J & J Snack Foods Corp.

hello thank you for standing by and welcome to the j and j snack foods fiscal 2022 fourth quarter conference call at this time all participants are in a listen-only mode after the speaker presentation there will be a question and answer session to ask a question during the session you'll need to press star 1 1 on your telephone please be advised that today's conference may be recorded i would not like to hand the conference over to your speaker today norberto aja please go ahead

And good morning, everyone. Thank you for joining the J&J Snack Foods Fiscal 2022 Fourth 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 State of Harbor language. This call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform 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 our anticipated financial performance, industry-wide supply constraints, and the expected impact of COVID-19 on our business. These statements are neither promises nor guarantees that involve known and unknown risks, uncertainties, and other important factors that may cause 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 end of September 24, 2022 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 today. Any such forward-looking statements represents management's estimates as of the date of this call, November 15, 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 our views to change. In addition, we may also reference certain non-GAAP metrics, including adjusted EBITDA, operating income, or earnings per share. all of which are reconciled to the nearest gap metric in the company's earnings press release, which can be found in the investor relations section of our website at jasnack.com. Joining me today on the call are Dan Faschner, our chief executive officer, and Ken Plunk, our chief financial officer. Following management's prepared remarks, we will go ahead and open the call for a question and answer session. With that, I would now like to turn the call over to Dan Kaschner, Jane J. Snackfood's Chief Executive Officer. Please go ahead, Dan.

