financial overview.

I will now turn the call back to Richard for closing remarks.

Richard?

Thanks, Dick.

Every day we challenge ourselves to find new and better ways of delivering the benefits of fresh, real food to our pets.

We are very pleased with our 2014 results.

We will remain committed to our core values.

Freshpet will continue to work to revolutionize the petfood industry through our innovative products and our hard work.

We will always challenge accepted wisdom about what's best for our pets.

We work to be transparent and honest in every facet of our business.

And finally, we strive to do what's right for pets, people and the planet.

We would now like to open up the call and take your questions.

Operator?

(Operator Instructions).

Jason English, Goldman Sachs.

I hope you all are doing well.

Congratulations on wrapping up this year, and a solid quarter.

A couple clarifying questions.

First on the CapEx number, I think I heard $22 million to $25 million.

Was that just in relation to the new plant?

Or does that include fridge expenses?

And if it doesn't include fridge, can you give that figure as well?

Yes.

Dick, will you answer that, please?

Sure.

As you recall, we are expanding our facility into about a $25 million to $26 million cost to expand it.

Approximately $14 million will be spent in 2015.

And the balance, $6 million to $7 million of it will be on fridges, and the balance will be on maintenance plant -- maintenance for the plant, CapEx maintenance.

Got it, thank you.

That's really helpful.

And you mentioned in the gross margin expansion the manufacturing cost per pound moving lower.

Can you talk a little bit more about the drivers of that?

And then also maybe give us an update on chicken costs in 2015 as your contract renewal quickly approaches?

Sure.

First of all, our chicken cost is fixed for the year, and is basically what we paid in 2014.

So we stayed basically where we are.

As far as -- what was the other question?

Oh, just what drove the cost per pound lower this quarter.

Oh, yes.

As we -- Jason, as more volume comes through the facility, we will improve our cost per pound going forward.

And as you see (technical difficulty) forecast for the year, a lot more volume is going to be coming forth.

So we are confident in making inroads in that area.

Got it.

And then last question and I'll pass it on for others.

We have the 1Q fridge number.

As we think about the cadence of the build throughout the year, typically, it's a little bit lumpier in the second quarter.

Would you expect a similar seasonal pattern this year?

And then also on count, we didn't get the update on count by retail class or sales by channel.

Is that something we should expect in the filings?

Yes.

You'll see that in the 10-K.

Great.

And then the --

And I'll let Scott answer the fridge question.

Yes.

From a fridge standpoint, so we got off to a good start in the year, and we are looking for it to continue to develop at, I would say, a similar pace to how we saw the year develop last year.

What we want to make sure we are doing is we are guiding to really what we know versus what we think.

And you'll see that reflected in the fridge location guidance for the year, the [15.1 to 15.6] that we quoted.

Excellent.

Thanks a lot, guys.

I'll pass it on.

Thank you.

Peter Benedict, Robert Baird.

Peter.

Hey, Rich, hey, guys.

Quick questions -- couple questions here.

First, on the tests of the fresh-baked product, can you give us any color when/where, timing?

And kind of a -- I know there's nothing in the guidance for that, but at what point do you make a broader decision on that?

How do you kind of judge success versus failure in that effort?

Peter, I'll answer the first part of it, and then I'll let Scott handle the last part of it.

I just want to be clear to everyone that this fresh-baked product that we are looking at, this is an idea that's come from our consumers over the last several years.

We've been asked if there's something that we could do to help supplement a lot of our users that mix fresh product with a dry product.

So we've been looking at something to be innovative.

And I'll let Scott talk more about some of the innovation there.

So we are being very careful, very cautious.

We've got a test with one of our retail partners that we're going to test it at.

So we are very excited.

But this, remember, is not the only idea.

We've got lots of other fresh ideas in our pipeline that we are very excited about as well.

This is just one of several.

And as you know, Peter, we test a lot of ideas to get a lot of consumer and retailer feedback before we launch things.

So this is just one of many ideas that we have.

But this idea was driven by a lot of consumers that said we love your fresh product, and we mix just because that's what we want to do.

Can you help us to get into something that is fresher than what we are using?

And so we have been studying that.

So Scott, why don't you talk about it a little bit more?

Sure.

So, Peter, we expect to go into a small test in April.

And we will read results quickly.

We'll try to get a good read fairly quickly.

And some time, I would say, kind of mid-year summer, we'll start making a determination on if we are going to expand it on a broader basis.

And, Peter, I want to just say once again to be clear, this -- any revenue from this test is not in our 2015 numbers at this point.

So, this is just a test, and all the numbers and the guidance we've given is based solely on our fresh refrigerated product.

