Amplify Snack Brands (NYSE:BETR) Q2 2016 Earnings Conference Call August 8, 2016 8:00 AM ET
Katie Turner - IR
Tom Ennis - President & CEO
Brian Goldberg - CFO
David Milner - CEO, Tyrrells
Sean Naughton - Piper Jaffray
Akshay Jagdale - Jefferies
Bill Chappell - SunTrust Robinson Humphrey
Jon Andersen - William Blair
Robert Moskow - Credit Suisse
Brian Holland - Consumer Edge Research
Jason English - Goldman Sachs
Eric Gottlieb - D.A. Davidson
Greetings, and welcome to the Amplify Snack Brands' Second Quarter Fiscal 2016 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, Ms. Katie Turner. Thank you. You may begin.
Good morning. I am pleased to welcome you to Amplify Snack Brands' second quarter 2016 earnings conference call and webcast to discuss Amplify's financial results. Joining me on the call today are Tom Ennis, President and Chief Executive Officer; Brian Goldberg, Chief Financial Officer and David Milner, Chief Executive Officer of Tyrrells.
Before market open today, the company announced financial results for its second quarter and June 30, 2016. The earnings press release and the live webcast of this session are available on Amplify's Investor Relations website at www.amplifysnackbrands.com and a replay of this webcast will be archived there 30 days.
During the course of today's call, Tom and Brian may make forward-looking statements. Such statements regarding Amplify's future financial performance, acquisitions, product development, supply arrangements, growth prospects, sales prospects, customer development and prospects in Amplify's ability to compete effectively. Words such as may, should, will, believe, expect, anticipate, target, project, and similar phrases that denote future expectations or intent regarding Amplify's financial results, operations and other matters are also intended to identify such forward-looking statements.
These forward-looking statements are subject to risks and uncertainties and assumptions. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements as contained in the Company's earnings press release and the risk factors identified in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report and Form 10-K for the year ended December 31, 2015 and subsequent filings on Form 10-Q. Further information on potential risks that could affect the actual results will be included in the subsequent periodic and current reports and other filings that the Company makes with the SEC from time-to-time, particularly under the caption risk factors.
Please note that any forward-looking statements made today are based on assumptions that the company believes to be reasonable as of today. Actual results may differ materially from those expressed or implied by any forward-looking statements that the company makes. Amplify undertakes no obligation to update these statements after today's presentation or to confirm these statements to actual results or changes, and the company's expectation except as required by law.
During this call, Tom and Brian will present both GAAP and non-GAAP financial measures. The non-GAAP measure should be considered in addition to, not as a substitute for or in isolation to the company's GAAP financial information. You can find additional disclosures regarding these non-GAAP financial measures, including reconciliation with the comparable GAAP financial measures in today's earnings press release regarding the Company's second quarter 2016 results and the release announcing a definitive agreement to acquire Tyrrells which is available on the Company's Investor Relations website.
Now let me turn the call over now to Tom Ennis, President and CEO.
Thank you, Katie. Good morning, everyone and thank you for joining us. I'm excited to be speaking to you today to provide both, our second quarter earnings results and to report we have signed a definitive agreement to acquire Tyrrells global portfolio of premium snack brands, representing a truly strategic and sizeable partnership for Amplify. I will review a few second quarter performance highlights and then provide additional detail on the Tyrrells' acquisition. Brian will then review our quarterly financial results in greater detail and finally, we will open the call for your questions.
We are very pleased with our second quarter performance our brand momentum continued at a strong pace resulting in another quarter of record net sales and profit. We generated $59.9 million in net sales, a 26% increase compared to the second quarter last year. The growth was driven largely by continued strong brand velocity across sales channels for the SkinnyPop brand, the continued rollout of Paqui with the addition of Oatmega which we acquired in late April. From a profitability standpoint, we delivered record adjusted diluted EPS of $0.15 and adjusted EBITDA of $21.7 million for the second quarter of 2016.
Turning our attention to the Ready-to-Eat popcorn category and SkinnyPop, recent IRI data shows that the Ready-to-Eat popcorn category continues to be one of the strongest growth categories in all food as the category grew just under 21% in the IRI MULO Plus convenient universe for the 12 weeks ended June 26, 2016. IRI also indicates that SkinnyPop remains one of the fastest growing major Ready-To-Eat popcorn brands and remains the clear number two in dollar sales in the category in major channels.
SkinnyPop IRI dollar sales grew 28.3% and unit sales grew 28.6% reflecting continued strong dollar and volume growth. As of June 26, SkinnyPop had a 19.1% dollar share representing an increase of 113 basis points over the same period in the prior year. Our ACV, a lively recognized measure of distribution reached 76 points, up from 66.8 in the same period last year. ACV gains were primarily driven by new distribution across mass drug and convenience channels. Our TDPs or Total Distribution Points grew 47.2% to 267.4. Going forward, we believe our distribution wide space opportunity remains very compelling.
SkinnyPop continues to be very productive on the shelf and continues to enjoy a high level of brand loyalty with an impressive 62.5% repeat rate according to IRI for the latest 52-week period ending June 26, 2016. Even as we have gained distribution, brand velocity has increased over 17.1% to an impressive velocity rate of $52.3 per million ACV. Our core 4.4 ounce package continues to put up excellent growth rates gaining 33.5%. This quarter we have also seen improved SKU count and shelf placement in some of our largest existing customers contributing to brand sales growth.
Innovation is also a key component of incremental growth for the year. In the second half of this year and into 2017, we'll be launching two new exciting SkinnyPop products, including microwave popcorn and popcorn case that leverage the SkinnyPop brand's strong equity, Better-For-You highest quality attributes and best-in-class brand loyalty.
Our microwave product pops in a fun and highly unique microwave box. It's completely chemical free with no artificial ingredients and it is clearly the best Better-For-You option in today's microwave market. The SkinnyPop microwave product is still in test markets and we expect to fully rollout in January 2017 or as the SkinnyPop popcorn case will have a soft lunch in September with full national launch in January, just in time for the New Year's resolution driven diet season. Initial retail partner and consumer response for these two new products has been very favorable and we are excited about the future potential as they expand and strengthen the SkinnyPop brand equity.
As you know, the first quarter of 2016 represented the official national launch of Paqui, our flavored Tortilla Chips brand. In the 12 week period ending June 26, 2016, we have secured an ACV of 29.4 points. We have gained new distribution across channels with high quality retail partners, especially in the mass, grocery, and natural channels. We expect to continue to add more distribution over the course of this year and future years across all sales channels. While distribution has been impressive, and repeat rates are strong, we have not garnered the trial we would have expected at this point leading to modestly lowered expectations for the year. As such, we have taken steps to improve brand trial as it is apparent that once consumers are have had the opportunity to taste Paqui, and understand its high quality Better-For-Your attributes, they come back to the brand.