Thank you, Norberto. And good morning, everyone. We appreciate you joining us this morning to discuss our fiscal 2022 fourth quarter and full year results. We had a great fourth quarter and an overall great year, reflecting the strength of our brand and continued execution against our growth strategy. This quarter marks the fourth consecutive quarter of record revenue, leading to our best revenue ever by over 194 million. Our top-line growth has been consistent throughout fiscal 2022, driven by strong gains across all three of our businesses, food service, retail, and frozen beverages. We are laser-focused on driving organic growth of our core brands supported by our investment and production capacity and refreshed marketing strategies. Our market position is strong, led by expanded placements, new customers, better cross-selling across our business, compelling product extensions, and innovation. We also welcome Dippin' Dots to our brand portfolio, which aligns perfectly with our business model and financial goals. Our team did a superb job driving the top-line growth while managing costs and positioning J&J for ongoing future success. I could not be more pleased with our ability to drive sales and gain market share in the current business environment. Like almost every other company this year, our bottom-line results were impacted by the inflationary impact on raw materials and escalating supply chain costs. Throughout the fiscal year, we saw sequential and year-over-year increases in costs associated with ingredients, truck driver wages, outside carriers, storage and fuel. As discussed in prior quarters, we have taken specific actions to offset these pressures and reduce costs across R&D, procurement, plant operations and distribution. We have also instituted three price increases over the last 14 months. Gross margin trends have already improved in the second half of fiscal 2022 because of these actions, and we expect to see continued benefits in fiscal 2023. Going forward, we will continue to focus on improved manufacturing efficiencies, cost reduction initiatives, and product mix. As the inflationary environment stabilizes, and we execute these initiatives, we are confident that our business will deliver higher margins along with continuing strong sales. Taking a look at the fourth quarter, revenue of $400.4 million was an all-time quarterly high, representing 23.9% growth versus the prior year period and over a 5% increase versus our third quarter revenue. On a full year basis, fiscal 2022 revenue was an all-time high of $1.4 billion, representing a 20.6% increase versus fiscal 2021. It is important to note that these fourth quarter results include $31.5 million from our Dippin' Dots business, top-line growth for the quarter excluding Dippin' Dots was still an impressive 14%, driven by strength of our core brands, an 18% increase for the full year if you exclude Dippin' Dots. Starting with food service, we saw continued growth in this segment across every product line, as sales increased by over 29% versus the fourth quarter of fiscal 2021, and by over 20% on a full year basis. Frozen novelties grew 228%, benefiting from the Dippin' Dots acquisition. Churros grew 38% for the quarter, as we continue to focus on market opportunities and repositioning the brand for continued growth. Handhelds grew 44%, and bakery and soft pretzels delivered strong growth in the quarter. The food service segment is really beginning to fire on all cylinders. We are excited about the opportunities in our core categories, including soft pretzels, churros, funnel cakes and fries. We see tremendous growth opportunities in terms of product extension, expanding our relationships with current customers, and bringing new customers on board, and expanding new markets. Churros is one of the fastest growing snack categories in food service, and we couldn't be more excited about our new churro brand, Hola Churros, launching this quarter, supported by a full suite of selling tools and videos. We look forward to reporting on the progress with this new brand in the coming quarters. Let's talk about Dippin' Dots. We have hit the ground running, and I'm so excited about our opportunities to grow this iconic brand. We've already made significant progress introducing the Dippin' Dots sales team to new customers and channels, including under-penetrated markets in theaters and food service. And with Dippin' Dots, we're proud to announce the first cross-brand collaboration the new Icy Cherry and Blue Raz flavors launching in fiscal Q1. We are also starting to explore new product concepts designed to extend Dippin' Dots into the retail channels. This is a great example of how we can leverage our portfolio across business categories to drive growth. As we said in previous comments, 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 frozen beverage businesses. Moving to our retail segment, this segment also enjoyed strong growth, hosting a 53.5 million in sales and growing at 11% compared to the fourth quarter of last year, and by over 7% on a full year basis. Sales were strong across most categories, including handhelds, frozen novelties, and soft pretzels. Our frozen novelty business continues to grow as we gain additional placements in leading retailers led by Luigi's, Dogsters, and Icy. Icy frozen novelties were up over 22%. I want to highlight our Dogsters brand again, which grew over 57% in fiscal Q4, driven by gains in retail availability and increased popularity in the dog treat category. We are also seeing strong momentum in our frozen beverage segment, growing by over 18% in the fourth quarter of fiscal 2022 versus the fourth quarter of fiscal 21, and by over 32% on a full year basis. Various initiatives currently underway should continue to drive this momentum. As an example, we have multiple IC tests in progress with quick serve restaurants. including a multi-store test with a hamburger chain with over 350 locations. We have also onboarded a number of new customers, including a major convenience store customer, a new cinema chain, and Peter Piper Pizza, reflecting our efforts around product extensions. On the brand marketing front, we have a lot going on. Overall, we're making progress in improving our brand health scores on our core brands. including aided awareness and purchase intent metrics as previously mentioned we're also launching our new churro brand hola churros supported by a full suite of selling tools and additional marketing support to follow in 2023 including trade media customer tests and pr support our super pretzel and luigi's media campaigns that started in fiscal q4 will continue in fiscal q1 featuring a combination of digital media, shopper-targeted promotions, and our Super Pretzel outdoor campaign continues in Philadelphia, capitalizing on the high visibility spots during the city's recent frenzy over the Phillies and the Eagles, even though the Eagles lost last night. For Dogsters, our new marketing campaign will kick off in 2023, leading with dog park activation and organic social media content. Followed later in the year with brand messaging in digital and shopper format. And for Icy, we will bring to life the kid in the cup positioning and our curb and marketing strategy. With Dippin' Dots, we recently executed a number of nationwide promotions, including National Ice Cream Day. Regarding product launches and innovation, we are as busy as ever. We launched the new Super Pretzel Buffalo flavored filled bites in Q4. and we'll introduce new super pretzel Bavarian sticks along with pretzel knots in 2023. In our frozen novelty business, we're launching new icy and slush puppy frozen pops to complement the rest of our strong frozen novelty portfolio. In our icy frozen beverage business, we will feature core seasonal offerings including mango, strawberry lemonade, and white cherry. As it relates to M&A, We are focused on fully integrating Dippin' Dots into the J&J system and ways of working and executing plans to grow the business. We will remain optimistic in evaluating potential M&A opportunities that complement our brand portfolios and business models. In summary, while we expect to face ongoing macro headwinds, we will continue to focus on growing the top line, improving margins, innovating, and building our core brands and products, our long-term vision has never been clearer. We have the right team, the right brand portfolio, and the right strategy to win. While fiscal 2022 was a record revenue year, the best is yet to come. I would now like to turn the call over to Ken Plunk, CFO, to view our financial performance. Ken?

