Greetings and welcome to Freshpet Inc. Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Katie Turner for opening remarks. Please go ahead.

Thank you. Good afternoon and welcome to Freshpet's fourth quarter 2018 earnings conference call. On today's call are Billy Cyr, Chief Executive Officer; and Dick Kassar, Chief Financial Officer; Scott Morris, Chief Operating 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 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, 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 made today. Today, to accompany management's discussion, there are presentation slides available on the Investors section of Freshpet's website at www.freshpet.com. If you've not accessed the presentation, we welcome you to do so at this time. Please note that on today's call, management will refer to certain non-GAAP financial measures, such as EBITDA and adjusted EBITDA, among others. While the Company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for 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. Finally, this call is one week earlier than we've previously held our annual earnings call. Because the Company crossed the market capitalization fresh threshold that required it to become a large accelerated filer at mid-year 2018. As a result, when the Company files its 10-K later this week, it will have completed its work to be SEC's compliant. Now I'd like to turn the call over to Billy Cyr, Chief Executive Officer.

Thank you, Katie, and good afternoon everyone. To begin, I'll provide an overview of our financial highlights and recent business performance and then provide an overview of our 2019 strategic plan. Then Dick will provide greater detail on our financial results and our financial guidance for 2019. Finally, Dick, Scott and I will be available to answer your questions. We're very pleased with our strong finish to 2018. In the fourth quarter, our net sales momentum continued behind our Feed the Growth plan. We were able to generate solid leverage across our scalable business model and convert our net sales growth to meaningful adjusted EBITDA that matter for financial commitments for the year. Slide number four. The highlights of the quarter was the strong broad-based 30% top line growth. Mega-Channel consumption was up 29.3% behind 38.8% growth in grocery, 24.8% in the Mass portion of XAOC and 19.7% in big box pet. Same-store sales velocity growth accounted for more than 70% of the year-on-year growth. Our core dog business, which is the sum of our dog rolls, roasted meals and Fresh From The Kitchen main meal items, was up 34% in the quarter. Our small but rapidly growing e-commerce business was up 89% in the quarter and now accounts for 1.7% of our business. More than 80% of that business utilized our in-store fridge network. Slide number five. We ended the year with total household penetration of 2.04%, up 17% versus year ago and our core dog household penetration was 1.51%, up 31% versus year ago. Buying rate continued to grow in 2018 breaking $100 for the first time and more than $105, up 10% versus year ago. Slide number six. For the year, we delivered a $193.2 million in net sales up 27% versus year ago and ahead of…

Thank you, Billy, and good afternoon everyone. Slide 22. As Billy indicated, net sales in the quarter were $51.6 million, up 30% versus the year ago period. I would like to remind you that we adopted new revenue recognition standards in 2018 so the net sales in the prior year quarter four was $39.8 million under the new standards. This continued acceleration of the Freshpet growth rate is the result of the increased investment we made in advertising this year, the strength of our product innovation program and continued improvement in our retail presence. The strength of our product innovation is most evident in our mix. As our bags business grew rapidly more than double the rate of the balance of the business and this contributed to the better than expected net sales. We ended the year with $193.2 million in net sales up 27% versus year ago and ahead of our most recent guidance. Slide 23. Prior to discussing the rest of the results, I want to inform you a slight change we made on how we define adjusted gross margin and adjusted SG&A to drive greater transparency when presenting our progress. The changes we are making better align all of our non-GAAP measures add backs within adjusted gross profit, adjusted SG&A and adjusted EBITDA so that under our new format the reader can subtract adjusted SG&A from adjusted gross profit come up with our adjusted EBITDA. This will ensure the reader is better able to assess where our adjusted EBITDA margin increases come from, gross margin or SG&A leverage. Slide 24. Adjusted gross margin for the quarter was 49.4%, down 140 basis points from the year ago period. The driver of the reduction in gross margin, a very consistent with the issues we highlighted in quarter three. A…

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Rupesh Parikh with Oppenheimer & Company. Please proceed with your question.

