Turning Point Brands Inc (TPB) 2017 Q4 法說會逐字稿

Good morning, and welcome to the Turning Point Brands' Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Mark Stegeman, Chief Financial Officer. Please go ahead.

Thank you, Austin. Good morning, and thanks, everyone, for joining our call. I'm Mark Stegeman, CFO of Turning Point Brands. With me today are Turning Point Brands' President and CEO, Larry Wexler; and Jim Murray, Senior Vice President of Business Planning.

Earlier today, we issued a news release covering our fourth quarter and fiscal year 2017 performance. This release is located in the IR section of our website, www.turningpointbrands.com, where a replay of today's conference call will be available.

Today, we plan to discuss our consolidated and segment operating results for the quarter and year, highlight progress toward our long-term growth goals and outline our expectations for 2018. Following our formal remarks, we will open up the floor for questions.

As is customary, I direct your attention to the discussion of forward-looking and cautionary statements in today's press release and the risk factors in our filings with the Securities and Exchange Commission. The disclosure outlines various factors that could cause actual results to differ materially from projections or forward-looking statements that may be cited in today's discussion. These forward-looking statements and projections are not guarantees of future performance, and you should not place undue reliance upon them. Except as provided by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements.

We may also discuss today certain non-GAAP financial measures. These measures and reconciliations to the GAAP information, along with the reason management believes that they provide investors with useful information regarding the company's financial condition and results of operations, are set forth in the press release.

I will now turn the call over to Larry Wexler, our CEO.

Thank you, Mark. Good morning, everybody, and thank you for joining the call. This morning, I would like to update you on how Turning Point Brands has made great progress in 2017 by executing our strategic plan, driving organic growth and pursuing and integrating accretive acquisitions. Our positive results are evident in this year's operating and financial performance. We enhanced our sales, marketing and distribution platforms and it's making a difference. Our 3 acquisitions expanded our portfolio and extended our market reach with new distribution and product capabilities. And we strengthened our financial foundation and flexibility to fortify our platform for future growth.

Our key focus brands: Stoker's in Smokeless, Zig-Zag in Smoking and VaporBeast in NewGen are thriving. Stoker's continue to grow in volume, Zig-Zag remains a leader in its category and VaporBeast is producing excellent growth.

Our accomplishments in both organic growth and our recent acquisitions is visible in the reported results.

For 2017, net sales grew 38.6% to a record $285.8 million. Gross profit increased 24.4% to a record $124.9 million. Operating income grew 13.6% to a record $49.5 million. And while net income was down $6.7 million, please note that prior year was favorably impacted by a $12.6 million revaluation of our deferred tax assets, making comparisons to a year ago difficult. Importantly, our adjusted EBITDA reached a record $60 million, 14.4% higher than in 2016.

This momentum carried through the fourth quarter, where net sales increased 36.7% to a record $73.6 million, gross profit grew 23.1% to $32.3 million and adjusted EBITDA increased 9.6% to $14.8 million.

These results are gratifying. They validate our strategies and demonstrate we are on the path to continued success. Moving forward, we are excited about the growth highway we see ahead of us.

Before I dive a little bit deeper into the segment results, I'm excited to discuss a few important items that recently announced that will further support our growth strategy. First, after acquiring Vapor Shark in 2017, we implemented a number of process improvements that resulted in stronger sales in the 35 Vapor Shark-branded stores. Seven of these stores were company-owned and the former owner had an option to take them over in 2018.

Vapor is a relatively new category. We do not yet have the same depth of consumer understanding as we do in our traditional OTP segments. As a result, we decided to retain ownership of the 7 Vapor Shark-branded stores and worked out an agreement to do so with the former owner. Continued ownership will allow us to better analyze and understand consumer trends at the point of purchase and leverage this learning across our entire NewGen segment. Moving forward, we'll continue to evaluate the benefits of owning versus franchising these stores.

Turning to the balance sheet. We made solid progress throughout last year as seen in our credit metrics. In fact, S&P upgraded our credit rating to B+ with a stable outlook just last month. And last week, Moody's reaffirmed our B2 stable outlook rating.

And in conjunction with our improved credit metrics, I'm pleased to announce we were successful in working with our bank group to amend and extend the $250 million credit facility entered into a little over a year ago. The March 7, 2018, amendment will reduce annual interest expense by an estimated $2 million, extend our maturities and improve our capacity to execute acquisitions.