In Q2 we were offered some unique opportunities to accelerate marketing via in-store trial demonstrations and promotions and jumped at them as they are key to sustain brand performance and trial, and aren't always available for brands of Paqui scale. As an example while we do this post-marketing efforts, Paqui now has three of the top five fastest moving Better-For-You flavored tortilla chips as measured by dollar sales per million ACV at a very large multinational retail account. This account also committed to expand Paqui distribution following the marketing period. We have also taken steps of improving Paqui's packaging by adding appetite appealing food photography which was well received by consumers and retail accounts alike and we expected the market in early Q4.
These combined efforts are paid off as this fall we expect to go expanded distribution in some of our current largest accounts, as well as continued new distribution in wide space accounts. We plan to continue to make incremental investments in Q3 to drive greater brand awareness, ramp up consumer trial through targeted promotions and product demonstrations as well. We remain highly optimistic about Paqui's opportunity but it is still very early in our Paqui brand launch and we believe it will take time over the next several years for Paqui to reach its potential.
On Oatmega, as you know the acquisition closed in late April and our teams have been working together on both, company integration and building sales momentum. Since our last earnings call, we have been educating our sales force and have seen solid distribution gains in Target, Wal-Mart, 7/11 among others. We are incredibly lucky enough to be in a position that retailers have proactively approached us asking for the product. Oatmega's attributes are also on-trend using the highest quality grassfed whey protein, omega-3's and minimal sugars, and it tastes great. It's also a female-friendly protein bar which is somewhat unique in the space and is driving a lot of interest. We remain very excited about the future of this brand and its growth prospects.
And without further ado, turning to Tyrrells; at Amplify we believe in snacking without compromise. And we took a tremendous step forward to build upon our international Better-For-You snacking growth strategy by signing a definitive agreement to acquire the rapidly growing Tyrrells international portfolio of brands. Tyrrells is a company we have long admired and was consistently at the very top of our strategic target wishlist. As the company was not previously for sale, our continued indications of interest and ongoing casual dialogue with their management team finally paid off several weeks ago, and we began to formally pursue this proprietary acquisition.
This is a highly strategic move for Amplify. We have reviewed a wide variety of potential targets and this was one of the few large, profitable, rapidly growing companies that also provided us with an international platform, tremendous revenue synergy potential and immediate diversification benefits. We plan to leverage Amplify's and Tyrrells market-leading brands and talented management team to significantly broaden our international customer reach, meaningfully diversify our brand, product, category, geographic and retail presence, and realize the benefits of operating scale and potential revenue synergies.
Before I get into detail about the strategic benefits and significant value we believe this transition brings to our stakeholders, I would like to share a little background on Tyrrells for those of you that are new to the company and its brands. Founded in 2002 and headquartered in Herefordshire, England; Tyrrells is a diversified international snacking company with iconic market-leading brands including Tyrrells Potato Crisps, Tyrrells Vegetable Crisps, Tyrrells Poshcorn, Tyrrells Nibbles and Tyrrells Tortillas sold in the United Kingdom, Europe, and many other international markets; Yarra Valley, manufacturer of Thomas Chipman and the wholesome food company brands in Australia and aroma snacks manufacturer of Lisa's kettle chips in Germany.
Importantly, similar to Amplify's existing portfolio of brands, the Tyrrells family of brands tastes great and are made with simple, clean and transparent ingredients, and represent the very same type of Better-For-You focused products that consumers are demanding today as evidenced by our best-in-class growth rates and brand loyalty metrics. Tyrrells is the number two player in the hand-cook premium chip market in the UK according to IRI for the latest 52-week period and in June 26, 2016. And it is the leading player in France with existing and growing penetration in other key Western European markets. Tyrrells has a strong presence across the potato chip, vegetable chip, corn chip, and popcorn product categories and is supported by five international manufacturing facilities in England, Germany and Australia.
Of Note, we are very confident in the strength of the Tyrrells brand and a larger portfolio of fast growing regional brands across a wide variety of geographies and while not without some risks, saw the timing around Brexit as a unique opportunity to buy. Of note, given that Tyrrells derives an excess of 40% of its earnings outside of the UK, and also as manufacturing abroad, we believe that there is a natural hedge against potential foreign exchange concerns. Additionally, the global snacking market has clearly demonstrated its ability to thrive in all macroeconomic conditions. With distribution across a high diverse set of international sales channels, Tyrrells generated approximately $111 million in net sales for the latest 12 months ended June 30, 2016, and achieved a compound annual growth net revenue growth rate of 23% from fiscal 2013 to fiscal year 2016, pretty impressive.
During the last 12 months ended June 30, 2016, the company generated approximately $24 million and management presented EBITDA as adjusted by due diligence in connection with this transaction. This transaction will create a combined company with approximately $317 million in pro forma sales based on our results for the last 12 months. And we expect a meaningful accretion to our 2017 and 2018 earnings per diluted share.
So why Tyrrells? And why now? For starters, Better-For-You snacking is not just a U.S. phenomenon, we are seeing similar trends across the globe and have been eager to more actively participate in those trends. With Tyrrells comes not only a variety of market leading premium and Better-For-You brands but also the infrastructure and people that can help continue and accelerate Amplify's long-term international growth plan. This is a tremendously unique opportunity for us to partner with Tyrrells to build upon our existing Better-For-You snacking platform and together we will create a larger, more international and more diversified pure play Better-For-You snack food company that can continue to drive robust future revenue and earnings growth.
In terms of specific, strategic, and financial benefits that result from the acquisition; number one; Amplify will diversify and expand our Better-For-You branded product offerings. This acquisition creates a much larger and more meaningful international growth platform with substantial brand, product category, retail channel, customer and geographic diversity. Following the closing of the transaction, Amplify's North American footprint would represent approximately 63% of net sales, the United Kingdom would represent approximately 23% of net sales, and the rest of the world represent approximately 14% of net sales based on pro forma net sales for the last 12 months ended June 30, 2016 for both companies.
Number two; we will accelerate our international expansion and wide space realization. The acquisition of Tyrrells allows us to more rapidly realize the opportunity provided by global Better-For-You stacking trends. Complementary distribution channels and sales teams provide actionable wide space opportunities and potential to accelerate revenue growth for both Tyrrells and Amplify's current brand portfolios. Minimal product and business overlap create two way cross-sell opportunities to help accelerate entry into new markets and broaden reach in existing markets. We are excited to benefit from the presence of international sales team with strong customer relationships in over 40 countries. While Tyrrells brands can leverage Amplify's outstanding North American focused capabilities.