Good afternoon. This is actually Erica Eiler on for Rupesh. Thanks for taking our questions. So, I was hoping maybe you could talk a little bit more about the price increases you've taken. How are they playing out so far versus your expectations? Are there any early signs of consumer push back or consumers accepting those price increases? Just any color you could share there would be super helpful.

Certainly. Hey, Erica, it's Scott. So the pricing that we put in place was about a 2.1% price increase across the entire line. It was focused on a handful of bag items which tend to be our lower margin products. Those have been implemented through the trade at this point, they've been well accepted across the trade, there's been really no pushback whatsoever. And we've seen some pricing go up, it was effective 2.4%. We have seen some retail pricing go up, it is very early, but the initial read is very positive. Units look to be staying flat at this point, because we get to see kind of almost immediate PoS across several of our retailers. So units are staying flat, which is actually driving some potential incremental growth at this point.

Okay. That's very helpful. And then just could you maybe share you latest views on commodities and other cost pressures in the business such as freight and how you're thinking about those this year?

Sure. For 2019 on commodities, so we already have some slightly favorable prices for chicken going into 2019 and we've locked that in for the year. On beef prices, we're out about six months and we feel comfortable where they are similar to where they were in the back half of 2018. And as far as freight is concerned, as we continue to grow at these levels, we're putting more pounds on a truck and our LTL's go from a couple of pallets to a few more pallets. So we get optimization there and we see there is less pressure in the refrigerated market again in this time of the year and compared to earlier in 2018. So we feel comfortable there.

Okay. Great. I will turn the call over. Thank you so much.

Our next question comes from the line of Brian Holland with ConsumerEdge. Please proceed with your question.

Yeah. Thanks, good afternoon gentlemen. If I could just ask about the - little bit more about the top line guidance. I was pleasantly surprised that where you initially guided mindful that you've come in ahead of that number each of the past two years. But was little bit surprised when I think about obviously implementing pricing, lapping really successful innovation in the prior year, some of the innovation you have planned for 2019 looks pretty compelling, especially the Homestyle Creations, but limited distribution there. So if I think about kind of the dynamics that's lapping some tough comparisons, I mean it's your growth level, you're going to be lapping tougher comparison perpetuity. But is it really just the strong repeat rates just holding through here and all these new buyers you picked up in 2019 continuing to flow through? If you could just maybe talk about some of the puts and takes there and maybe what the catalysts are specifically?

Yeah. So first of all, Brian as you know, we're very bullish on the growth of the business in the long-term growth rate and we think that the things that we did in 2018 certainly created an acceleration and momentum that we're carrying that into this year. And as you saw in the presentation, we showed how the growth rate that we've seen in the first seven weeks of this year is running in excess of the growth rate that we had in the first seven weeks of last year. So we feel very bullish about that and it's being driven by the right, the same fundamentals that you've seen or everyone's seen all along, which is we continue to expand household penetration, we continue to see the buying rate that goes up. As we think about the rest of this year, we're seven weeks into or eight weeks into the year, so we have a long runway ahead of us. We are comparing ourselves against some very big innovations that we've launched last year. We feel very good about the innovations we're launching this year, but we're just are mindful that we're early into a fairly long game. And we feel very good about the long-term trend. What's most important to us is that it puts us on track for our $300 million goal in 2020. I think it's now within - you can see how you can get from where we're planning to be in 2019 and get into 2020 and we feel like we've got the key drivers that will deliver that.

So, forgive my ignorance, but I did catch your slide about where you are year-to-date versus prior year in the acceleration across channels. But that is a decels from sort of the December quarter. So can you just help me, I mean, is that just timing of media catching online, is there, just remind me what might have happened or what typically happens from a seasonal standpoint that would make that less - that compare where you are today versus December quarter less relevant than where you are today versus February of last year?

Yeah. So basically what we had said is as we put the media you begin to see the acceleration happen, and we're starting from a place where if you're trying to figure out what my average growth rate is going to be for the year, it's going to be the some of the growth rate you have in the first quarter through second, third and fourth. And we're starting at a higher place on growth rate than we did last year. And as the media kicks in, at a higher level of media spending, we expect to see it continue to grow. Why would it step down from the end of Q4 into the beginning of Q1? You're just starting to come up against very, very big compares, but we're also going to grow from that point. And we're growing from a higher point than we started last year.