Now let me take a few minutes to discuss our products and segments and how they performed in the fourth quarter and the full year. As a context for this review, I'll remind you that TPB is a company built on strong brands, and our work in nurturing and investing in them determines our ultimate success. Simply put, our focus brands provide the foundation for future growth.

Led by Stoker's and Zig-Zag, the core tobacco portfolio continued to deliver exceptional results. Net sales of the core tobacco portfolio increased 3% for the year and 7.2% in the quarter, establishing company records in both periods. Gross profit increased 3.7% and 4.6% for the year and quarter, respectively. While challenging from a competitive standpoint, 2017 was a solid year of achievement for both Stoker's and Zig-Zag.

Moving to the Smokeless segment. For the year, Smokeless products net sales increased 8.5% to a record $84.6 million in 2017. Not surprisingly, the Stoker's brand was once again the star of the Smokeless segment, with case shipments of Stoker Moist Snuff Tobacco, or MST as we call it, increasing by greater than 10%. In the quarter, Smokeless net sales were $21 million, a 10.7% increase from a year ago. Perhaps most encouragingly, Stoker's continued to expand its market share in both chewing tobacco and MST, demonstrating its appeal among a broadening base of smokeless tobacco enthusiasts.

Our successful market expansion of Stoker's 1.2-ounce MST cans continues to have a positive impact through widened retail distribution and product availability. Leveraging our store-based analytics and highly effective sales force, we expanded Stoker's MST cans retail distribution to approximately 25% of all stores selling MST, with a focus on the outlets with the greatest opportunities.

While I remain dissatisfied that Stoker's is not yet available in all retail outlets, I am pleased we are close to 10% increase in stores in 2017 and especially excited about the remaining upside for not only distribution gains, but also continued in-store velocity and share improvements.

As I've said before, Stoker's MST growth plan is a long-term journey. And in spite the world-class competitors, we have demonstrated consistent strong growth since our introduction.

Now let me update you on the 5 Smokeless tobacco brands we purchased in 2016. We've effectively integrated these brands into our asset-light manufacturing platform and are now realizing improved margins. Late in the fourth quarter, with the production transition completed, we began expanding distribution to targeted high-volume outlets. You recall these brands had 8% share in the stores where they achieved distribution, and we're excited about the potential for strength and performance in 2018 and beyond.

For the quarter, gross profit in Smokeless segment increased 13.1% to $10.3 million. Segment gross margin expanded 100 basis points to 49.2% due to price and mix increases, offset to some degree by LIFO expense of $0.5 million. Absent the LIFO expense in both years, gross margin for the fourth quarter of 2017 was 51.8% versus 50.2% in the fourth quarter of 2016.

With regard to the October 2016 Pennsylvania State tax increase, while the industry MSAi volumes of chewing tobacco declined more than 10% in the quarter, we outperformed the competition's competitive set with low single-digit growth. In MST, the industry declined by a more modest 3%, while we realized mid-single-digit volume gains.

Now turning to our Smoking products segment. Net sales for the year were $110 million, down $1 million from a year ago. You recall that we made a strategic decision to deemphasize cigars during this period of what we considered to be irrational, hypercompetitive pricing and redirected our resources to higher-margin opportunities. In spite of $4 million year-over-year reduction in sales of cigars, our effective gross profit adjusted for LIFO was up marginally to year ago. Had we engaged in a frontal battle to preserve our sale of cigars, competitive realities would require a lower margin contribution and would have diluted our efforts in MST, papers and cigar wraps. We will continue to evaluate our opportunities across all our segments and invest where we see the greatest level of return.

In the quarter, despite continued cigar erosion, net sales rose 4.8% to $28.9 million, primarily driven by the continued growth of Zig-Zag MYO cigar wraps and strong sales of Zig-Zag cigarette papers to the dynamic Canadian market.

California's 65% excise tax on MYO cigar wraps continued to press both the industry and our sales in the state. While the industry volumes in the state were down approximately 30% a year ago, we are seeing increased industry volumes in adjacent states, which suggests some level of shifting of demand.

Additionally, in the fourth quarter, we began executing a number of new promotional strategies. Going forward, we'll continue to watch the California consumer closely and adjust our course as necessary.

Gross profit for the quarter of $15.1 million was $77,000 lower than year ago due to a LIFO expense in the period of $330,000 and a year-over-year euro impact of $200,000. After adjusting the results for LIFO expense in both periods, gross profit increased 1.6% to $15.5 million with a gross margin of 53.5% compared to 55.2% in the fourth quarter of 2016.