Thank you, Dan, and good morning, everyone. Our results for the fourth quarter of fiscal 2022 underscore the strength and resiliency of our business and operating strategy. Net sales were $400.4 million in the quarter, going by 23.9% versus the prior year period. When compared to the fourth quarter of 2019, revenue was up over 28.4%. Full year net sales was a record $1.4 billion, representing a 20.6% increase over fiscal 2021. Starting with food services, which continues to be our largest segment, representing 60% of total sales, revenue of $256.8 million exceeded Q4 21 by $58 million, or an increase of 29.2%, including approximately 31.5 million in Dippendot cells. Strong performance in food services was driven by a 43.8% increase in handheld cells, 30.4% increase in churro cells, and a 228.2% increase in frozen novelty cells, again benefiting from our Dippendot's business. We also saw healthy Growth in our bakery and soft pretzel businesses of 10.8% and 2.8% respectively. The retail segment also posted a strong quarter with 53.5 million in sales, increasing 11.3% compared to the same period in fiscal 2021. Growth was driven by soft pretzels, which increased 29.5%, while handheld sales rose 25.5 frozen novelty sales increased 6.6 growth across these product lines was partially offset by softness and biscuit sales which decreased 14.8 versus the prior year frozen business frozen beverages sales were 90.2 million and grew 18.2 percent versus q4 2021 led by beverage sales growth of 19.5%, as well as equipment sales growth of 30.4%, and machine servicing revenue growth of 11.8%. Gross profit for the quarter was $115.8 million, or an increase of over 26.3% compared to the previous year period, and a gross margin of 28.9%. A slight improvement compared to 28.4% in Q4 fiscal 2021. As Dan mentioned, we've been working hard to manage through this historic inflation year, and we are now seeing significant progress, improving margins as our pricing and other initiatives take hold. Moving down the income statement, total operating expenses increased to $94.2 million representing 23.5% of sales for the quarter compared to 20.6% in Q4 of 2021. These results largely reflect the inflationary pressures across all of our expense lines, in particular in distribution expenses. Distribution expenses were 12.4% of sales compared to 10.1% in fiscal 2021, but did improve compared to Q3 22 which was 12.7 percent. Marketing and selling expenses represented 6.4 percent of sales versus 6.5 percent in prior year period. Administrative expenses were 4.3 percent of sales in Q4 22 compared to 3.6 percent in Q4 21. This led to an operating income of 21.6 million compared to 25.3 million in Q421, or a year-over-year decline of 14.5%. Excluding the one-time charges related to impairments and acquisition-related expenses, mostly attributed to our Dippendots purchase, adjusted operating income was $25.8 million, and adjusted earnings per diluted share was $1.05. After considering income taxes of $3.9 million, compared to 6.8 million in Q4 of fiscal 2021. Net earnings decreased to 17.3 million, resulting in reported diluted earnings per share of 90 cents a share compared to 98 cents in the prior period. Our effective tax rate was 19% for the fourth quarter and 24% for the full year. Adjusted EBITDA increased 3.7% to 40.1 million despite the continued cost inflation. On a four year basis, we generated adjusted EBITDA of 124 million compared to 128 million in the prior period. Taking a look at our liquidity position, even with the recent Dippin' Dots acquisition, we continue to have a healthy balance sheet and overall strong liquidity position with 44.9 million in cash and marketable securities and approximately $55 million in debt. In addition, we have ample availability under our revolver with $161 million of additional borrowing capacity. Our financial position is strong, enabling us to continue investing in our business while also returning value to our shareholders via quarterly dividends. In summary, we are excited about the opportunity ahead for our company and confident that our portfolio of brands, investments in our business, and targeted strategic initiatives will continue to fuel growth in fiscal 2023. We are focused on strengthening our operating infrastructure and improving our efficiencies in order to offset the extraordinary inflation we are operating under and to become a more resilient organization and deliver added value to our customers and shareholders.

I would now like to open the call to questions. Operator?

Thank you. As a reminder, to ask a question, you will need to press star 1 1 on your telephone. Please stand by while we compile the Q&A roster.

Our first question comes from Connor Radigan with Consumer Edge.

You may proceed.

Hey there. Good morning, and congrats on a great quarter. Thank you, Connor. Good morning. Morning. Yeah, so food service came in much stronger than we expected. Could you maybe share some color on some drivers for that near, you know, 30% growth? You know, is there anything else we should be aware of other than just pricing and maybe dip and dots? And also on dip and dots, just looking at the retail data, we don't really see much of a takeoff in distribution over the last few months. Can you guys remind us, you know, sort of how large the food service component of that business is versus retail and just sort of how that distribution rollout is going?