Yes.

No, great, it's appropriate.

Thanks, guys.

The other question I would have, Rich, you talked about some marketing plans to drive trial in 2015.

I think Dick may have also said you're not going to really increase the spending there.

So, can you just give us a little more color on kind of what the marketing plan is for 2015 in terms of how you're going to drive more trial and brand awareness?

Thank you.

For sure.

I'll let Scott get into the detail again, but I just want to say from my view, from the Chief's view here, we've been doing a fantastic job on driving velocity.

IRI and other measures are really showing that.

But we have just got a really good both digital and TV campaign that is really resonating with consumers and retailers that have given us a lot of feedback as well.

So, my hat is off to our marketing team and, Scott, all the work that they've done.

So, Scott, you can give some more detail.

Sure.

I think that we've talked a little bit about this when we were on the road show, and it's described also in the S1.

But we've really kind of established a model that works really well for us.

And from a kind of case standpoint, we have an amount that we spend over the course of the year.

Most of it, the majority of it's on TV.

We can see a tremendous response from the TV advertising.

And we know exactly when we invest in TV what the increases typically are.

It's very weighted towards the first three quarters of the year.

That's the way we always pace it.

Q4 just doesn't seem to have quite the impact; it's also a little more competition from other people advertising in the marketplace outside of petfood.

So, TV is still our anchor tenant.

We are doing more and more on the digital area.

And from a digital standpoint, we actually just released a new video, one of our viral videos yesterday.

But from a digital and social standpoint, we are continuing to press.

And what we found there is it's not as much about spending in digital and social, it's about kind of strategy and great ideas.

And that's really what consumers really want to consume and pass along.

And that's really what we've been focusing on in the digital area.

So those are the two major focal points.

Innovation, as Richard mentioned, is really kind of the core of everything we do.

It's a cornerstone of the organization in what we do.

So there's a lot of innovation coming.

I know it's not necessarily marketing spend, but the innovation is obviously a key driver for increased velocity and same-store sales.

And Peter, that new digital video we just released today is called Dogs Versus Cats.

So you go on YouTube and see it.

It's -- they've done a great job.

All right, I'll check it out.

Thanks, guys.

Thank you, Peter.

Bill Chapell, SunTrust.

(multiple speakers) Just to follow-up on the dry questions and with the understanding of the disclaimers of it's small, in test, and all that.

But maybe a little color of kind of price points, margin and placement.

Is this going to be -- can this be something that, if it takes off, it's dilutive to margins?

And is it going to be placed away from your cooler?

Or will it take up some of your existing cooler space?

I'll let Scott answer that, but let's be clear, it's called fresh-baked and not dry.

So let's start at fresh-baked, and then I'll let Scott give some detail.

So, let me give just a little bit more detail on it.

I don't want it to be the focal point because it's definitely -- it's something that we're, again, we are testing.

We think it's very interesting, could be a large opportunity but it's not our focal point.

The focal point is our fresh business, which is what we're -- obviously, want to continue to develop and build.

This has been in development for about two years.

It's something that we've looked at very, very closely, as Richard said.

It was really founded in a lot of consumer ideas.

But one of the things we had to do is we had to make sure that the opportunity, and the interest that consumers had in it, really aligned with kind of the whole brand and company ethos, what the brand was about, what we are about as a company, and the types of products we wanted to bring to market.

So what we are able to do is we are able to do something that was very, very different and very -- it's kind of category-changing in a way.

We are using different ingredients.

We are using a different cooking process.

We are using very different packaging.

We actually even put our formula right on the front of the pack -- not the ingredients, but literally the formula is right on the front of the pack.

It looks and smells different.

It's a different feeding experience.

And we've gotten great results from consumers.

So when it goes into test, it will be placed adjacent to our fresh product, right in the -- right next to it -- right next to the fridge, and in one of our -- you know, some of our retail partners.

And we're going to monitor the test.

Now upfront, right now, again, being in a testing situation, we don't know the exact margins; the margins are going to be very low on it early on.

And we will have to establish what the margins will be when we end up going to market on a full basis.

And we'll give kind of a really detailed and extensive information on that when we -- when and if we do decide to make that decision in the future.

From a price point standpoint, it is very much in line from a cost per pound and also a cost per feeding standpoint of Freshpet, or the very -- what's considered ultra-premium products across the marketplace.

So, you'll see it coming to market in the month of April, basically.

And once it's in market, we can probably talk a little bit more about it too.

But we are kind of a little bit in front of it here.

Got it.

And then -- and I appreciate the color.

As you look at kind of the cooler count for this year and the expansion, I imagine by now, you have pretty good visibility of where each cooler is going to go.

