J & J Snack Foods Corp.

Welcome to the J&J Snack Food fiscal third quarter 2022 earnings conference call. My name is Cheryl and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press 01 on your touch tone phone. As a reminder, this conference is being recorded. I will now turn the call over to Norberto Adja, Investor Relations for J&J Snack Foods, so you may begin.

Thank you, operator, and good morning, everyone. Thank you for joining the J&J Snack Foods fiscal 2022 third quarter conference call. We'll get started in just a minute with management's comments and your questions. But before doing so, let me take a minute to read the safe harbor language. This call will contain forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, and objectives, and anticipated financial performance, industry-wide supply constraints, and the expected impact of COVID-19 on our business. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Factors discussed in our annual report on Form 10-K for the year ended September 25, 2021, and other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on this call. Any such forward-looking statements represents management's estimates as of the date of this call, August 3, 2022. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause reviews to change. In addition, we may also reference certain non-GAAP metrics, including adjusted EBITDA, operating income and earnings per share, which is reconciled to the nearest gap metric in the company's earnings release, which can be found in the investor relations section of our website at jjsnack.com. With us on the call today are Dan Pachner, our chief executive officer, Ken Plunk, our chief financial officer. And joining us remotely, we have Linwood Mallard, our chief marketing officer, Bob Cranmer, our Senior Vice President of Operations, Steve Avery, our Senior Vice President and Chief Operating Officer of ISEE, Bjorn Leiser, Senior Vice President of Sales, James Hamill, VP of Corporate Controller, and Michael Pollner, our SVP and General Counsel. Following management's prepared remarks, we will open the call for a question and answer session. With that, I would now like to turn our call over to Dan Pashner, Jane Jason Ackwood's Chief Executive Officer. Please go ahead, Dan.