Number three; increased scale provides significant future benefits to our Company. In addition to benefiting from greater operating scale and increased procurement savings, we believe Tyrrells outstanding debt manufacturing expertise and global capabilities will provide future cost benefits to us by accelerating our brand development internationally. Beyond cost benefits, the combined company expects to realize additional benefits of scale via sharing of best practices, leveraging established infrastructure, and strengthening retail partnerships.
And number four; we are very excited to welcome the addition of an experienced and talented executive team; David Milner, CEO of Tyrrells is here with us on today's call. We believe we are gaining an outstanding group of executives with strong international consumer packaged goods backgrounds, and a proven track record of growth to compliment the core Amplify team. Upon closing of the transaction we are thrilled that the Tyrrells management team will remain in place with David continuing as President, International for Amplify, reflecting his commitment and belief in the future success of the combined company.
In addition, other key members of Tyrrells senior management team are joining Amplify and at the closing of the transaction all will have personally invested in the new combined entity demonstrating their commitment to our future combined success. Of note, given our cultural fit and clear strategic alignment, David and his team chose Amplify as their preferred partner which was a key piece of our ability to negotiate this deal at a proprietary basis.
In summary, we believe this transaction creates a much stronger and more diversified Amplify and it provide strong and relevant brands and businesses that are independently growing double-digits and highly profitable, and the opportunity to achieve accelerated growth and enhanced profitability now and into the future. We are pleased with our continued strong momentum and are incredibly excited about Tyrrells. We believe we are well positioned to deliver another quarter and year where we generate incremental distribution and velocity gains across our brands. Significant international growth is just around the corner as we diversify our Better-For-You snacking platform. We remain committed to executing against our growth strategy and look forward to continued sales and profit growth.
With that, I'd like to turn it over to Brian.
Thank you, Tom. I will now review our second quarter financial performance and some of the other data from today's press release. We are pleased to report record performance in the second quarter.
Second quarter net sales were $59.9 million, an increase of $12.5 million over the second quarter of 2015. This represents a 26.4% year-over-year growth rate in Q2, and a sequential over the first quarter in 2016 of 10.3% reflecting continued distribution expansion and strong brand velocity performance across our sales channels. Our core SkinnyPop brand continues to see exceptional growth rates, velocities, and repeat rates and be the core driver of revenue growth. As Tom mentioned earlier, after the national launch in Q1 we continue to roll out the Paqui brand in new retail accounts this quarter, and are pleased with our current and growing level of ACV.
Additionally, we are already seeing strong customer acceptance of our recently acquired Oatmega brand. While we remain optimistic on our new brands the vast majority of Q2 net sales remain attributable to the SkinnyPop brand as Paqui remains in trial building phase and Oatmega only represented a partial quarter of sales.
Turning to gross margin performance; we generated $32.5 million of gross profit in the second quarter with 21.9% growth versus the prior year period. Gross margin was 54.4% of net sales for the quarter which was in line with our expectations, down 200 basis points from the same quarter last year and up 210 basis points on a sequential basis from the first quarter. As we have noted in the past, we expect this relative year-over-year trend in gross margin to persist for the rest of the year as we one, to continue to invest in a slightly higher level of trade promotional activity; and two, realize increased contribution from our acquired brands which have a more traditional snacking and lower gross margin profile than SkinnyPop.
Further to the point as we have noted in the past, our gross margin does vary on a quarterly basis, mostly driven by the varying level of trade promotional activity in any given quarter. For the sake of clarity, we currently have a higher level of trade spend planned for our third quarter as compared to the second and fourth quarters due to back to school promotional opportunities and a club channel program we were able to achieve this year. So we expect an accelerated growth rate in Q3 to be partially offset by a lower gross margin percentage in the quarter. We expect to see continued increases in contribution from Paqui and Oatmega in the second half of the year which I have noted have lower and more traditional snacking gross margin profiles than SkinnyPop.
This brand margin gap at our smaller brands will be further pronounced in the near-term given additional costs associated with their national roll outs which will improve overtime as we obtain scale on these brands and are able to capture procurement leverage, as well as freight and logistics efficiencies. The net is we continue to expect gross margins to remain strong but relatively lower than our full year last year via different channel, brand and product mix, and slightly increased trade spend across the brands.
Adjusted SG&A expenses for the second quarter which is reconciled in today's press release were $10.9 million or 18.2% of net sales, this compares to Q2 2015 adjusted SG&A of $7.9 million or 16.8% of net sales. The increase in adjusted SG&A was primarily driven by an increase in marketing investment for the quarter. Some of the increase in investment was planned and driven by a higher marketing budget in 2016 versus prior year and a portion was driven by unique marketing opportunities that presented themselves for our Paqui brand in the second quarter. Tom previously provided additional color on the upsized Paqui investment with a few targeted retail accounts and we are very pleased with our retail partner response to this additional investment and our commitment to growing this brand long-term. Of note, we also added incremental SG&A from the recent acquisition of the Oatmega brand and had higher expenses in Q2 this year as compared to last year related to our corporate infrastructure build out last year and the public company costs incurred this year.
On a sequential basis, adjusted SG&A was approximately $2 million higher in Q2 than in Q1 driven primarily by increased marketing spend due to the natural cadence of the business as we've sample our products to consumers and participate in events and sponsorship opportunities in the spring and early summer, as well as the addition of the Oatmega brand in late April of 2016. We expect Q3 and Q4 SG&A to be lower than the second quarter due to less consumer marketing programs but note that if we have strategically opportunistic ways to support and grow our brands presented to us, as we did in Q2, then we'll continue to seize those opportunities. The adjustments for SG&A this quarter primarily include approximately $1.1 million in intangible asset amortization and approximately $1.1 million in equity-based compensation.
Moving on to adjusted EBITDA in Q2 which is also reconciled in today's press release. We generated $21.7 million of adjusted EBITDA in the quarter or 36.3% of net sales compared to Q2 2015 adjusted EBITDA of $18.8 million representing 39.7% of net sales. Year-over-year adjusted EBITDA growth for the quarter was 15.5% and sequential EBITDA growth was 11.1%. The increase in adjusted EBITDA was driven primarily by increased net sales and gross profit, partially offset by the previously discussed increase in SG&A investments. The infrastructure investments to build our corporate platform in 2015 as well as our public company operating costs from our August 2015 initial public offering were at significant factor in the reduction in our adjusted EBITDA percentage of net sales in Q2 versus the prior year period.
I will now cover net earnings for the quarter. GAAP net income for the quarter was $8.8 million or $0.12 per fully diluted share compared to net income of $3.6 million or $0.05 per fully diluted share for the same quarter last year. GAA net income growth was 146.3% or $5.2 million. Non-GAAP EPS for Q2 was $0.15 per fully diluted share or $11.3 million of adjusted net income versus $0.13 per fully diluted share or $10 million of adjusted net income in Q2 2015. We incurred $3.1 million of interest expense in the quarter and our effective non-GAAP tax rate in the second quarter was 38.7%.