I mean, can you give us some more color there in terms of mass versus grocery or higher velocity versus lower velocity?

And also maybe any new customers you expect to see out of that mix next year?

Yes, Bill.

We've got -- we are very excited about where we are with our customers, and the momentum we have in all the areas, in new products, in sales, our velocity -- which, again, as I've said it before, but I'm very excited about the velocity, where we are headed here.

The store count is obviously growing.

But the main focus is obviously velocity, velocity, velocity.

But Scott, why don't you -- you can just talk about the stores, where they are going.

Yes, sure.

So, I think, as we had anticipated the way it looks like it's going to come in this year, it will be heavier development in grocery and mass partners.

In addition, as you guys are well aware, we do have visibility out several months, but we also don't exactly know what's going to develop over the next kind of 30, 60 and 90 days.

And that's kind of why we gave a guidance where this is what we know versus what we think.

Now, over the 30 and 60, 90 days that we are going to kind of see, there could be some significant opportunities to come in, but we don't know those yet.

And we didn't want to put in our -- out a number that we may be incorrect on.

Yes.

And I just want to be very clear, Bill -- we are very confident, highly confident of our numbers this year for especially the velocity and the sales that we have this year.

So, the store count is important for sure, but the velocity is -- and sales are what our top priority are.

So we are very confident that we are going to be where we need to be by the end of the year.

And we've got some new retailers that we are not in right now that we are having serious discussions with, that we are very excited about, that unfortunately, until we are actually in, I don't want to be able to use their names.

But we've got some new guys that we are not in right now that we are excited about getting into here shortly.

That's great.

I'll turn it over.

Thanks so much.

Okay.

Thank you.

Scott Van Winkle, Canaccord Genuity.

So, to follow-up on that confidence about the velocity gains for 2015, is that confidence driven more or less by innovation versus kind of marketing pullthrough and success in the marketing side?

Or what is the components of the confidence in velocity gains?

Yes.

Scott, go ahead.

Yes.

The -- when we first -- and you can see this in, whether it's an IRI or Nielsen, but when we start to see it towards the end of last year, we -- from a marketing standpoint, we started kind of gaining some momentum in the back half and into January and February.

And again, you can see this on IRI and Nielsen.

There've been some reports that have been put out on it.

And that was typically or primarily driven from really a marketing -- our marketing spend, our TV and some of the digital work that we've been doing.

Most recently, we started to see the new products start to go into broader distribution, and we expect them to contribute even more kind of through the middle of the year.

And when you think about new products, like Shreds coming out, I should probably know this, but is it the same kind of number of servings per package?

Does it change anything about how many times a customer returns to the store or buying more volume upfront?

No, it's pretty consistent with the other pack sizes like that.

So it's in a -- right now, that's only in a 1.75 pound.

It's off to a tremendous start.

We could not be happier with the start they've had on that product.

And obviously, there's a long road to go and a lot we can do with that.

It really becomes an innovation platform.

That product becomes an innovation platform where we can do many, many different things with it.

So --.

Yes.

And we've already had a lot of our customers and consumers ask us for larger pack size in that.

So we are not going to do that quite yet, but we are certainly -- we'll be looking at that because of the tremendous response we've got from this product.

And I got to tell you, my dog eats it.

And not only does my dog eat it, but I eat it once in a while, it's so good.

(laughter) Great.

And then last, the guidance for share-based comp, I want to make sure I wrote it down right.

It sounded a little higher than I expected.

And can you add a little bit to the commentary on that?

You talked about the revaluation.

Yes.

Dick?

Yes.

When we first started the process in preparing models for the IPO, we had a range of pricing.

And as it turned out, because of the successful IPO, that pricing moved up several dollars.

And that just affected the math for the options that were awarded.

So that's really the change, and then we go back to normalcy post-2016.

Okay.

So, no change in numbers here, just the price embedded in the calculation?

Absolutely.

And it's obviously non-cash, right.

Great.

Thank you very much.

You're welcome.

Thanks for calling in.

(Operator Instructions).

Robert Moskow, Credit Suisse.

(multiple speakers) Sure, thank you.

So, Dick, can you get the number one more time on share-based comp?

I had forecasted $4.5 million.

And is it over $5 million?

I didn't get the number.

Yes.

We have -- in 2015, it's $7.5 million; 2016, $8.2 million.

And thereafter, approximately $3.5 million.

And on a fundamental basis, if you go back to your original assumptions for EBITDA, like fundamental EBITDA for 2015, does that mean that you are coming in a little bit higher than what you thought originally at the time of the IPO?

Or you -- or not?