Thank you, Roberto, and good morning, everyone. We appreciate you joining us this morning to discuss our third quarter results. We are pleased with our overall performance, which extends the top-line growth we have seen across our business this fiscal year and further reflects the ongoing recovery of our customers. It is evident from our results that we have addressed the headwinds we encountered during our new ERP system launch in February, which temporarily impacted the fiscal Q2 performance of our food service and retail segments. I want to give a special thanks and recognition to the enormous effort of our team members who worked tirelessly to quickly resolve this issue. Thank you for that. Taking a look at the third quarter, revenue of $380.2 million was an all-time quarterly record, representing a 17.2% growth versus the prior year period and an over 35% increase versus our second quarter revenue. When compared to third quarter of 2019, revenue was up over 16%. On a year-to-date basis, revenue for the first nine months of fiscal 2022 totaled $980.2 million, or 19.3% increase versus the first nine months of fiscal 2021. These top line results were led by market growth across all three business segments and across just about every product line. Sales were consistently strong across each month of the quarter. Starting with food service, we saw continued growth in this segment across the board, including soft pretzels, frozen novelties, churros, handhelds, and bakeries. Our business continues to leverage strong core products and innovation to capture new customer opportunities in channels like convenience, QSR, and amusement. Our retail segment also enjoyed strong growth, posting 61 million in sales and growing 13% compared to the same quarter last year and over 46% compared to the same period in fiscal 2019. As was the case with food service, sales were strong across all categories, including handheld, frozen novelties, biscuits, and soft pretzels. Frozen novelties is a great story this year as we add SKUs and gain additional placement in leading retailers led by Luigi's, Dogsters, and Icy. Our frozen beverages, segment also saw strong growth with sales increasing 23.5% versus Q3 2021, led by beverages growing 37% and equipment up 17%. Volume in restaurants and amusement were up double digit versus the prior year. And theaters, while still down compared to pre-COVID performance, is improving as consumers go back to the movies to see top box office releases such as Top Gun, Minion, and Jurassic World. We continue to see strong growth opportunities in QSR, fast casual, and convenience for both beverages and service. We are winning new customers, bringing new products to market, continuing to find ways to leverage our brands, refining our go-to-market strategy, and working to satisfy our customers each and every day. Our Q3 top line results only reinforce our confidence in our strategies and the potential we see for added growth. Our business is strong. We have made significant progress improving gross margins to 28.7% this quarter, but we continue to experience inflationary pressures across many areas of our business from sourcing key ingredients such as flour, eggs, dairy, oils, chocolates, and meats, to packaging and distribution costs. Cost of these key raw ingredients increased almost 10% versus the prior quarter, continuing to put pressure on our manufacturing. We've responded by implementing our second price increase early in the quarter and have already communicated a third high single-digit increase that will take effect late in the fourth quarter. These actions, combined with our focus on improved margin mix and cost initiatives, led to higher gross margins this quarter and are expected to drive further margin improvements as we close the year. We also continue to face historic cost pressures in our supply chain, where we saw both sequential and year-over-year increases driven by higher truck driver wages and rising carrier storage and fuel costs. In order to offset these pressures, we have a number of cost reduction initiatives underway in R&D, procurement, plant operations and distribution that we expect to offset some of these cost pressures over the next few months and into the next year. Our team is focused on reducing costs across the business as we transform how we operate and improve efficiencies across the business. As it relates to customer wins, we continue to cultivate a healthy pipeline of new business, including a new recently launched Churro LTO at Sonic, I see expansion with new customers such as Moe's and Peter Piper Pizza, a new pretzel stick with Quick Trip in the convenience channel, and an introduction of a fantastic new pretzel dog at McKellister's Deli. Additionally, as we move to the back to school time of year, we're optimistic about recapturing business in the K through 12 channel in core snack categories that softened a bit during COVID. On our service side of our business, we are targeting new opportunities, leveraging our IC service network, and continuing to see strong demand and growth opportunities with existing customers, including America's leading coffee retailers, convenience stores, and movie theaters. Regarding product launches and innovation, we are leveraging the IC brand in sugar cookies in both in-store bakery and in individually wrapped single-serve packaging. And we remain highly focused on our Super Pretzel brand as we expand winning products at retail while introducing new filled pretzel bites and filled pretzel knots in fiscal Q1 of 2023. Our Dogsters brand continues to see strong profitable growth as we expand the brand with key retailers. Our marketing team is focused on strengthening the brand's positioning and we'll launch an entirely new campaign in 2023, celebrating the special relationship that dog lovers have with their dogs and reminding them not to forget their best friend when shopping the Novelty Isle. We're anticipating continued strong growth driven by further expansion at retail and this new fully integrated marketing campaign. We will also launch our new brand, Hola Churros, starting in fiscal Q4 after debuting the new brand at the National Restaurant Association in May. We're excited to roll out the new brand with a full suite of marketing and sales tools. Turo's is a significant opportunity for us, having grown 38% in just the past four years across American menus. And according to Data Essentials, growth will continue in every segment within food service, including a projected 8.5% within casual dining restaurants, 4.5% in fast casual, and nearly 4% in QSR. J&J is already the largest domestic producer of churros, and creating a new branded product provides us with a unique and valuable opportunity to grow share. Trending at 78% awareness in the U.S., they offer strong margins are easy to prepare for operators such as quick serve restaurants, movie theaters, and adventure parks. Regarding the operating and consumer backdrop, from our vantage point, all indications point to consumers seeing value in our product while spending more time outdoors, including at leisure and entertainment venues. As our results indicate, consumers are visiting restaurants, amusement parks, live venues, theaters and convenience stores, travel venues, and public spaces in great numbers. For example, theme park attendance remains resilient despite recent macro volatility as domestic and international consumers are vacationing more with their families. Major live event organizers are reporting attendance above pre-pandemic levels, as well as higher spending on food and beverage. a significant revenue segment for us. We are seeing levels approaching 75% of pre-pandemic attendance levels, while seeing marked upticks and new cap for spending as moviegoers indulge in their favorite snacks. As it relates to M&A, we could not be more excited to have completed the $223 million acquisition of Dippin' Dots. We believe the combination of the two companies will be a game changer given the almost seamless alignment of Dippin' Dots with our frozen novelty and our frozen beverage businesses. We have already begun to leverage our relationships in key food service and entertainment channels, identifying opportunities to expand distribution of the Dippin' Dots brand. Operationally, we've already started working with Dippin' Dots team on integrating the two companies. And I'm pleased to report that everything is working just as planned. As we move further along the integration process, we are confident in our ability to gain meaningful revenue and cost synergies and create value for our shareholders. In closing, we remain extremely optimistic about our future given the resilience of our products and brands, the strength across our core products, the success of our new product offerings, our ability to expand our customer footprint, and a terrific addition to the J&J family with the acquisition of Dippin' Dots. I would now like to turn the call over to Ken Plunk, CFO, to review our financial performance. Ken?