Turning now to the balance sheet, net debt as of June 30, 2016 was $205.2 million. Note that in the first quarter we paid $23 million with regard to the Founder Contingent Compensation liability with approximately $2.2 million remaining to be paid later this year. There remaining cash payment relates solely to tax gross up payments to the SkinnyPop founders under this agreement. We also paid down $2.5 million on our senior term loan in the second quarter of 2016 related to an excess cash flow provision in the credit facility. The increase was partially due to the acquisition of Oatmega. At quarter end, we had cash-on-hand of $7.4 million and $10 million of availability under our revolving line of credit. Note that on July 1, 2016 we entered into an agreement to increase our revolving line of credit commitment from $25 million to $40 million. After giving pro forma effect to availability provided in such agreement as of June 30, 2016 we would have had availability under our revolving line of credit of $25 million at the end of Q2.
As you know, we have been busy on the acquisition front. As such and as we noted, we would do on our last earnings call we want to provide some additional color around the Oatmega brand acquisition. We are very excited about the sales growth momentum as the brand continues to gain traction with both, retail customers and end consumers. That being said, and like Paqui and most other earlier stage packaged food products and brands, we want to be conservative in our multi-year revenue build assumptions and the investments required to build long-term sustainable brands. Additionally, it takes time to optimize the cost efficiencies we feel are achievable within the supply chain that will improve the margin profile naturally associated with less efficient subscale brands.
After taking into account some of the cost synergies we will begin to realize in the second half of 2016, we expect modest accretion to full year 2016 earnings with more significant accretion to be achieved in full year 2017. Longer term our goal is that we can grow Oatmega into a highly profitable brand in excess of $50 million in annual sales. Beyond Oatmega, we are extremely excited about our announcement of the Tyrrells transaction. As Tom mentioned, we have admired the brands, the consistent business growth, the management team, and the collective achievements of the company for some time and feel strongly that this acquisition is highly strategic for us as it will provide for significant long-term revenue growth opportunities, as well as immediate brand, product and geographic diversification. We expect the leverage to well establish Amplify North American and Tyrrells international platforms to accelerate growth of our respective products and brands around the globe.
We have also identified certain cost synergy opportunities as a result of our greater scale and purchasing power, noting we have been very conservative in our modeling of these items as this acquisition is more about adding than subtracting. In terms of an outlook for the business, we will provide more color in our next earnings call but do expect continued strong long-term growth rates of the Tyrrells Group. Over the next few years we believe the core Tyrrells business should continue to grow revenues in the mid to high teens and that its EBITDA margins should remain at levels in the high-teens. The purchase consideration is 300 million pounds comprising of 278 million pounds of cash and approximately 2.1 million shares of Amplify's common stock issued to Invest Corp and members of the Tyrrells management team valued at 22 million.
The transaction is being valued at approximately 15.5 times Tyrrells LTM June 30, 2016 adjusted run rate EBITDA as adjusted through our due diligence of 19.3 million pounds. We plan to finance the cast portion of this transaction with debt and have secured financing commitments from affiliates of Jefferies, Credit Suisse and Goldman Sachs. We will also be increasing our revolver capacity to $50 million but do not plan to draw on it at the time of the acquisition. Pro forma for the transaction net leverage is expected to be 5.7 times based on LTM 6/30/16 pro forma combined adjusted EBITDA of $104.4 million. We are confident that via continued Amplify growth and the outstanding free cash profile of our base business we can organically delever to our target leverage profile of 4 to 4.5 times by the end of 2017.
Of note while we continue to opportunistically look to expand our acquisition platform we do expect the vast majority of our focus in 2017 to be on the numerous Tyrrells opportunities. In addition, we believe Amplify and Tyrrells are complementary businesses and expect the integration process that evolves at a reasonable rate over the next year without a forced timetable. Of note, given the geographic and manufacturing diversity of the company, it recognizes costs and revenues in several currencies, including the British pound, the euro, and the Australian dollar; and as such, we believe it has a reasonable natural currency hedge built into the business. The transaction is expected to close by the end of the third quarter of calendar 2016 subject the customary closing conditions including approval by regulators.
In terms of an outlook on our existing business we expect the business to perform in line with previous guidance. The SkinnyPop RTE product continues to put up strong growth rates. Note, we have modeled in very little net sales contribution from the adjacent SkinnyPop category innovation so we believe that there is potential upside opportunity here. Regarding Paqui, we are very pleased with the initial distribution and more importantly, the improvement in product turns and repeat purchase rates we are seeing from key retail accounts. However, consumer trial is ramping at a slower pace than expected and as such we are being conservative in our Paqui net sales and margin contribution expectations for the year as we put more muscle behind accelerating consumer trial of the brand.
Oatmega is off to a very strong start and we will see continued incremental revenue contribution with less near-term margin benefit and more significant and normalized contribution throughout 2017. For the base business in the second half of 2016, we expect net sales to be higher in Q3 than in Q4 due to a higher level of promotional activity in Q3 from back-to-school and club program initiatives. We also expect the lower gross margin percentage in Q3 versus Q4 via the higher promotional activity in the third quarter.
As mentioned in prior calls, there are less promotional opportunities for us in the fourth quarter given our Better-For-You brand profile and given the more indulgent holiday season. And of course, the higher contribution from the Paqui and Oatmega brands will continue to put slightly more incremental pressure on gross margin percentage. We expect operating expenses to be down sequentially quarter-over-quarter in Q3 and Q4, primarily due to lower marketing expenses as the year progresses.
In terms of an outlook for the rest of the year and assuming that Tyrrells acquisition closes on 9:30, we are adjusting full year guidance to a range of $360 million to $270 million in revenue and $92 million to $96 million adjusted EBITDA. This higher guidance reflects one quarter of contribution from Tyrrells in Q4 and again implies we are essentially reiterating our base business guidance that we provided previously. Of note, we do expect to incur some incremental Tyrrells related costs in Q4 before we are able to begin to realize our cost synergies or any future revenue synergies in 2017. Given that significant capital structure changes resulting from the significant acquisition and upcoming conversion of Tyrrells's financial statements of the U.S. GAAP, we will wait to provide the detailed adjusted EPS outlook information into a later presentation.