In the quarter, Zig-Zag maintained a leading industry share for both premium papers and MYO cigar wraps and strengthened its already potent position in the promising Canadian market with dynamic new product introductions.

Canada has long had a much more developed roll-your-own cigarette market as compared to United States. In that environment, Zig-Zag emerged as a brand of choice among consumers who elected to roll their own tobacco cigarette as opposed to buying manufactured cigarettes. With the coming recreational legalization of marijuana this summer, there will be a whole new audience of consumers, many of whom will choose to roll their own and smoke cannabis for recreational enjoyment. So the market is big and is likely to get bigger.

Given the soon-to-blossom cannabis opportunity, our sales and marketing partner in Canada requested new Zig-Zag products to leverage the opportunity. Late in the fourth quarter, 2 new SKUs were introduced to better position the brand to actively participate in the developing market. Both Zig-Zag Orange and Kingsize Slim are now being expanded across Canada. And our partner is exploring additional opportunity of products for 2018 and beyond.

At our core, TPB is a brand company. We view each of our brands as a dynamic living organism that only flourishes when properly cultivated. Developing brands is our passion, even our obsession. Good brand management creates a meaningful and differentiated product positioning, be it on social media or in-store at the point of purchase, and compelling packaging that have the consumers wear it as a badge. Simply said, to win the hearts and minds of consumers, you have to provide quality in everything you do.

Counterfeit products impact many high-quality consumer product companies, particularly those with strong premium brands with loyal and enthusiastic consumers like Zig-Zag. For several years, our brand production team has investigated distributors of fake papers and filed legal actions in the U.S. as strategically advantageous. We have invested significant resources and worked side-by-side with the FBI, Homeland Security, Customs and Border Protection, state and local officials and international governments to fight counterfeit.

We have long had a 0 tolerance position for those that trade illegally on a Zig-Zag brand equities that we fought so hard and so long to build. On February 20, we reported that Chinese authorities began enforcement actions, targeting parties involved with counterfeit cigarette papers production and distribution. To date, we are informed the Chinese Police have seized several hundred thousand booklets of counterfeit cigarette papers of many popular brands, including Zig-Zag, with packaging material sufficient to produce millions of additional units. We anticipate taking actions against those in the United States who were identified and revealed through these investigations.

We believe this is a good investment. We expect that this will benefit the brand through reduction of low-quality, equity-robbing, counterfeit imitations to the market and yield increased sales of premium Zig-Zag cigarette papers in the future. With Zig-Zag, we have the #1 premium cigarette brand, a quickly developing opportunity in the promising Canadian market and the #1 MYO cigarette wrap brand. And we will protect the brand's integrity and its ability to grow.

I'll now turn to our growing NewGen segment. Our NewGen success in 2017 was delivered by the robust growth of VaporBeast, which we acquired in the late fourth quarter of 2016 and was supplemented by the mid-year 2017 acquisition of Vapor Shark. For the year, sales rose $74 million to a record $91.3 million, but gross profit was a record $25.1 million. Quarter's performance continued the trend and was similarly outstanding. Sales were $23.7 million and gross profit increased by $4.9 million to $6.8 million. Gross margin grew by 300 basis points to 28.8% of net sales.

VaporBeast, our sales distribution engine, has been the driving force behind NewGen's growth. And we're working diligently to deepen sales penetration in the nontraditional retailers we serve. That is paying dividends, with higher order sizes and more frequent orders driving strong sales gains.

We're developing synergies throughout the NewGen segment and across our brand platforms. Our NewGen integration plan is designed to identify ineffective workflows and develop simpler solutions, diagnose duplication to streamline common processes and determine best-in-class procedures to share across platforms. To summarize, we are turning what started as a steeplechase into a 100-yard dash.

Our next structural step is to integrate the manufacturing and distribution of the Vapor Shark e-liquid operations into our Louisville facility. We expect the moves to be completed in the third quarter and produce improved operating and distribution efficiencies.

VaporBeast and Vapor Shark provide the infrastructure that underpins our growth in the vapor marketplace. To maintain focus and manage growth, I appointed Graham Purdy as President, New Ventures to oversee these operations. Graham was our former Senior Vice President of Sales, and the executive intimately involved in both acquisitions. He will manage their continued development while also driving our future acquisition activities in both vapor and tobacco spaces.