Thank you, Dan, and good morning, everyone. Taking a look at the results for the third quarter of fiscal 2022, we are pleased with the continued strength and resiliency of the business surpassing pre-COVID levels for the fourth consecutive quarter. Net sales of 380.2 million grew by 17.2% versus the prior year, and by over 35% sequentially. When compared to the third quarter of 2019, revenue was up 16%. Our growth trend is further reflected on our year-to-date performance, with revenue for the first nine months of fiscal 2022 totaling 980.2 million or a 19.3% increase versus the first nine months of fiscal 2021. Starting with food service, which continues to be our largest segment representing 60% of total sales, revenue of 227.8 million by 16% versus Q3 2021, and by almost 18% compared to Q3 of fiscal 2019. The strong performance in food Services were driven by a 35.7% increase in handheld sales, a 27.5% increase in churro sales, and a 23.2% increase in frozen novelty sales. We also saw great momentum in our bakery and soft pretzels with year-over-year growth of 11.4% and 9.9% respectively. The retail segment also posted a strong quarter with 61 million in sales compared to 53.9 million the prior year period, and growing by over 46% compared to the same period in fiscal 2019. Handheld sales led the way with a 33.4% growth compared to Q3 of 2021, followed by biscuits and salt pretzels with sales growth of 33% and 4.5% respectively. Frozen beverages sales were 91.4 million and grew 23.5% versus Q3 2021, led by beverage sales growth of 36.7% and machine sales growth of 17.4%. Machine service revenues were flat versus Q3 2021. Gross profit for the quarter was 109.1 million, an increase of over 13.4%. compared to the previous year period and a gross margin of 28.7%. A slight drop compared to 29.7% in Q3 of fiscal 2021. However, a marked improvement on a sequential basis. Despite the ongoing inflationary challenges, we are confident in our plans to resolve and manage these headwinds as we move forward and expect gross margins to continue to improve. Moving down the income statement, total operating expenses increased from $58 million to $87.8 million, representing 23.1% of sales for the quarter, compared to 17.9% in Q3 of 2021. These results largely reflect the inflationary pressures across all of our expense line items, in particular, in distribution expenses, which was 12.7% of sales compared to 8.4% of sales in fiscal 2021. Distribution expenses were driven by rising carrier, driver wage, storage, and fuel costs, and supply chains remained constrained. Also impacting operating expenses was approximately 3.1 million in one-time transaction and closing fees related to the dip and dot acquisition, which were captured in administrative expenses. This led to an operating income decline of 44.3% to 21.3 million for the quarter compared to prior year. Splitting the one-time charges, adjusting operating income was 24.3 million, adjusted earnings per share for diluted share was 93 cents a share, and adjusted EBITDA was 38.4 million. After considering income taxes of 5.6 million compared to 9.7 million in Q3, of fiscal 2021, our net earnings decreased to 15.6 million for the quarter, resulting in reported diluted earnings per share of 81 cents compared to $1.51 in the prior year period. Our effective tax rate was 26.6% for the third quarter. And on an adjusted EBITDA basis, we saw a decline to 38.4 million from 52.5, 52.2 million in the prior year period on the back of the decrease in earnings. Year-to-date adjusted EBITDA total 84 million compared to 89.5 million for the first nine months of fiscal 2021. Taking a look at our liquidity position, even with the recent Dippin' Dots acquisition, we continue to have a healthy balance sheet, an overall strong liquidity position with 91.4 million in cash and marketable securities and approximately $125 million in debt. In addition, we have ample availability under our revolver with $91.2 million of additional borrowing capacity. We feel very confident with our financial position and our ability to adequately invest and support our business while continuing to return value to our shareholders via quarterly dividend. In closing, our third quarter results reflect the ongoing resiliency and health of our business as sales continue to grow and gross margins continue to improve. We have a disciplined focus on executing our strategic initiatives to reduce costs, improve margins, and continue to build on our sales momentum. I would now like to open the call to questions. Operator?