That said, while we are not yet providing detailed EPS guidance for fiscal year 2017, I would like to note that we believe the acquisition of Tyrrells will be modestly EPS accretive on a standalone basis before taking into account the impact of any potential revenue synergies which will make the story very exciting. I would like to note, we are not providing guidance on GAAP net income or GAAP EPS and only non-GAAP adjusted EBITDA because we have not yet finalized our calculations of several factors necessary to provide the corresponding GAAP measures as discussed in our earnings release. We will provide a much more detailed outlook on the consolidated Tyrrells business on our next earnings call. We look forward to providing more guidance on the combined Amplify and Tyrrells business on our next earnings call.
With that, Tom and I are now available to take any questions. Operator?
Thank you. [Operator Instructions] Our first question comes from the line of Sean Naughton with Piper Jaffrey. Please proceed with your question.
Good morning. So a quick question, maybe just a clarification on the guidance that you provided. Is it basically fair to say that the increase and the guidance that you guys provided is really just from adding an Oatmega as I don't think that was part of it, and then also layering on the Tyrrells acquisition. Is that a fair way to characterize kind of what's happening on the guidance with -- for the full year at this point in time?
Sean, its Brian. So really the incremental amount in the guidance is really the Tyrrells contribution. So we're essentially keeping our base business guidance consistent with prior. So as we mentioned in the call here, we feel Paqui is little behind our expectations, we added Oatmega essentially to push, and the incremental guidance is really driven by Tyrrells.
Okay, that's great. And then just as a follow-up on Paqui, I mean how far off and not looking for your exact numbers here, but just qualitatively, how far off do you think Paqui is from the 2016 initial expectations and does the slower start give you any pause in the potential for this brand? And just given that it sounds like the repeat purchase rate is really strong, and from the tests that we've done the product does taste really good; are there any things that could have been done potentially, even differently, when you look at this in hindsight on Paqui? Thanks.
Sean, its Tom. From Paqui, I would say we're very excited about Paqui, we remain very bullish on the business but the reality is we've done a great job getting distribution. We didn't do as good a job as we should have, getting trial on the business. So we got into a crowded set, we should have done more initially on in-store demonstrations, we actually moved those forward into kind of the second quarter and little bit into the third quarter, and once people got a taste of Paqui, we saw really nice repeats. So things we could have done differently; started out with a stronger sampling program, and also when we got into the more crowded sets, it was hard for consumers to really understand what the product was. And so that's why we put the food photography that will be rolling out; so it just helps with that product registration, people know exactly what Paqui is when they see the food.
So those are things that we would have done differently, we of course corrected to do that and I would say the response from the retailers and the consumer has been really positive since we've done that. So for instance, by moving forward those demos we saw really nice sustainable lists and then once we saw those sustained list, we actually got enhanced distribution from some of these customers. So as they are doing their September fall reset, they've actually expanded the Paqui business, so that's a nice vote of confidence from the retail community. We're a little behind in the year because of the trial but that should correct itself overtime.
Okay, that's great. Best of luck in the second half and congrats on the Tyrrells acquisition.
Thank you. Our next question comes from line of Rupesh Parikh with Oppenheimer. Please proceed with your question.
Good morning. It's actually Erica [ph] on for Rupesh. Thanks for taking our question. So just on the Tyrrells acquisition, we know Better-For-You snacking is extremely competitive here in the U.S., just curious, can you help us understand kind of the competitive dynamics in some of Tyrrells markets?
Yes, I think Tyrrells compete very, very strongly in the UK, they are the number two kind of premium hand-cooked crisp which is kind of -- their word for chips over there, they do very, very well there. They do well on the vegetable side, they've just recently gotten into popcorn which is exploding in the UK as well. They are by far the leader in France within that premium hand-cook segment, and have just began really expanding their business in other Western European countries including Germany, and what's probably really exciting, as well as Australia. And I don't know David do you want to comment a little bit on Tyrrells? I have David here with me.
Hello, it's David speaking, thanks for the question. I think from an U.S. perspective, it's easy to imagine there were lots of hand-cooked crisps all around the world and whilst to the U.S. that's the case, there are lot of brands. In many of the European countries, we were the very first people to go there and there are still only one or two. So in France, we were the first hand-cooked crisp to launch in France. And so we have the advantage of first mover action. And then in Australia where we launched about a year ago, we are still the only hand-cooked crisp available in that market. So something that's a very big and well established behavior here is really quite new in some countries, and we're still very fast growing cash and very fast growing in new category.
That's really helpful. And then just digging a little deeper into the UK, and we continue to hear about how challenging the UK grocery market is, can we be -- you talked a little bit about how well some of the chips and those products have been performing, can you kind of maybe just dig a little deeper in the UK performance? Maybe you talk about kind of the channels -- did the products are performing in there?
I'll let David comment but we were really excited about when we were looking at this business is just how well this premium category is growing, so their premium category has been growing over the past few years over 7%. There has been a little bit of flattening of the overall crisp market but consumers are gravitating more and more to the hand-cooked premium segment, so we're seeing really nice growth there. The other thing that we saw with Tyrrells is even in businesses where they've been well established, they continue to grow and take share in the marketplace. They also have wide space opportunity unrealized as well. So we think there is a great opportunity for them to continue to grow. And I think David can comment a little bit.
I think you're right to say that the UK retail environment is a tough environment at the moment, it's highly competitive. But we do have the advantage of being in the right space, snacking is a great place to be, and premium snack within that is the best place to be. Popcorn is really just taken off in the UK and we have brand, Tyrrells Poshcorn, which is our fastest growing business. And so I think if you're in a branded category and you've got brands that are the relatively new but seen as very positive in terms of Better-For-You snacking, you've got great double-digit growth pretty much everywhere you look. Some of those difficult -- some of that difficult environment doesn't really apply so much because the retailers are having a tough time. So they want to work with brands that can provide them with growth.
Thanks for all the color.
Thank you. Our next question comes from the line of Akshay Jagdale with Jefferies. Please proceed with your question.
Hi, good morning. Congrats on the acquisition. Just, can you help me understand what does Amplify bring to the table that Tyrrells couldn't? Basically, where does the combination makes sense from that perspective?
Yes, so I think primarily, it really is this great notion, we have two very similar businesses that we're putting together, that have very little geographic and category overlap. So by putting them together we strengthen the entire. So there is great cross sell opportunities and revenue synergies. So for instance we have a very well established and highly talented infrastructure including sales here in North America that where we can take the Tyrrells family of brands and bring them here to the U.S. Conversely, the Tyrrells group also has a fantastic track record of building brands not just in the UK but in many, many international markets, and they're able to take SkinnyPop, Paqui, Oatmega and bring them to those markets. So very quickly we can start to realize great international revenue synergies on both parts. Tyrrells also brings to us great manufacturing capabilities and understanding that you know as you know because we were outsourced model, we don't currently enjoy today. So there is lot of great reasons to put these two together and create a really great brand and company.