Well, we -- well, from an EBITDA perspective, we did not include stock option expense in our -- as a cash item.

Oh, that's right.

So that's completely excluded.

So, the guidance here, though, for then -- then for adjusted EBITDA, it is a little bit below what I had expected.

And I just want to know, is it below your own internal expectations?

No.

Basically, we gave a range of sales from $112 million to $114.5 million.

And we expected to be around $17.4 million in our projections.

And so basically it's in the range, and maybe it's -- I just gave the earnings associated with each tail of the range.

Okay.

Okay.

So it's just about in the range.

Because your range is $16 million to $17.5 million.

Right?

So, it's --

Correct.

Correct.

-- not at the mid-point, but --

Right now, with the way the velocity is going now, that -- if we come in at $114.5 million, we will achieve what we basically described.

Yes.

And Rob, I just -- as leader of the group, I just want to be sure that we are being conservative -- not ultraconservative, but we are being conservative, and that we do what we say we're going to do.

And it's always nice at the end of the day to be able to more than what you say you're going to do.

But we like to put something out there that we know that this group, with the knowledge we have, can make it happen.

Okay.

That's good to know.

And I think you hit the velocity message over the head pretty damn hard so I'm going to get off the call.

Thank you.

Thank you, Rob.

Mark Astrachan, Stifel.

I wanted to follow up just on the last question for -- so, relative to what you'd originally said, in terms of at the high end of the sales range, gross margin, SG&A expense-wise, are either of those coming in slightly higher or lower, I guess, as the case may be, than expected, if you asked what specifically there?

Well, during the last call, we talked about some beef prices that we kind of experienced in the fourth quarter, and again in the first quarter.

Because you know beef prices have been getting high, not just for human consumption but also for pet consumption.

So we put a price increase together to -- for -- and it will be effective in April.

So, it affected our first-quarter margin.

And we expect by the end of the year to gradually build our margin towards 52%.

Okay.

So, 52% for the full year?

Or are you saying that for 4Q?

No, we'll build it towards 52% by year-end.

We are kind of around 49% right now, and by year-end, we will be up to 52%.

Got it, okay.

And then secondly, just a bit of a different topic.

What is your market share, what's your estimated market share at year-end in the stores that you are available in?

Scott?

I'm sorry.

I missed the very beginning of it -- on market share?

Yes, market share in the stores that you are available.

Yes.

Okay.

So, we're -- we just crossed a little over 8% in February on each share of dry and wet dog in the stores that we are in, in February.

As an average.

As an average.

Okay.

And you had said, I think, in the S1, as I remember, 6% to 10% -- since it seems like, and you were emphasizing 6% of the [road share].

And it sounds like it's improving a bit.

I guess to what do you attribute that, especially coming out of 4Q where the advertising spend is a little bit lighter?

Well, I think we are on a pace really in -- like those numbers are actually kind of June/July numbers.

So really to the back of the year, we continue to see -- when you're growing at the rates that we are growing at, we're seeing a 37% kind of increase on a topline basis last year, and the category is growing at just a couple of points, we are able to pick up some really nice share through the back of the year.

And really, we were well-positioned into Q1, and kind of came into Q1 really nicely.

So we were really feeling -- we feel great about that.

So it's not -- the marketing spend definitely has a contribution, but once the marketing is out there, it typically kind of carries us through.

Got it, okay.

And hence the comments about not needing to increase what you're doing from an advertising spend standpoint and any additional efficiencies did it all, I guess?

Yes.

We've been really happy with the results -- I mean, the results we got in kind of our Q4 digital work was tremendous, and we were really excited about that.

Perfect.

Okay, thanks, guys.

Good night and good luck.

Thanks a lot.

Appreciate it.

I am showing no further questions.

I would now like to turn the call back over to management for closing remarks.

Okay.

Thank you very much, everybody, for taking the time this evening to be on the call.

But I just want to say one more time that we are very excited where we ended up in 2014.

We are very excited and feel like we have the kind of wind at our back in 2015.

As we move forward into 2015, we've got a lot of new product that we are going to be testing this year.

Remember, we've got a lot of cash in the bank; we have no debt.

The construction over in Pennsylvania with our Phase II is going extremely well.

We are on time and on budget with that project over there.

So, we're just doing really well, and we are highly confident that we will do 30-plus percent this year in 2015.

So, as we move forward, look forward to talking to you all again in the near future, because obviously, sometime in May, we will be having our next call.

So, have a nice evening and talk to you soon.

Don't forget to get your Freshpet on the way home.

Good night.

Ladies and gentlemen, that does conclude the conference for today.

Again, thank you for your participation.

You may all disconnect.

Have a good day.