Okay. And then last question, if I just think about the cadence throughout the year, I think you've very clearly laid out the gross margin inflection should probably happen in the second half of the year. When I think about the incremental $3 million that you laid out both on international investment and on the technical side and staffing there, I mean is that - can you grow your EBITDA margin in the first half of the year or does the majority of the media spend, and some of those other investments, are they little more sort of first-half weighted, such that you would maybe see a similar inflection on SG&A or an acceleration in SG&A, where it is more appropriate, the similar to gross margin throughout the year?

So, Brian, the international investment will be more front-loaded just as we do with the US business, where we get a pretty significant return for investing in advertising earlier in the year. The SG&A staffing behind the technical staffing that will probably be more back-loaded as we go throughout the year just because we've got to identify and hire and bringing in the right people. So that will be a little bit more back loaded. I don't know about the adjusted EBITDA margin, Dick you might just comment on that.

No, the EBITDA margin - it's the continuation of strong EBITDA in the fourth quarter and late third quarter as a result of our media spend that we've announced at approximately $27 million plus the $2 million in international is going to be front ended. So it will be similar to what it was in '18 and '17 and even in '16.

Our next question comes from the line of Peter Benedict with Robert W. Baird. Please proceed with your question.

Hi guys. First question is just on the second fridge rollout here, 800 stores this year. Can you give us a sense of how broad that participation is across your - across your retail partners and how - what should we think about in terms of the longer-term opportunity with this? Is 800 a pace that you can continue going forward? Or could it accelerate from here in the out years? Just help us frame that a little bit. Thank you.

Sure. So we're really enthusiastic about the double or the second fridges being added in. So just for perspective, we have right now we've made some good progress on a year to date, we have about 300 multi-fridges and already 264 double, we actually have 50 triples. That actually goes across a fair array of our lead customers, there's probably about four or five of some of our lead customers that are already participating at different levels. But I think what's happening is, as we continue to see really strong same-store growth sales every year, year-on-year, I think retailers are looking at it and recognizing the opportunity in Freshpet and are just feeling comfortable in justifying the actual - the second coolers from a space standpoint, especially given the frequency of traffic and the margins that we deliver to the category. So, we think there's a long road in front of this. Obviously the second fridges will go in the most productive stores that we have, first, but we think that there is a pretty broad opportunity across the entire portfolio over the next couple of years to expand out into the seconds and thirds in some cases across - really across the US and our broader array of customers.

Okay. So if the penetration is probably somewhere roughly 4%, 5% of the doors maybe by the end of this year would have multi-fridges, I mean, that's something that are you comfortable saying we'll go to double digits in the next few years in terms of penetration across the chain?

Yeah, I would say that's probably the direction that we're heading, as long as we continue to see the same-store sales growth and there's nothing that tells us that we won't and that's exactly what we're seeing. I mean - already looking at kind of the four and seven weeks into this year, we're looking at the way the sales are progressing and ACV is always a contributor, but the key drivers behind the advertising expanded penetration, which is driving greater velocity on a per store basis. So yes, we think we will continue to pick up shelf space or fridge, incremental fridges, across a deepening amount of our customer base.

Okay, great, thanks for that, Scott. And then just a question on the international household that you're seeing. Can you help us understand what's the behavior look like from those households, whether it be repeat rates or buying rates, given how long you've been in those markets relative to maybe where you were in the US at a similar time, are they behaving similar, are they different in anyways, what can you tell us about how the international customer is behaving?