And can you just give us a little bit more perspective on the growth. So what are the -- give us some perspective on that 26% CAGR. I didn't know unfortunately much about the company until today, so just looking at the website, I mean it's been around for a long time but if you can get us -- give us some color on what's driving the growth in volume, price, and then maybe just give us a little timeline on what products have driven some of the growth, maybe what countries, that would be super helpful.
Okay, thanks for the questions, David here again. There are really three platforms to that growth, the first one is growing distribution in our home market. And we've continued to do that right from the start of the business and there is no slowing up, it's a growth about distribution gains and our sales in stores we've already been in. The second area growth is that of innovation. So we've moved overtime from potato crisps or chips, you [ph] call potato chips, to vegetable chips, to popcorn and tortillas. So we've been able to stretch the Tyrrells brand from its core which is potato chips into these new adjacent categories. And then the third platform of growth has been international expansion. To start with that on an export basis, and I'd mentioned earlier, France is our first market where we have over 50% of the hand-cooked market today, we're pretty much in every supermarket; then Germany, and Switzerland, and the list goes on.
The second phase of that third platform there is to make some acquisitions. And within the last year we've acquired the leading organic chip company in Australia, and now two months ago the leading organic chip company in Germany. So we've moved our international expansion from the level of international export upto acquisition and that's given us some accelerated growth in the last year.
And can you give us order of magnitude contribution from each of these platforms just roughly?
We're just looking at Tyrrells alone, in sales this year we will be delivering just under 45% of our sales from international markets, that's a big change for us. Six years ago we were a U.K. domestic business and doing very nicely, and now we've been able to -- but on one hand continue that growth but on the other hand step out -- as I say, not half but almost half of our business is now outside of the UK.
Okay. And then just a few for Brian just from a financial standpoint, I know you give us more details as we go along but what kind of cost of debt should we thinking off when we're trying to do our accretion dilution models? I mean what I was using this morning was somewhere between 4.5% and 5% on the amount that's going to be financed. And then also on deal-related amortization, I was assuming about $7 million. So can you give us some sense -- I mean those are the two -- those seem like the two biggest pieces other than revenue synergies. But can you give us some guidance there? I mean, I was getting to about 3% to 5% accretion in '17 based on those numbers that I talked about.
Yes, so I think on the interest side of things and advancing cost, I mean obviously we're going to get that nailed down here in over the next few weeks. But I would model kind of that 6% to 6.5% or so, 6% to 7% call it on interest. And yes, I mean we do think the business will be accretive, really without getting into revenue synergies. So we haven't really modeled revenue synergies into our kind of base accretion but we think that's a real big part of the story going forward. And other details?
Yes, 6% to 7% or $6 million to $7 million?
6% to 7% interest.
Okay. And then deal-related amortization?
It's a couple of million dollars.
Okay. And then just give us some -- I mean, I know you don't want to -- you're not in a position to really talk about revenue synergies but how should we generally be thinking of the framework? I mean the U.S. market premium potato chips, kettle chips, seems like a pretty mature market, it's growing obviously above the rate of just potato chips but it's premature, there is a lot of well-established brands. Can you also understand [ph] sort of a framework here?
Akshay, last -- good question for you because we got to get to some others but -- so we really think there is tremendous revenue opportunities both, abroad and here in the United States, and while the chip market is crowded, it is also incredibly large and then the research that we've done in our due diligence, it does point to a core demographic is very much interested, and in English crisp product, both on the potato side, and the vegetable side. Tyrrells also has some really unique Better-For-You attributes being naturally low in fat and tastes wonderful. So we think there is a great opportunity for us to continue to expand and to gain share within that marketplace. And then obviously there is an opportunity to take SkinnyPop as well as for other businesses over to Europe and also to Australia. So we'll be working on those hard but as you know, they'll take time with packaging, development, manufacturing; but I would expect kind of those cross-sell opportunities some part into next year.
Thank you. [Operator Instructions] Our next question comes from line of Bill Chappell with SunTrust Robinson Humphrey. Please proceed with your question.
Good morning. I'm disappointed we didn't throw out the tagline, life's a shindig [ph], that's got to get some kind of revenue synergies read by itself. I guess first, going back to Paqui, help me understand kind of where we stand -- is there any concern that you maybe gotten too much distribution, too fast and it's going to take a little more to support that, just in terms of as we look for the next two or three quarters?
Yes, you know what I actually think that's probably a fair statement, Bill. The sales team did a tremendous job gaining a lot of distribution quickly, and we do need to support it, we do need to make sure that consumers get an opportunity to understand what Paqui is and to try Paqui. And so we did move up some more of those trial building initiatives into the second quarter that we thought quite frankly would come in the third quarter as distribution ramp but we did get distribution and that's a great problem for us to have; we'd rather have early distribution than not but we just got to make sure we get that trial. The good news is, once we do get that trial we're seeing really strong repeat rates, and one of our largest accounts we are now seeing, our Paqui flavors, in the top, Doritos [ph] in that Better-For-You flavored space. So the nice thing is as we've enhanced that trial we're getting even greater distribution and greater support from those customers. So we feel really good about it, it's just a little slower in terms of the ramp than we expected.
Okay. And then so just to SkinnyPop, anything you saw differently in the quarter and from a kind of competitive landscape, it seems like Pepsi is remaining fairly rational in terms of their promotions but didn't know from the other players be it Angie's or Popcorn Indiana or new entrants if there was anything of note?
Yes, I think Frito-Lay with Smartfood would remain aggressive -- they've been out there since the fourth quarter, and it's working for them right. I think as I continue to do -- I think emphasize though this is one of those situations where we're happy that they're promoting, we're happy that they're drawing people into the category, you can see the category is continuing to grow almost 20% year-to-date which is just incredible, we're now larger than pretzels as a category and continuing to grow. So we welcome kind of a partnership with Frito-Lay in growing the category. I think when you look at some of the smaller guys, Angie's has been a little more aggressive, hasn't really translated in a tremendous growth for them but that's okay, we respond a little bit, we're promoting a bit more but we're certainly not going to go down to the depths of Frito-Lay and quite frankly, being a premium player, we don't need to. So we're happy with our growth, we're more than happy with the growth in the category, and we continue to take share; so all feels good in the world of popcorn.
Great, I'll turn it over. Thanks.
Thank you. Our next question comes from the line of Jon Andersen with William Blair. Please proceed with your question.
Good morning everybody, thanks for the question. My minds kind of a three-pattered on Tyrrells. First, can you talk a little bit about Tyrrells Better-For-You attributes, international brand, I'm not as familiar with that and how it kind of fits in to Amplify's overall Better-For-You positioning? The second part is on the manufacturing capabilities, and I think you mentioned there are five facilities; are those facilities supportive of kind of the growth ambitions that you have over the next few years, are there major kind of capital needs there? And then third, David, maybe you could comment just on and your commitment to head kind of Amplify International, the duration of that commitment, your excitement to kind of lead that effort? Thanks.