Thank you. We will now begin the question and answer session. If you would like to ask a question, you could do so by pressing 01 on your touchtone phone. Again, to ask a question, please press 01 on your touchtone phone. Our first question comes from Andrew Wolf. Your line is now open.

Thank you, and good morning. Good morning, Andrew. Good morning, Anne. Could you tell us how much of your sales was volume versus price?

Yeah, you know, we increased both volume and pricing during the quarter. As far as percentages, a little over 50%, somewhere in that, you know, 60 to 70% probably range is pricing, the rest is volume.

Yeah, but, Andrew, I would just add to that, every segment, sales were up in both volume as well as price, obviously, as we took price increases.

Okay, great. And can you give us a flavor for how July is trending, given what's going on with the economy and some parts of food service at least softening?

We continue to see strong sales, as we did in the third quarter, as we enter into the fourth quarter. So we're encouraged by what we're seeing so far.

Great to hear. And just the last follow-up kind of related to pricing, kind of two-part. The second price increase, I think you said, was during the quarter. So as we look at modeling the fourth quarter, is there a little more pricing from the pricing action you instituted in the fiscal third quarter to come into the fourth quarter? That's part one. And part two is the high single-digit pricing you're going to institute late in the fourth quarter, which, you know, I assume, you know, mainly fiscal 2023 event for modeling purposes, you know, given a little deflation, you know, anticipated in some of the ingredients costs and so on, how do you think about, you know, recovery and price realization and your gross margin, you know, as we look into 2023? Obviously, I'm not asking you to guide us specifically, but just You think there's a normalization coming there if the ingredient cost side of things cooperates?

All great questions, Andrew. I'm going to let Ken address some of those first.

Yeah, Andrew, I would answer it this way. Again, remember, with the price increases, like most everyone else out there, you're playing catch-up. So even from Q2 to Q3, you know, our cost of our key raw materials went up another $10 million. So that price increase that we took in April certainly helped, but costs continue to go up in the quarter. Even as, as you mentioned, certain commodities and projections of certain commodities are starting to come down a little bit. We've been one of those fuel a little bit. I think our experts still kind of call out it's a wait and see, but you're right. Some of that is stabilized and some come down, but then it takes a bit of time for that to all flow through. So, you know, the pricing group we took in April is helping us try to catch up, but we need to take the other one and we've already had, you know, communications with customers and feel like we're, you know, completely ready to start executing that, you know, over the next few weeks. That will probably take effect kind of late August and into September, and then, yeah, to your point, it will benefit 2023.

Okay, so are you cautiously optimistic on gross margins, or is it more of a too-soon-to-call kind of view as you start to, you know, as you look at your budgeting process and so on?

Yeah, no, Andrew, I think we're absolutely cautiously optimistic. We like the position that we're in. We like where we landed even ending this third quarter. And as you put it, we're very cautiously optimistic as we move into the next quarter and beyond.

And I think the other thing that makes us optimistic, we're doing a better job, Andrew, as we drive sales of driving it in higher margin areas. Our mix is getting better, and then we've got a number of cost-of-goods initiatives, reducing waste in plants, and we're starting to see the benefits of some of that. So all of that combined with inflation that seems to be slowing down and maybe dipping a little bit with the price increases we've taken, I agree with Dan. I think we're cautiously optimistic as we look forward.

Thanks. Just one follow up on your last comment, Ken, is on the positive mix shift. Is that just what, you know, sort of related to food service recovering and those margins being higher overall? Or are you doing some kind of skew rationalization of lower margin skews as well that, you know, will last beyond, you know, the recovery and food service?

Yeah, Andrew, great question. And we've done a little bit of both of that. We've done some skew rationalization. We have a focus on our core products, which we're being able to drive growth in that are higher margins. And so we feel good about the direction that our company is heading and the great work that our sales team is doing out there. addressing those kinds of issues and feel like that will pay benefits as we move into 2023.

Great. Thank you very much.

Thank you. Thank you.

Thank you. Our next question comes from Rob Dickerson. Your line is now open.