So the main market that we're in is the UK and we did a fair amount of work there about a year and a half, two years ago just from a positioning standpoint. And I think that what we had heard is really what we saw when we did the research in the market and obviously there's an incredibly high level of involvement with pet. So then the next thing you need to do is validate is the concept, strong and are people receptive to it. We did a little bit of work around that, we were able to basically put fridges in and see, I would say, good, not great, but we were able to just put fridges in and product in with very low levels of marketing kind of almost gorilla marketing type tactics. Put those in place and see good sales levels and we do see kind of very similar dynamics, very low penetration that we saw in the early days, low penetration, strong repeat rates. And then the key, really from that standpoint is, once you establish a really strong base, you need to basically tell your story and get the message out there and drive penetration into the brand. And we did a small advertising test in the UK this last year, we saw a very, very strong, surprisingly strong results from the TV investment. I think someone quoted it's like water in the desert and it was very impressive and now we're actually going to expand that on a broader basis both in UK and then also in Canada where we have a little bit kind of more developed foothold in Canada but we recognized opportunities in both those markets by taking the TV tactics and putting them in place. We also did a test in Canada on TV, but by putting those in place to kind of expand the penetration and drive consumers into the brand. It's very similar to what we saw five, six, seven years ago here, where early on in order to kind of validate and get people comfortable with the ideology behind the food, TV seems to really get people comfortable with the idea. It's not this unusual product that's in a fridge in a pet aisle. It seems to help it, where we will get comfortable with it and bring it more into the mainstream. So we're really applying that learning into these two international markets and if they've progressed nicely, we don't see them being dramatic contributors to the top line, but they are important in the out years.

Peter, I would add to that. We can get a little bit of panel data in the UK that tells us that the proposition is incredibly attractive, not just for us but also for our retail partners and that obviously bodes well for long-term expansion in distribution. When we put the advertising on the air, we saw it was about 33% the shoppers were new to the retailer and about 73% of the dollar sales they picked up were new to the retailers that were carrying the brand and the repeat rates were 70%. So you can imagine, if you're a retailer you're looking at this, and you're viewing this as a good opportunity to get in this and drive the kind of foot traffic gains that we saw and the category growth gains that we saw in the US.

Okay. Great. That's really helpful. Thanks for all the color, guys. Good luck.

Yeah, thanks.

Our next question comes from the line of Mark Astrachan with Stifel. Please proceed with your question.

Thanks and afternoon, everybody.

Hi, Mark.

I guess first is, was curious housekeeping wise. What is in the numbers for 2019 sales for international and for cat, I'm just sort of, is it relative to where we were in '18 to sort of clarification there would be great.

So the numbers for the international markets are still very, very small. What we are talking about it is an incremental investment, it will help jump-start the distribution gains we get in those markets, but we're not expecting to see meaningful top line contribution out of those markets until we get into the post 2020 period, frankly until we get more capacity online.

Got it, okay. And then just related, a little bit to the last question. I guess I'm curious why now and the accelerated investment outside the US, you obviously talked about some of the on-air work that you did in the UK, the back half of last year clearly successful, I guess you were already doing that. So is it that it just came in better than expected? Do you think there is more competition on the horizon? Do you think it's just now is the right time and you figured out how to get the product more efficiently from Pennsylvania to the UK? Is it that the retailers are driving it because Tesco announced they want to put it into more stores just et cetera, kind of give us a bit of help on that. And then just sort of related, what is the brand awareness in the UK kind of today after incremental investment or where do you want it to go?

Well, first of all fundamentally, I think we all believe that there is a significant value to first mover and there is a significant value to establishing the Freshpet franchise very early on. And so our motivation is to progress down the path of establishing the Freshpet brand and business model in as many places as it makes sense, on the most kind of prudent timetable. We want to be very prudent with the investments that we make. And so if you think about that flywheel that we have going in the US where we invest in media to get distribution, which helps us get some scale and pay things off, you have to start at some point at a relatively small scale and get it going. So last year was validating that the tools that we have, work. This year it's sort of priming the pump. We're putting out enough advertising that can generate the customer interest that starts expanding the distribution, but distribution takes time and if we just waited until 2020 or 2021 to start investing in the advertising, we may not have the distribution to match it. So we're getting the flywheel going now. So that by the time we get to the point where we're ready to put our foot on the gas, we have enough distribution to merit the investment that we will be making. So it's really just getting that flywheel going. Does that make sense?

Yeah, it makes sense. On the brand awareness piece, where do you ballpark it kind of today versus where you think it can go where you want it to go with the investment?

It's probably incredibly low and probably more goes to awareness than anything else at this point. So I don't know, I don't even put a number on it, I don't have a specific number.

Okay. Thanks guys.