Sure. I'll kind of kick that off and let Ken add some things to it. In regards to sales, yes, we took some pricing. We had three price increases over the 14 months, so that certainly helped out with some of the sales portion. But we see volume growth in all categories through the end of the year. We're watching that very closely. You hear a lot about a recession looming. We're being careful with that, but to date, We are seeing volume growth across all categories. In regards to the Dippin' Dots side of our business, really excited about that piece of business, and it's doing really well. It is predominantly food service. It really isn't in the retail sector today. We do some things with licensing that allow it to be in the retail, but that's something that we think that we can bring to that company over time, and one of the things that we're working on for innovation of the future.

Yeah, Connor, just to add, we called out the $31.5 million benefit in the quarter from adding Dippin' Dots, so you can kind of back into the math. Our sales grew 14.2%, excluding adding Dippin' Dots. And even as another kind of benchmark, X to Dippin' Dot business sales grew 18% versus 2019. All three of our segments grew above 2019. And we've used that kind of as the pre-COVID proxy, but gives you a kind of a general idea that all three business segments are really performing well, independent of adding Dippin' Dots. And to add to what Dan said, all of Dippin' Dots, as you look at the detailed financials, is included in food service and included within frozen novelties for food service.

Okay, great. That was helpful, guys. And then just one more for me. So we've heard from several other reporters this season that some consumers are really dialing back spending on, you know, things considered maybe more discretionary versus essential. And while the food service business for you guys really has seemed to remain, you know, quite strong, I mean, I guess, have you seen any evidence of maybe a slowdown in foot traffic in certain venues, maybe like movie theaters or amusement parks?

You know, we're watching that really close, Connor. To date, We have not seen that. We've been fortunate enough, along with pricing, to also see volume growth as well. But we're keeping our eye on that, and we'll continue to watch that over the 2023 year. And if we start to see some evidence of it, we'll react to it.

All right. Sounds great. Thanks, guys. Thank you. Thank you. One moment for questions. Our next question comes from Robert Dickerson with Jefferies.

You may proceed.

Great. Thanks so much.

Just a couple quick questions. You know, I guess for fiscal 23, maybe this is more for you, Ken. I think previously you had stated that, you know, hopefully you can kind of get back to more pre-pandemic profitability margin, maybe around Q2. Obviously, what we're seeing in Q4 is, you know, nice consistency relative to Q3. And frankly, if we think about Q2, it's probably pretty similar to what you did in Q4. So I realize there's, you know, a fair amount of cost coming through the system. Pricing seems healthy so far. Just any update in terms of kind of progression potential of that profitability.

Hey, Rob, I just want to say hello. Thanks for calling in. Appreciate it. I'm going to let Ken answer this, but I'll just give a little flavor to start with anyhow. We do feel good about our margins. We're continuing to fight that. We've talked about getting back to what J&J's normal run rate was and that 30% plus. It's something that we preach day in and day out around the company. Worked really hard. Our sales team did a fantastic job getting out in a difficult environment. and taking some pricing where needed because of some of the costs. But we're looking forward to getting back to that spot. And, Ken, I'll let you handle it from there.

Yeah, we remain really confident, Rob. I think all of us say that with a little hesitation given everything we've seen in terms of potential recession and that sort of thing. But if I just go on the best information I have and kind of where we expect, consumers to be in the next 12 months. We continue to remain really positive on 23 and really getting back to kind of what our historical performance has been on gross margin rate. You know, we mentioned this quarter we're much closer. It's still, as you said, probably more middle to end of Q2 and into Q3 is where I think we'll start to hit our sweet spot and get back to kind of those 40-ish gross margins. And then as we add Dippin' Dots onto that, that's accretive gross margins as well. So we sit here feeling really, really good as we move forward. I think Dan mentioned it. Our strategies, I think, are clear. It's aligned across the business. We're going after both the top line very aggressively, and then we've got initiatives focused on the bottom line. We're making progress in supply chain costs. But we still feel really good about the outlook on 2023. All right.

Fair enough. And then I guess kind of a, you know, question I guess around DIP and DOTS distribution costs and then kind of segment profitability in total. You know, obviously there are revenues that come through on DIP and DOTS up front Q4. I'm assuming there was some profit contribution from that as well. Well, at the same time, if I kind of do quick math, it looks like maybe that segment's a little bit, you know, still pressured, at least for the time being, on the profit side. And then also, we obviously see the distribution, you know, expense is still, you know, fairly high year over year. So, I'm just trying to get some sense as to maybe what's going on more specifically in food service. Like, Dippin' Dots, obviously, very attractive business. It seems like costs are still a little high, so there's still, you know, contribution coming from dip and dots in the quarter. And maybe, I guess, if distribution were to kind of ease a bit as we got through 23, then, you know, profitability goes up. So just wondering, I guess, if there's anything kind of in that segment, you know, vis-a-vis dip and dots that would cost some upfront cost that might be able to kind of ease and come out later, if that makes sense. That's it. Thanks.