So on the Better-For-You front, when we look at not only Tyrrells but also the other brands within the portfolio, they really match up; we think about Better-For-You, we think about clean, simple, transparent ingredients and Tyrrells has all of that; everything is natural, everything is made with just the finest most premium simple quality ingredients. And then further than that, Tyrrells actually does have quite a bit less fat than most of the other chips in the marketplace, and they do that naturally within their manufacturing process. So we believe that not only Tyrrells but the other brands within the portfolio all match up with our Better-For-You needs within our portfolio.
When we think about the manufacturing capabilities, so Tyrrells has been upgrading and expanding their facilities in the UK and Germany and Australia, and so currently I would say there is not a tremendous amount of capacity for a big major U.S. launch, we'll have to work on that, there is plenty of capacity to continue to grow Tyrrells for the foreseeable future at a very high rate. So we'll have to do a little bit to get ready for expansion into the U.S. but they have a great manufacturing know-how and with that expertise we should be up and running much faster than we can do it on our own.
Hi, it's David here. So your third -- the third part of your question, yes, we -- the management team at Tyrrells were invested in the business before, and we're invested in the new combined business, and so we're committed to working with Amplify to continue the growth for new combined business. I'm looking forward to being President, International, and I've got one more brand in my portfolio now which is SkinnyPop, it's a cool brand.
Thanks and good luck.
Thank you. Our next question comes from the line of Rob Moskow with Credit Suisse. Please proceed with your question.
Hi, just a couple of questions. You mentioned that this transaction would act like a hedge against currency fluctuation but I guess the way I was wondering about it is -- Brian, if -- isn't it really a bet that that European and British currencies recover from here because if they get worse, you'll be translating earnings at a weaker level. So that's the first question. The second question is, just so I understand the sales guidance, I think you said that your core guidance is unchanged but Paqui is weaker than you thought and Oatmega kind of fills that gap. So are you now including Oatmega in that core guidance? Is that how I read it because otherwise you have to assume that SkinnyPop is offsetting the weakness in Paqui.
Yes, so that's correct. Oatmega is included in the guidance, Paqui is behind, we added Oatmega, SkinnyPop is doing well also; so we just decided to kind of leave guidance where it is. And then on the hedge, so the natural hedge concept really relates to the fact that the Tyrrells business generates revenue and expenses in you many countries around the world, so EU is some pretty heavy exposure, Australia, in addition to the UK. So we got comfortable that investing in the UK post-Brexit -- there wasn't a 100% kind of correlation to the UK market, so there is an embedded hedge in there business enough itself [ph]. And then as we think about post-Brexit and the UK economy and all that kind of stuff, we talked to a lot of people, we got comfortable that while there may be some more near-term pressure, overtime the expectation feels like a rebound in the UK currency which would help us overtime.
And then we also did a lot of research and work around how the snack market could perform in a potential tougher environment in the UK, macro environment, and we got comfortable there as well. So I mean it was obviously a big focus post-Brexit and we spent a lot of time thinking about it and talking to people and we got comfortable that down the road it should be net positive.
Okay. I just wanted to make sure I understood the terminology. I'll follow-up later. Thank you.
Thank you. Our next question comes from the line of Brian Holland with Consumer Edge Research. Please proceed with your question.
Thanks, good morning. I guess, quickly on Paqui, so I know -- while I think it's generally agreed from folks who try to brand that, it's a great brand. I know there were some concerns going back to prior to the launch or at least I thought it was interesting that some of the flavors that might be not for everyone, some of the spicier flavors, a little more adventurous, in some instances we're going to be the course [ph] because that's what the retailer wanted as opposed to maybe the Nacho cheese. And I don't know if I'm understanding that correctly but if I got that correct, but do you think if that indeed played out where maybe something other than Nacho cheese was kind of anchoring for you in certain retails or in certain markets? Could you find that to be a drawback or maybe net in some of these offerings work for everyone? And is that something -- does that play into any of the weakness you're seeing? And is that -- if so, is that something that is or can be addressed in short order?
Yes, so we -- I think we've addressed it Brian. So when we first got out there, the three SKUs that were primarily in distribution were the Nacho flavor, the Verde flavor, and the Ghost Pepper, right. And so a lot of consumers gravitated right through the Ghost Pepper, and that started to -- and Ghost Pepper did really well. When we started to demo the Nacho and the Verde, those quickly became better sellers than the Ghost Pepper. We always knew that Ghost Pepper, it's amazing product but to your point, it's not for everybody because it is so hot. But the Nacho and Verde flavors, once we started to demo them and people got a chance to taste them, came back and the business is come roaring back nicely but there is a little bit -- as we've discussed little bit of softness in the numbers because we didn't get that trial right out of the game.
Got it. And then just circling back on the acquisition here, so I guess two parts -- one, can you -- and I apologize if you've gone over this before or earlier in the call. Can you frame for us sort of -- I mean is there something that that business does as the Tyrrells business that is transferrable, either you could leverage the SkinnyPop brand or Paqui or Oatmega to do something that they are doing well in Europe and the U.S. And I assume the inverse is true with it SkinnyPop over. So is there an opportunity to sort of leverage innovation etcetera on both sides of the pond? And then just -- I guess a question about strategically how you think about -- you guys are still young, pretty small company, but you've made acquisitions in consecutive quarters, this one takes you to a global reach. How do you think about managing that expansion, that magnitude of expansion in such short order?
Good question. So one, there really is minimal business overlap between us and Tyrrells. So what we're really taking advantage of is each other's organizations, right. So David has built a tremendous organization, primarily in Europe but also in Australia, and so we're able to kind of leverage David's team to bring SkinnyPop in Paqui and Oatmega to those countries. Likewise, we think we've done a really nice job building out a team here in North America, we're able to take the Tyrrells brand, as well as some of the other businesses overtime to bring them to really what is the largest snacking market on the planet.
And so there is some really nice revenue synergies, and we think about putting these businesses together. This is, think about this as a gentle joining of these two businesses, this is not a big takeover -- we don't -- there is really not a lot of cost synergies, we'll find some probably in the world of sourcing and raw material purchasing but this is really kind of a gentle joining of these two businesses and they are very, very complimentary. What we were really kind of amazed that as we started to get to know one another was just similarly these companies operate, both entrepreneurial, both highly motivated, high growth businesses, companies that know how to build brand. So it was it was great how culturally similar we were and how similar we were on the business side as well.