Our next question comes from the line of Jason English with Goldman Sachs. Please proceed with your question.

Hey good evening folks.

Hi there.

I wanted to come back to another question on the multi-chillers, the multi-cooler stores. On the slide that you show there, you actually listed as a multi-brand cooler, what does that mean?

So one of the things that's actually very perceptive of you. So what we've done is we actually have - under Freshpet we actually have three different brands that we launched across different retail formats. And basically channel lines have really become erased. So what we've started to do is we're utilizing the best set of products, sometimes they're under brands, for some of the unique propositions they bring. And we're actually bringing those into the second coolers to make sure that we have the right assortment and a broader portfolio to address kind of consumer interest in those retailers. So we had a brand that was more focused on the natural channel called - Freshpet Nature's Fresh and it's made with basically GAAP rated meats. There's some specific formulas and an ideology behind that sub-brand and we're actually going to be bringing that a little bit more mainstream into a handful of other retailers with that have those second coolers.

Good. So there's still your sub-brands you're not losing exclusivity on your coolers?

No, no, we're not, there are 100% of our coolers and we're not losing exclusivity there. There are brands that we're basically putting into a - just a wider assortment, where we can make sure that more consumers are exposed to them.

And Billy in your prepared remarks you talked about how we should understand the cadence of spend versus capacity I think as we go into 2020. And to my hears [ph] I heard, I heard some demand tempering coming into 2020 which where the demand temporary maybe - we may get some margin expansion, followed by demand investment to reaccelerate sales. A, did I hear that right? Because what we should have done it, I don't think I did, and if I did hear it right, is any of that tapping the brake pedal a bit good to start in the back half of '19?

No, on the last part of the question, you did hear correctly. But basically, what we're saying is we are still slated to have new capacity come online sometime around mid-year. And so we are very mindful that we don't want to get to the point where our growth rate outstrips the available capacity. So when we get to 2020, we look at the plan. We've got to be kind of guiding it in, so that as we grow the new capacity comes online, it doesn't come online all at ones. It takes time to start it up and get it to run reliably. So we may skew the investments a little bit differently than we would any other year, we may skew more spending toward the second and third quarters than necessarily the first quarter. That's all going be decided when we get a better handle on exactly when the capacity comes online. But we do know this, if we run at the rate we keep running, there would be a possibility that we could past the capacity. But we're not putting our foot on the brakes.

Understood. And last real quick housekeeping question. The piece of comps that you're pulling out of COGS going forward, it stepped up a lot in the fourth quarter. I think it was like a 100, over 100 basis point drag on gross margins, if we put it in there. Is that a new run rate or is it just sort of timing, year-end closing, and you get a 4Q spike or said differently, what is the gross margin impact of that? And what is your expectation going forward?

Yeah, let me take a sort of conceptual look and Dick can give you the details, but one of the things that we've done to distinguish ourselves as an employer is that we announced in Q4 that we will be giving equity to all of our employees including the team members who worked for us in our Kitchens. We also gave some special grants to employees who have been with us for quite a long time. And those all appeared in the fourth quarter. The grants to the hourly employees will end up being gets expensed in Q1 of this year is the first time, those will show up but the long time employees would show up in Q4 and that was a one-time grant.

In addition to that, we changed our likelihood of achieving certain performance goals in our SG&A and raised our likelihood to 75% in three different categories which were basically revenue and EBITDA associated with the year 2020.

Okay. I guess what I'm getting at is your redefining gross margin, but you're not redefining your gross margin target? Is there materiality? I think should that 52 really be going your high target whether you got to 53? Okay, got it. Cool, thank you, guys.

Thanks, Jason, take care.

Our next question comes from the line of Bill Chappell with SunTrust Robinson Humphrey. Please proceed with your question.

Thanks. Good afternoon. Just both in the quarter going forward, trying to understand the commodity headwinds or the input headwinds with the thought that you're largely bought forward on kind of your chicken and other key ingredients, I mean, was there a surprise in the fourth quarter that or something I missed?