Like all successful companies, a solid infrastructure is a prerequisite to execute core strategies and deliver growth. We see areas for improvement, and we're mindful of doing so in a cost-effective manner. We are strengthening our infrastructure in regulatory compliance. We have added bench strength and increased our professional staff over the years to prepare for the implementation of FDA's expanded mandates and to better position our company with targeted OTP acquisitions.

We're improving our sales infrastructure. We continue to expand the size and effectiveness of our sales force to strengthen distribution and merchandising. We're upgrading our marketing infrastructure to build stronger bonds and interactions with our established base of loyal consumers. With improved in-store promotional efforts, targeted social media and direct mail, we're building consumer engagement to increase trial, awareness and sales. We're developing our staff and, where necessary, are adding professional marketing sales and purchasing personnel to further enhance VaporBeast effectiveness and efficiency in the marketplace. The goal is to deliver unrivaled customer satisfaction through best-in-class service.

Our infrastructure improvements are vitally important to drive organic growth. With regard to the FDA, we continue to be encouraged by comments on their new nicotine regulatory policy. Recently, Commissioner Gottlieb spoke to the Society for Research on Nicotine and Tobacco and reiterated that nicotine is delivered through products on a [continuum] of risk and that cigarettes are the category of tobacco products that cause the greatest public health burden. As such, the agency continues to consider policy and forthcoming regulations with this guiding principle in mind. Some of these new regulations are beginning to make their way through the rule-making process. We're now more hopeful that the goal of improving public health can be obtained without overly constraining the industry's ability to innovate and prosper.

To summarize, I'm pleased with our 2017 achievements and I'm optimistic about our future opportunities to build our focused brands, sharpen our operations and pursue promising OTP acquisitions. I said earlier, I like the highway we're on, and our performance in 2017 shows why. We continue to build and protect the value of our brands. We delivered record sales, gross profit, operating income and adjusted EBITDA, and we strengthened our capital structure.

In summary, we're enthusiastic about the future, where we see fertile grounds for both organic growth and potentially transformative acquisitions.

With that, I'll turn it over to Mark to review our financial highlights.

Thank you, Larry, and good morning, again. Larry reviewed a number of high-level financial metrics, so I'll provide some other highlights and our view of 2018. It's been a little over a year ago since our 2017 refinancing and yesterday, we amended that facility and extended its maturity. Let me highlight a few things. We simplified our credit structure by eliminating the first lien second-out tranche. The first lien term loan was increased to $160 million and is priced at LIBOR plus 325. The $50 million revolver is also priced at LIBOR plus 325. And the second lien was reduced by $5 million to $40 million and is priced at LIBOR plus 700.

This amendment produced a number of positive benefits. We reduced annual interest expense by about $2 million on an interest rate, risk-adjusted basis. We extended the first lien facility by 1 year and the second lien by 1.5 years, we reset the amortization schedule, we eliminated the March 31, 2018, quarterly amortization payment and the 2018 excess cash flow recapture payment, giving us some additional short-term liquidity; and lastly, we improved our capacity to execute acquisitions.

Moving to our 2017 performance. Our year-over-year net sales mix continues to shift on robust NewGen growth. For the year, our segment net sales mix was roughly 30% Smokeless, 38% Smoking and 32% NewGen. Importantly, our margins across segments have meaningful variations, principally due to the lower NewGen distribution margins.

For the year, Smokeless and Smoking gross margins were roughly 50%, while NewGen delivered approximately a 28% gross margin. As we think about our 2018 growth and beyond, consumers' shift out of combustible cigarettes and into vapor products will likely drive higher growth rates in NewGen as compared to our tobacco portfolio.

Given our segment margin profiles, we expect higher company-wide gross profit dollars despite a lower gross margin percent, a trade-off that benefits our company. Net sales for the quarter increased 36.7% to a record $73.6 million. This was driven by volume gains of 31.3% and price mix gains of 5.4%.

Gross profit for the quarter increased $6.1 million or 23.1% to $32.3 million, largely driven by the highly successful vapor acquisitions. Gross margin was 43.9% versus 48.7% a year ago. The margin decrease is principally attributable to the mix impact from higher NewGen sales with smaller effects from both LIFO and the euro.

Again, while NewGen's growth has reduced our company-wide margin percentages, we are very pleased with the category's impact on gross profit dollars.