Great. Thanks so much. Hey, guys.

question, I guess, to ask a different way, a little bit more succinctly. It's just, I think, Ken, you had said previously that given the pricing that was coming through and where the costs were coming out of Q2, that you were hopeful at that point that maybe you could get back to that pre-COVID margin by Q2 of 23. It doesn't seem like that's necessarily off the table given the flow through of the third

uh third round of pricing um just want to kind of make sure that's still the case and if not it just sounds like maybe that gets pushed forward a little bit so any color on that would be helpful just the first question yeah i feel better sitting here today than i did coming out of q2 that's for sure uh but you know with the market we're in and the hints still i think of are we going into recession or not um You know, I'm still kind of probably saying Q2, but I probably would answer it this way, Rob. I feel a little bit more optimistic about getting there, maybe getting there a little earlier than I did three months ago.

Okay. Okay, super. And then just on the distribution side, I mean, obviously, you know, it's a material step up in the quarter for all the obvious reasons. You know, as you even think through into Q4 and then 23, you know, is what's hopeful, too, on that line item? Is that maybe that peak, at least as a percent of revenue, and hopefully that starts to kind of trail off through Q4? Or is there just some stickiness in the cost, you know, on the supply side just, you know, outside of, you know, standard issue fuel costs?

Well, we're certainly hoping that it's peaked at this point, Rob. You know, we have a lot of initiatives. We have extra eyes on it. We're looking at it really, really closely. You know, it's affected by fuel storage and outbound carriers, but we're watching it really closely. We hope that it's peaked and our down as it relates to a percent sale.

Okay. Okay. Super.

And then just last question for me, on the segment operating margin delta, right, between, let's say, food service and retail, I guess, relative to frozen beverages. Frozen beverages came in, I think it may be the highest we've seen historically, so very strong, right? So, demand is coming back, you're back in line with pre-pandemic revenues, you know, while at the same time you're getting pricing. and the margin is doing very well while at the same time food service is still struggling a little bit as is retail so i'm just curious is with is there like a was there some lag effect on the pricing side or you know relative to frozen beverages or is there maybe not as much operating leverage in that part of the business and just trying to get some a better understanding as to i don't you know why those segments seem to be kind of dragging a little bit relative to where you are in frozen

Yeah.

Well, again, on frozen, the price increases are taken annually every January. So we had the benefit of that pricing action in January, you know, ahead of kind of what we were doing on the food service and retail side, where we took, you know, a small one late last year, and then the other one didn't go into effect most of it until April. So you have a little bit of that going on. Rob, you also have the cost of the acquisition, the 3.1 is shared between those retail and food service numbers. And then the bulk of the distribution expenses and challenges there are in our retail and food service business. It's a different business model. You've got 16 plants, 30-something pickup locations. So you can imagine managing that from a distribution standpoint is much different than on the on the frozen beverages side so those are some distinct differences between the profit you see in frozen uh and the uh and what you're seeing go down to the bottom line food service and retail okay cool makes sense thank you thank you our next question comes from connor radigan your line is now open all right good morning everyone thanks for the question

Thanks, everyone. Yeah, so just to start, I was just wondering if you could comment on your thoughts on just the health of the consumer going forward. You know, it sounds like your business isn't really seeing much of an impact, but we're hearing a lot about pressure on lower income consumers specifically. And with a large portion of the business revolving around experiences like, you know, theme parks and stadiums and such, do you expect any real volume elasticity or maybe consumers being priced out of those experiences going forward?

We're going to have the discipline to watch it really closely. At this point, we have not seen that happen. We've done as historically as a company, we've done pretty well during times like these in the past. We have great products that are kind of a snack and a treat and a reward that people will still buy during recessionary periods. Again, to date, we're not seeing that drop in sales, but we're going to watch it really closely and and react if we see something like that.

Okay, great. Thanks. That was helpful. And also, just as far as the top line goes, could you just sort of maybe just like share some color on sort of how that trended over the quarter? Was there maybe still somewhat of a hangover early in the quarter from that ERP system implementation?

You know, there had to be a little bit of that. It's hard to identify it, but there had to be a little bit early in the quarter that we were able to benefit from that we did not get into the system in the second quarter. But really, we saw strong sales in each month of the quarter. So we feel like there's a great demand. We like some of the new products that we've released. I like the action that our sales team has taken out there and getting our core products to the customer and feel really strong about our sales going into the future.