No, we didn't have a commodity hit, it is the same commodity we had basically all year. When we bought forward in 2019 - we bought forward in 2019 our pricing that we had in 2018 was for the entire year for Chicken. So whatever hit we had for the increased costs associated with chicken, it was all year long. The other hit we had in the quarter was we've increased our staffing over the last six months by approximately 130 people. Some of those came on in the second quarter and hit the third quarter, some came on in the third and fourth quarter and really are only actually producing product in the first quarter of 2019 when we went to two additional lines on the seven-day shift. And the training of those people and the expenses associated with them. And in addition to that, we have inbound freight costs during the year. But our margin in the fourth quarter was basically similar to our margin in the third quarter, adjusted gross margin.

And I guess, it gets to - do you feel like, I think you said earlier that people may be skeptical about getting long-term EBITDA goal. And I think it's skepticism all comes on gross margin. And so I'm just trying to understand do you feel like for this year with the number of new lines to pull forward the growth that you have a good handle on gross margin, that this is a number that can start to improve?

Yes, I do thinks so. We - basically we hired 140 people, we hired and it's really a talented pool that we hired. We were known in the neighborhood for being a great employer, we've announced those equity grants that Billy alluded to earlier. So we're getting good people, getting people not only with some experience but certainly strong IQs. And then we're finally going to get some scale for those people running 24/7 on three lines as we are today and then by the second quarter, we'll have a fourth-line running basically two shifts a day for 3.5 days a week. And then the price increase that we put in that Scott alluded to 2.1%, all are helping go forward to achieve, not only to get to a run rate run rate by the fourth quarter of around 51% but get us to 52% in 2020. And if you look at that bridge that we put in the deck, you'll see what our plan is. And on top of that we have our SG&A leverage, which we are very - we're doing great on. We got 500 basis points projected by the end of this year and we expect to pick up at least another 200 basis points next year.

Hey, Bill, let me just add to that. One of the most metrics for me is I watch how we're doing at the things that we can control yield and throughput. And we made good progress on that year-on-year. And that sort of an underlying evidence of our fundamental capability. We will grow out of the issues that we had related to the incremental staffing, if there does come a point where we are fully utilized and fully staffed and fully trained and that will happen in the end of the second quarter. The externality, one of them is mix, we can have - we have some control on that. We think we have pretty good visibility on where our mix is going to go based on the trends. And this year's innovation unlike last year's innovation is much more focused on things that are positive to the mix rather than last year's innovations had a negative consequence for the mix. The one thing you can tell is the commodities. Commodities, we solve for this year with pricing. We have the - vast majority of our commodity costs are well known, are well planned for this year. There's always the possibility that something comes out of the woodwork that you'd have to deal with as it came up. But the big ones, the big heavy hitters are either bought forward are pretty well known or contracted. So I feel pretty good about that side of it. And over the long haul, the thing that makes the biggest difference in our ability to drive gross margin is the ability of our manufacturing people to drive yield and throughput in our lines, and they have consistently demonstrated that for the last two years and we'd expect that to continue going forward.

Got it. And then just last one from me. Just anymore color you can give on where the growth is coming from? And when I say that, is it doors that are - doors that have been around for a year or two that are going from kind of 2% to 5% share within that store? Or is it doors that are built like an Albertson's that have been at 8% are going to 10%, is it small dog going to larger dogs. Just trying to understand what gives you confidence in the growth and where it's coming from?

So, Bill, at the highest level, I think we've probably mentioned in the past, but the vast majority of the growth is coming from velocity. And then the minority of it 80% of it's coming from velocity, 20% of it's coming from ACV built. What we are kind of really enthusiastic about is, as we get into the second coolers, they can be a very meaningful contributor to revenue over time. We don't - we have that some of that budgeted, it's a small kind of number right now and it's going to grow to a larger number. So just that presence helps us from a visibility standpoint. When you talk about like where else is coming from, obviously, we have opportunities to continue to expand the portfolio, have a wider array of products, small dog is a great example. We launched a small dog product a year ago, it's been a major contributor, we're going to continue to kind of add items into that piece of the portfolio. We've launched a handful of other proteins. So we're focusing on not only forms but we're also focusing on proteins used occasions. So it's pretty broad based. And I think that's the thing that we feel most confident about is that the way growth is coming is fairly broad and then we also have other components, whether it's around international that over time or online, that will continue to really kind of contribute and step up further. So we - I think that's the thing that we're most excited about is the breadth of the way the growth is coming in across the portfolio.