Yeah, let me just talk about distribution expenses. They were marginally down as a rate of sales versus what they were in Q3. We are seeing a little bit of stabilization. It wasn't significant, but it was down a little bit. I just remind everybody, it's still up significantly over what it was in the same quarter a year ago. If you just look at straight rate impact, so ignoring that we shipped more. It's up about $7 million. Just in rate, fuel prices are still up 56%. So when you look at it year to year, just keep that in mind. We do feel good about kind of how things are reacting in terms of fuel prices kind of bouncing around. They have gone up actually a little bit in the last 30 to 60 days. But the outlook, we feel a little bit better about than we did, say, three, six months ago. We also like the initiatives we've gotten. We talked a lot about that. We're starting to gain ground on that. We've moved all of our logistics management to NFI. So we expect to get some traction there. So we expect to get better in that. But for the quarter, still year over year has a pretty big impact. If you look at it full year, you probably pay 28 to 30 million more in distribution expenses on the same volume, just because carrier rates were up, fuel prices were up, wages were up, that sort of thing. So that gives you a little bit of magnitude. In terms of Dippin' Dots, Dippin' Dots carries a larger SG&A as a rate of sales than our core business. You'll see some of that play out in 2023. It's particularly pronounced in Q1. So as we look to Q1, that will be the slowest quarter for Dippendots. And so you'll see the weighting of their expenses a little heavier on our total P&L in that quarter. And then Q3 and Q4 for Dippendots are really the big quarters, and that's why we feel really, really good about as we get into the back half of the year, what we're going to be. But I wouldn't say Divindad's had much of any impact on our performance this quarter. It did help profitability a bit, but the bigger impact going forward is going to be Q1, where our sales are seasonal, and so you won't see as much profit in that quarter.

Yeah, Rob, you might think of their sales seasonal, much like what I see it. and then also we have some strategies in place as we've talked about with three dc centers across the country uh and each one of those we have a box in a box where we'll be able to store uh dip and dots and get it closer to the customer and and uh increase that uh availability to the customer and lower our distribution costs long term

All right, Tuber, just a quick follow-up just on dip and dots. Can you just remind us kind of what those base revenues were and then maybe just kind of give a broad percentage of those sales in that Q2, Q3 period so we can understand the seasonality piece? That's it. Sorry. Thanks.

Yeah. Well, it was $31.5 million in Q4. If you look at the seasonality of sales, 35% of dip and dots Sales is Q3, 34% is Q4, and then Q2 is around 18, Q1 is around 13. So that's kind of the seasonality flow of Dippin' Dots.

All right. Thank you so much, guys. Appreciate it. Thank you, Rob. Thanks, Rob. Thank you. One moment for questions.

Our next question comes from Todd Brooks with the Benchmark Company. You may proceed.

Hey, good morning, guys. Congrats on a nice quarter.

Thank you, Todd. Good morning.

A couple quick questions, if I may. Can we review – I know you talk about three discrete pricing actions over the past 14 months. I'm assuming if we're talking 14 that we've already rolled over the first increase. Can we review the magnitude of the second and third increase by segment and what the timing was?

I don't have it by segment, Todd. I mean, I can tell you that the increase in March, April was in that 7% to 9% range, and then the increase in, you know, most of it taken in September was in that 6% to 8% range. The third increase was the prior year late, and it was around 3% to 4%.

Okay, great.

And I believe I see the timing.

Sorry, Todd. Todd, just to clarify, those were food service numbers, yeah, or J&J numbers. Yeah.

Okay. And then ICI, I think, is annually typically in January. So what did we run this year, and do we have any early indications for this upcoming year?

Yeah, ICI, beginning of the year, it is normally done in January. It was around a 6% increase. And we are looking at another increase this coming January. We have not determined that amount yet. Would not surprise me for it to be in that same range.