So that makes for really use of integration for us but I would tell you, we're not going to buy something next quarter, right, we're going to focus now -- we've got enough to chew on, both sides of the pond, so to speak; and so we're going to work very hard at making this work. We're very excited about that, I wouldn't expect us to talk about another acquisition for quite some time.
Thank you. Our next question comes from the line of Jason English with Goldman Sachs. Please proceed with your questions.
Good morning, folk. I assume my question is for Dave, if we could, this is a pretty transformational acquisition, so I'd like to get a little bit better understanding of Tyrrells and its momentum. Dave we've got the multi-year CAGR, can you give us a better view of what the run rate has been more recently of organic sales growth? And then separately, we've got the disclosure of around 85 million pounds of trailing 12 month sales, sounds like you made a recent acquisition, I'm not sure when the acquisition of the business of Germany was. As we as we look at maybe a pro forma 2016 or pro forma 12 months -- in forward 12 months view, if possible, could you give us sort of a revenue expectation there?
Hey Jason, it's Brian.
You don't sound like Dave, where is your accent?
I can try to imitate him if you want.
Yes, that would be entertaining.
Right, right. We're going to make him sound like us, that will be certainly more interesting. So we've put in the transcript earlier around growth rates over the next few years we envisioned in kind of the mid-to-high teens and EBITDA margins in the high-teens. So the growth rates have been higher than that historically, and EBITDA margins have had really been in that range over the last stretch.
Sorry, go ahead Dave.
I was going to try and answer some of the questions. So you asked about -- you said that there has been a recent acquisition. So we do -- we acquired Lisa's which is the leading organic chip company in Germany, a couple months ago. In the last year we've acquired two businesses, one in Australia, and that's also the leading organic snack company in Australia, that's Yarra Valley Snack Foods. So we've been growing fast through our international business, principally through export but in the last year we've made two acquisitions which give us a couple things, really -- one they give us an opportunity to manufacture in Australia because manufacturing in the UK and then sending the chips all the way to Australia is not a particularly efficient way of working. So we now have this site just outside Melbourne.
We've built an extension to their factory to produce Tyrrells crisps exactly the same way that they are produced in Herefordshire in the UK. And that's now our manufacturing hub for Asia-Pacific. So we can now send rolls out from there much more efficiently than we could previously. But we also have the benefit of acquiring the brands we already had, which have continued to grow, well into high double digits. And so they have existing organic brands in that market already, some of which are coming to the UK. And Lisa's, it's much more recent but that's -- organic is a big movement in Europe and we love organic because we think organic combines premium and better for you which is two -- the two of the best things -- if you're in a food business, if you can be in premium Better-For-You, that's just about perfect, and organic delivers that for us. So you get the same great tasting product in formats that people recognize but they feel better about eating them.
Okay. And then another question, higher level, Tom, Brian; I guess it's -- this is from your strategic perspective, it strikes me as a little surprising and not in a bad way. But initially out of the gates, I was looking at Amplify and thinking you're bit of it, and amplify if you will of small nascent businesses, plug and play into your infrastructure, and certainly Paqui fits the mold. We then moved to Oatmega where it was just slightly more proven brand with already some distribution momentum and now you're buying a very established business where you're infrastructure doesn't really lend any sort of accelerant to it. So we've seen this progression and evolution from acquisitions, is this reflective of a broader strategy in a strategic shift sense for the early days? And if so, kind of what's driven that?
No, I this exactly fits into our strategy. So when you think about the Amplify platform that we've built, we're doing exactly that with the Tyrrells brand. So the Tyrrells brand has a tiny bit of sales here in the United States, much like Paqui or Oatmega, right. So we are again, amplifying a business here in the United States, what we've been able to do is by a very complementary and like business abroad that can amplify our brands internationally. So the strategy is 100% the same as it has been before, just slightly new ones.
Very good. Thank you so much.
I think along the way we pick up acquisition of greater scale in that company and brands of greater scale. I think we also pick up some diversification benefits, as well, as you know our company currently in the U.S. is a fairly concentrated business by the SkinnyPop brand.
Yes, definitely. Spot on there. Alright, thank you guys.
Thank you. Our next question comes from the line of Eric Gottlieb with D.A. Davidson. Please proceed with your question.
Good morning everyone. A lot of my questions been answered but if we can go over the size of the actual Tyrrells business and the growth there, and also the specific product mix; how much of the overall business is potato chips versus others?
So I'll handle the first one there. So when we look at the Tyrrells business, what we like about this is it's actually very diversified. So there is not one customer that represents a tremendous amount of business and they've got diversification within their portfolio as well. So when we look at the Tyrrells business, about 50% of it is in the hand-cooked crisp side which is their core category, another 24% is in the vegetable crisps, about 6% is popcorn, and then we look at the recent acquisitions of Yarra Valley in Australia and Lisa's in Germany, that comprise roughly about 18% to 20%. So it's a nicely diversified business for us.
And as far as Tyrrells sales, we've put in there at least $111 million kind of trailing 12 -- and that's actual net sales, including kind of the partial year periods for the two acquisitions.
Got it, okay. And then you said that following Brexit, this presented an opportunity; what exactly about the occurrence of Brexit like cleared the way for the acquisition?
Just to be clear we were talking to Tyrrells pre-Brexit, we've admired this business for a long time, it wasn't previously for sale, we kind of pestered David for a lot of months; we started talking seriously maybe a few weeks before Brexit and then Brexit occurred having surprised us just like it surprised everybody. But for us, quite frankly, we've got a bit of a discount on the purchase price. So we're pretty happy about that, now we want the business to rebound and the currency to rebound a bit. But Brexit really wasn't a factor in the actual acquisition.
Okay. And then one last one, you said no acquisitions for some time and then you said that you're going to delever down to the 4%, 4.5% range by the end of '17. Are those two statements, they coincide? Is there a certain level of leverage that you like to get to before pursuing acquisitions again or is there is more of -- we're going to focus our strategies on integration?
Yes, I think the integration is the primary -- I mean this is -- we have recent acquisition at Oatmega, we've got the rollout of Paqui going on, we acquired Tyrrells, so we do have a lot on our plate and our main focus really over the next 12 to 18 months is going to be to make all of those brands and integrations very successful. So it's -- that's really going to be the focus. Meanwhile, we're going to be -- we will be levered down to our target leverage range and letting it kind of 4% to 4.5%. And I would think by the middle of next year we're out there talking and looking at things, and back really in the acquisition game in a bigger way. So that's our view of the world.
Okay, great. With that I'll pass it on. Thank you.
Thank you. There are no further questions at this time. I'd like to turn the floor back to management for final remarks.
Great. I just want to thank everybody for the great questions today and for your time, and we look forward to talking to you in the near future. Thanks everyone, have a great day.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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