Got it. Thank you.

Thanks, Bill. Operator Our next question comes from the line of Jon Andersen with William Blair. Please proceed with your question.

Good afternoon, everybody.

Hi there, Jon.

Just most of my questions have been asked and answered. Just a couple of quick ones. In the prepared comments I think Billy, thanks for the color around the household penetration and the buy rate. I don't think you directly address repeat rates and I was just wondering if you could talk a little bit about the repeat rates you're seeing as you bring these new households into the franchise through trial. Are they holding up at the kind of the 70% level, you've seen historically?

Yeah, it's at the bottom of slide five. We include the repeat rates for all the same periods and it continues to look equally strong, which is - I mean that's a pretty powerful dynamic to be able to drive penetration at the rate we're driving it and see strong repeat rates that's usually that's very unusual.

And then on the second fridges, can you talk a little bit about the location and also the positioning, this was kind of talked about a little bit earlier. But, are these second fridges adjacent to the current ones, are they in different locations in the store? And then are they assorted differently? It sounds like you're using, maybe a little bit of a sub-brand approach to try and target a different consumer within those four walls?

Yeah, the vast majority of those fridges will be directly adjacent to each other. So we will kind of improve the overall visibility of what we're bringing, we're putting best in class fridges with really strong lift headers, really clean open doors, LED lighting inside and a wider portfolio. The vast majority of that way, but we do have many scenarios where they are some of them maybe an aisle where a second one may go on in cap. So we have a couple of different scenarios, but the vast majority will be adjacent to each other. We are bringing a slightly broader portfolio of products. Then one of the new sub-brands we talked about, which is a new line extension we just came out with which is the Homestyle, which is a product that's a little bit more targeted toward people that are actually cooking for their dog. There's a lot of this going on across the US. It's pretty amazing how many people are actually cooking for their dog. It's a sizable piece of business, but we also recognize that people that are currently feeding existing commercial foods will be attracted to that product to. So that's just another way, we're continuing to expand the portfolio, because that will give consumers an opportunity to pick-up protein and then pick a specific mixer that they can include with their protein and do something where they really can't like do some kind of quote-unquote, cooking for their dog . It tested incredibly well. It's only been in the market for three weeks now. We have seen some sales. They've been small at this point, but I think that probably covers the question around nice fridges but also how we're thinking about broadening the portfolio and the branding.

Absolutely. Last one for me is just around e-commerce, it sounds like you've had some really nice growth in that pretty good business almost 90% it's still very small percent of your overall business. But what - are you pleased with the results there? What are you doing to make sure that you're kind of keeping up from an online perspective given the nature that your offerings is a little bit different being refrigerated versus dry and probably harder to kind of manage from a home delivery standpoint? Thanks.

Yeah. So that one of the things that I think we're actually most excited about is that about 80% of the total sales on the online business actually support our existing fridge network, which supports the proposition with the existing retailers. So if we can deliver to consumers that are interested in buying something online and also support the fridge network we're - and that's a much lower cost method to get that product to consumers where you're shipping the first 500 miles to kind of an existing established large network and then use the last mile as a delivery that's tied in with typically other refrigerated products. We think that's the perfect model for us. What we've been able to see it as we've use marketing dollars and not discount dollars but marketing dollars and we market that, we've been able to see really tremendous growth on the online piece of business. We're - and I think you're probably aware of it, it's probably important to note again, but we really don't do any price discounting or couponing across the entire business. We will do samples, we will do some demos periodically, especially on some new products. But we've been able to kind of meter that out with the amount of marketing spending we're putting into e-commerce and then kind of moderate the growth that we're seeing come from e-commerce based on the investment.

Thanks a lot for the color.

Right. Thank you, Jon.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to management for closing remarks.

Yes, thank you very much for your interest and attention. We are very bullish and very excited about our plans for 2019. And we look forward to speaking with you again as we progress throughout the year. So thank you very much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.