Okay, great, great. And then also just a little bit on the pricing side too. So I know you guys quantified that about 60 to 70% of growth from pricing. I know you typically don't really quantify mix, but any chance you can sort of guide us as to maybe how substantial of an impact that mix shift was?

Sorry. Can you say that one more time, Connor?

Yeah, sure thing. So I know you guys quantified about 60 to 70% of growth from pricing. Any chance you can sort of guide us to about sort of how substantial the mix shift impact was just on the overall top line growth?

When you say mix, you say in between price and volume? Is that what you mean?

Yeah, that's correct.

Yeah, well, it varies by segment.

I think the way I would answer that is because we're not really getting into specific details on it, is for every segment of our business, so you look at frozen, subservice, retail, all of them grew volume and also grew in price, obviously. So we, as Dan just pointed out, we study the elasticity very closely, as us and other competitors have raised prices. You know, and you start to see the pressure on consumers. You've got to watch kind of that decision very closely with what happens with volumes. And we've balanced that very well and continue to see us growing both on the volume side as well as the price side.

Okay. All right. Thank you so much. That's it for me. Thank you.

Thank you. Our next question comes from Trevor Tazar. Your line is now open.

Good morning, Trevor. Hey, guys. Hey, guys, this is Trevor for John Anderson here. Just one for me today. I wanted to ask just kind of fill rates and ability to meet demand in the quarter, kind of where you guys were from that front. Maybe run into any challenges, specific channels or segments, or if you left anything on the table throughout the quarter. Thanks.

Well, our operational team did a fantastic job pulling as much capacity through the plants as we possibly can. You know this because we've said it before, we have seven new lines underway that will come into effect. A couple of them came to effect this year in the frozen novelty group. We have some coming into effect with both the pretzel and the churros at the end of this year and into next year that will give us greater capacity. But certainly with sales like this, that 380.2 million being a record quarter of all time,

It certainly stretched our abilities, but our team did a great job getting the products to the customer. Great. Thanks. Thank you.

Thank you. Our next question comes from Todd Brooks. Your line is now open. Hey, good morning, everybody.

How are you guys doing?

Great.

A few questions for you, if I may. You're starting to get a little bit of the way into kind of digging into the Dippin' Dots opportunity here. I think at the time of closure, you had talked about it looking to be 30 to 40 cents accretive pre-Synergies. But Dan, you kind of hinted at strong interest from existing J&J customers to expand Dippin' Dots distribution there. I guess, what are the early reads about the Synergy opportunity? with the Dippin' Dots brand now under the J&J umbrella?

We think there's some significant synergies to be had. But I think I said this to you, Todd, and I'll just repeat it again. You know, we bought this right in the middle of what I'll call harvest season. And so we really haven't wanted to disrupt what Dippin' Dots does today and has done so well and to make sure that we get the product to the customers in the appropriate fashion. Our people are working hand-in-hand with the group there today, kind of identifying those synergies, and we'll start to see those probably late in the year, early 2023, late in 2022. As you talked about with the expansion, we're having a lot of really good conversations with our customers out there. This is one of the things that we saw as such a big opportunity with Dippin' Dots, They do business in many of the same places we do or at least in many of the same channels. And this allows us to have a pretty open conversation with our customers right away. And we have, as you know, some great relationships out there. We're getting a lot of really good feedback and think that we are going to be able to grow those sales pretty rapidly in the next few years.

That's great to hear. And following up on another opportunity that seems to be growing pretty rapidly, can you talk through how big the Dogsters business has gotten to be for you? Talk through maybe what distribution doors look like this year versus last year, future wins that could be there, and then any plans in conjunction with the new marketing campaign next year to maybe broaden out the product line as well?

You know, That brand, as you know, the pet industry has grown tremendously too during COVID. A lot of people bought pets. And so we feel like we're in the right place at the right time with the right brand. We just did some brand understanding around that with a group who got together to really identify what the brand means and how to go to market with it. And so putting together some terrific plans for 2023, I've got a kind of a chance for the hood. Linwood Mallard and team are doing great with it. As far as sales, in period 12, I think it was, we did around 5 million, something like that, somewhere in that range. And see just a wide open space for us. We're continuing to gain opportunities with retailers. And we feel as we're starting to look at the packaging, start to look at the brand, understand it better, that there's just a lot of room for growth there. Love that brand. Love what we're doing. The sales team likes it. Just feel like we have a lot of room for growth.