Consolidated SG&A expense in the quarter was $21.5 million compared to $16.2 million in 2016, driven by the inclusion of VaporBeast and Vapor Shark's SG&A expenses. For the quarter, I'll highlight a few SG&A items. Strategic expenses, including $900,000 for the Vapor Shark company stores option purchase, were $1.1 million and flat to a year ago.

As Larry mentioned, we made a significant investment in defending our Zig-Zag brand assets. While expensive, we are wholly committed to the efforts and are prepared to make the hard decisions necessary to defend the iconic Zig-Zag brand. In the quarter, legal costs, including counterfeit expenses, were $600,000 greater than the prior year. New product launch costs of $0.5 million were $100,000 greater than the prior year. Onetime bonuses totaling $100,000 were granted to nonbonus-eligible employees because of the reduction in corporate tax rates. And SKU rationalization expenses were $100,000.

Fourth quarter cost of goods sold included another $100,000 SKU rationalization expenses as part of our rigorous review of product profitability as evaluated against the required investment to comply with the 2018 FDA requirements, including specific warning requirements on packaging at midyear. And new product launch costs of $200,000 compared to $500,000 in the fourth quarter a year ago.

In the quarter, federal excise taxes included in cost of goods sold totaled $4.8 million and FDA fees amounted to $100,000. Interest expense for the fourth quarter was $3.9 million or 32% lower than the year ago period, primarily from the February 2017 refinancing.

Reported income tax expense was $3.4 million for the quarter. Net income for the quarter and year was $3.5 million and $20.2 million, respectively. As a reminder, in the year ago period, we had a tax valuation allowance reversal of $12.6 million that favorably impacted net income in the fourth quarter of 2016, making year-over-year performance comparisons difficult.

Adjusted EBITDA increased 14.4% to a record $60 million for the year and increased 9.6% to $14.8 million in the quarter. The weighted average fully diluted share count during the quarter was 19.7 million shares and fully diluted EPS was $0.18 per share.

Absent the onetime Vapor Shark stores option purchase and tax act impacts including the adjustment to deferred taxes and the onetime employee bonuses, adjusted fully diluted EPS were $0.23 and $1.08 for the fourth quarter and year, respectively.

Now let me discuss some nonoperating drivers. Total debt at December 31, '17 was $202 million, down $16.2 million from a year earlier. Net debt at quarter's end was $199.4 million, a $7.3 million decrease from last quarter. We continued to improve our leverage profile despite the Vapor Shark transactions and ended the quarter within our targeted range of 2.5 to 3.5x with a net debt to adjusted EBITDA ratio of 3.3x.

Our MSA account during the quarter produced investment income of $100,000 compared to roughly $200,000 a year ago. Net operating losses, or NOLs, available to offset federal income taxes amounted to approximately $17.8 million at year-end. We expect to fully utilize these NOLs during 2018.

In the fourth quarter, we issued approximately 16,000 shares in connection with stock options that were expiring. In the fourth quarter of 2018, another 103 options -- 103,000 options will be expiring and, assuming they are exercised, will modestly improve our stocks liquidity.

Before I turn the call back to Larry, I'd like to take a few moments to update you on our outlook for 2018. Absent any acquisitions and net of anticipated line rationalizations, we expect 2018 organic volume growth of 4% to 6%, with price mix contributing another 2% to 4%.

Given the stronger anticipated sales gains in the new -- in NewGen and its lower margin as compared to the tobacco portfolio, we would expect higher gross profit dollars and lower blended company-wide gross margins.

Based upon our most current understanding of the 2018 FDA schedule, we will further sharpen our focus on key growth areas and discontinue products that do not warrant the expense required to achieve FDA compliance. At the present time, we've identified products for 2018 SKU rationalization and estimate these discontinuations will unfavorably impact year-over-year net sales by approximately $3.5 million. These SKU rationalizations are in addition to our 2017 eliminations, which are estimated to impact 2018 net sales by approximately $600,000. We anticipate an inventory charge of approximately $1 million in the first quarter of 2018.

We anticipate that the California tax on MYO cigar wraps will continue to impact year-over-year state volumes through the second quarter, offset by some degree by increased volumes in adjacent states and new product and promotional initiatives.

2018 SG&A expense as a percentage of net sales are projected to be in the 25% to 27% range. With our recent acquisitions, our business has gotten more complex and in 2018, we'll be modifying our allocation methodology for SG&A by spreading corporate support function expenses across our 3 segments, based upon their net sales contribution in each quarter. Of course, all direct expenses will continue to remain in the appropriate segment. As a reminder, we manage the business to maximize gross profit contribution by segment and control total company SG&A expenses to meet the demands of the business. As such, we only evaluate operating income contribution at the total company level.

We expect interest expense for 2018 to be $14 million to $15 million, which incorporates the current fed outlook and hedging a portion of our debt.

Based upon the previously discussed refinancing, we anticipate a loss on the extinguishment of debt in the first quarter of approximately $2.4 million.

We expect an effective income tax rate of 26% to 27%. Net operating losses of $17.8 million are expected to be available to offset federal income taxes into the third quarter. So this year, we will become a federal tax cash payer.

And lastly, capital expenditures for 2018 are expected to be in the $2 million to $3 million range, including the onetime expenditures associated with logistics, efficiency and integration of the Vapor Shark e-liquid manufacturing and distribution facility relocation.

With that, I'll turn the call back to Larry for closing comments. Larry?

Thanks, Mark. Our 2017 performance solidly positioned us for the opportunities of 2018 and beyond. We continue executing our strategic plan in successfully strengthening our organization with concrete results. In Smokeless, Stoker's MST and Stoker's Chew both grew share in a highly competitive oral tobacco market, with MST case shipments up double digits. In Smoking, Zig-Zag cigarette papers and MYO cigar wraps continued to perform at market-leading levels, and we're well positioned to benefit from the developing Canadian marketplace. In NewGen, VaporBeast's process improvements resulted in larger and more frequent customer orders, delivering robust sales gains and improved share of customer requirements. And at Vapor Shark, our focus efforts have produced strengthening sales trends in both the corporate and franchise stores. Perhaps most importantly, our 2017 operating performance, as measured by net sales, gross profit, operating income and adjusted EBITDA, each established new company records.

While setting new company records across the board is especially rewarding, it simply raises the bar and establishes new hurdles and goals. We are not a group that is easily satisfied. I work with a great team at TPB, and we intend to aggressively pursue growth opportunities, including acquisitions, to maximize long-term shareholder value.

Thank you for participating in the call today. And with that, I'd like to open up the call to questions.

(Operator Instructions) Our first question comes from Vivien Azer with Cowen and Company.

This is Brian on behalf of Vivien. Just had a quick one on MST. So given the commentary on cross-category interplay we heard from Altria this past quarter, what do you -- what role do you guys believe vapor is having on the broader industry decel in MST?

Brian, that's a question that we get from Vivien fairly often. I think -- my personal belief is that cigarette -- putting cigarettes aside, which is a totally different experience, the consumer response to vapor and MST is somewhat similar. But it's a very different -- it's a very different activity and very different consumption pattern. And while I think on the margin, there probably is some interaction, I'm not sure how great it is. I don't -- I'm in the camp where it's not as large as what Altria mentioned on their call.

The next question is from Susan Anderson with B. Riley FBR.

I was just wondering if you could talk about the Vapor Shark stores. Is there opportunity there to grow those? Or is it just -- these really going to just be used for consumer insights? And then, are there more operational efficiencies you think you have left in the stores?

Yes, we actually were surprised a little bit by the improvements we were able to make in those stores. We think that the Vapor Shark brand could -- can be fairly significant in the retail space, both through franchising and to some small -- much smaller degree, in terms of company-owned stores. We do believe that we can continue to impact the operations of the store. And I think that the cost of the acquisition will be, actually, at a very attractive multiple as we go forward.

Great. And then, last one on the Stoker's can rollouts. I think you guys said you're in 25% of the outlets out there. Where do you think that 25% number could go, and would you expect similar growth in 2018 in door additions?

Stoker's distribution.

Look, let me just be kind of clear about this. I'm personally insulted that we have not been able to get into 100% of the stores. We'll continue to grind away at it. The available store set in a lot of, particularly the chain convenience stores is fairly small. We're working at it. We'll continue to expand our distribution. We have gone outside and hired a couple of salespeople to further accelerate those efforts. We expect to be talking about this in the next couple of quarters, the progress we've made in expanding, particularly in the chain environment. We think Stoker's has got a long platform for growth.

(Operator Instructions) And at this time, I'm showing no additional questions. So I'd like to turn the floor back to Mark Stegeman for any closing remarks.

Thanks, Austin. And I appreciate everybody's time on the call today. And let us know if you have any follow-up questions. Thank you. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.