How substantial is the door growth on the distribution side currently versus a year ago? Have you opened up some of the bigger maybe pet concepts or more mass concepts and you're adding meaningful doors for Dogster?

Well, I think if you're asking how many more SKUs, I think there's

Retail outlets where we've added two to three SKUs sitting on the retailer.

Todd?

Yeah, Ken, I was more asking number of doors that you're distributing them versus this time last year. How much has that expanded?

I don't know if we have that handy, Todd. I'm not sure I can give you that answer today.

Okay. Fair enough. And then back on frozen beverage, obviously a very strong quarter. Last call, Dan, you talked about some interest coming out of the NRA show. Anything you can share about restaurant concepts that have come into the testing pipeline during the quarter or maybe the magnitude of those opportunities if they're coming to fruition?

Yeah, I think I've said this before. I really like the pipeline that we have going on with IC right now. We have, I mentioned by name, we have Moe's starting to roll out. That was one in test. And, you know, I've said this to you before, with the IEC product, it's a long test period. There's a long incubation period because it's a big commitment with a big machine to people. But we have Moe's now starting to roll out. We have Peter Piper Pizza rolling out. and two or three other QSR-type opportunities that are in test that I can't mention yet, but I like the momentum that we have in them and see some really good growth for IC as we move into 2023. Okay, great.

Thank you all.

I'll also say that not just in the beverage side of it, but also have some really good momentum going on on the service side as well.

Okay, great. Thanks, Dan.

Thank you, Todd. Thank you. Our next question comes from Jonathan McGraw-Bentley. Your line is now open.

Hi, good morning. On the dip and bust acquisition, did you guys also acquire their cryogenics business, the cryogenics licensing business?

We did not acquire that portion of it. When I looked at it first, I think I've talked about having an opportunity to meet with the owners and sit down at dinner and kind of get a firsthand view of this business. this purchase, that was one of the areas that I just didn't think fit within our kind of wheelhouse, I guess is what I would say. They had also had a couple issues with that side of the business, and it just didn't feel like it was the right thing for us, and that we could take it and grow it and mature it the way that we can on the Dippin' Dots side.

Okay, great. Thanks for the information.

Thank you.

Thank you. We have a follow-up question from Andrew Wolf. Your line is now open.

Hi. So given the magnitude of the inflation and the distribution costs, could you just unpack that a little bit? What were the biggest drivers? You mentioned a number of items. How much of that is, I wouldn't say controllable, how much is third party where let's say trucking business is tight, they're just raising pricing because the supply is tight versus where you have some control, it's your drivers, fuel coming down could help you and so on. And then I have a follow-up to that in regards to some of the initiatives you mentioned in your release.

Yeah, Andrew, it kind of breaks out this way. Probably I'd say 75% was from costs that we pay outbound carriers. So to move the product, obviously we depend on third parties for that. So that is 75% of the cost increase. Storage went up more than 100% year over year. So we got a number of situations where 3PL, the store product, gave us price increases. That was probably another, you know, 15% to 20%. And then fuel costs, just our own direct fuel costs, went up over 100%. You know, obviously, you know, fuel costs have gone up over 100% over the year. So those are the three biggest buckets driving the increase over the year.

Okay. And do you have an outlook on the outbound carrier rates? Do you think they're going to come down with the economy coming down? Are the rates coming down at all yet or what's going on?

I can tell you we are seeing, I would use the word stabilization, and we're hearing some experts talk about certain rates coming down as kind of sublime demand of carriers has kind of equaled out a little bit from what it was a few months ago. So it seems to be more promising, but gosh, given everything we've gone through in the last year, I believe it when I see it. So I think it's promising. I think we're hearing things moving in a better direction, but, you know, we need to see that realized through the P&L.

Okay, thank you.

Thank you, Andrew. Thank you, Andrew.

And we have no further questions in queue. At this time, I'll turn the call back to Dan Fashner for closing comments.

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Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.