Okay. And what's the environment like for taking for the price? And I just want to understand, Ken, if you look at your pricing now, how much of your kind of cost pressure do you feel like you've recaptured with the current pricing structure in the markets?

yeah that's a good question i mean we've done a lot of work with our procurement guys really trying to look forward they do a really good job of walking us in the good rates when when we should lock in so we have a pretty good idea you know kind of as we look at the next quarter where that we feel like and again i'm talking about the snack food side of the business here we feel like we're pretty well calibrated between price and cost now We're going to do some things on our own to try to get costs down through other initiatives as well. And then we, you know, I think we've said this in many quarters, we also continue to really look at every SKU earning its weight. So, you know, we have SKUs that are dragging us down and look at that very closely as well. But as I sit here now, I feel good about our price position, but it, you know, it changes weekly monthly as we kind of get new analysis and folks are looking forward there's a lot of news that major retailers are starting to get much more resilient on accepting price increases so all of that environment we have to take in consideration that there is no planned increase on the snack food side as we speak obviously we'll watch how the market plays out and if that changes then we'll have to regroup and and decide whether there's any action to take there.

Todd, I think the environment gets tougher and tougher to take pricing at this point. I think it's acceptable on the beverage side because it's normally done annually. I think the other piece of our business gets tougher and tougher. We're watching it closely, kind of understanding what others are doing and then watching what commodities are doing at the same time.

Okay, great. Thanks, Dan. And my follow-up question, switching gears, I wanted to talk about kind of that opportunity around distribution costs in fiscal 23. You talked about fully having logistics management outsourced to NFI. Dan, you talked when you were talking about DIP and DOTS about getting to three centralized facilities. And Ken, when you talk about incremental kind of $28 to $30 million in distribution costs this year from inflation, I'm wondering kind of controllable improvement that you guys see from rationalizing the distribution system in 23. How much of that do you think we can claw back?

Yeah, we've spoke about that. Here's how I would answer that question, Todd, is NFI managing 100% of our transportation is now, you know, we've now implemented that. As we went through with you guys over the last few quarters, particularly with the JD Edwards implementation, we went along that line pretty gradually. Really, the biggest thing for the buck is when we move everything over to them, they start managing that. As they're doing at the end of this year, we do expect probably in the range of two to four million of opportunity there as they help us better manage full truckload, mileage, and that sort of thing. The RDC strategy is playing out a little bit more longer term. One of the facilities we expect in the, you know, around the May-June timeframe, the other roughly a month later. And then we're still in discussions about what we do on the West Coast side. So I would say, one, those three things need to operate in tandem to really drive the savings opportunity we see. So that's probably more like working its way into 24 and 25 on that part of it.

Okay, great. And once the system is fully working in tandem, have you sized that opportunity what you think that is once all three are up and running?

Yeah, I think we've said we think it's a 10 plus million dollar opportunity time.

Okay, perfect. Thanks, Ken. Thank you. One moment for questions. Our next question comes from Andrew Wolf with CL King.

You may proceed. Hello.

Good morning.

Hi.

On distribution, I think you guys identified, I heard right, $28 to $30 million in for the year, kind of out of your control. Wages, or was that, that was... fuel and carrier rate? Was wages in there? Because you call it $7 million. Hey, could you tie that up? Sorry if I can't listen well. But second, more importantly, what is the outlook for next year? Can you forward contract any of that stuff or is that all done at the market?

It's pretty much market driven. As we look at it now, we see and you know, even our partner NFI is starting to see, you know, cost per pound shifts go down. So, you know, and a big ingredient of that is fuel prices relative to three or four months ago are down. Relative to a year ago, they're still up 56%. I think the outlook is we don't expect that to get worse. I think the opportunity is the degree that that gets better. You know, we don't expect, huge increases in costs around carriers and storage like we had this year. A lot of that was a byproduct of what they had to pay their labor. There was a little bit of supply and demand that enabled them to charge better prices. The supply and demand side has equaled out a little bit. So again, I think we all feel good looking forward that You know, it's a pretty stable environment. I don't expect it to all of a sudden go down a huge number unless we get the benefit of fuel prices coming down. But I don't expect to have a repeat of what happened this past year.

Andrew, also just a little color on that. We're really focused on the whole distribution side of our business. We've brought in some additional people to help us look at it. NFI coming on has been a big help. We think that we'll get some of the benefits from that over this next year.

and so um we we think we can continue to drive that down see that as an opportunity okay so you're saying dan that there's savings in addition of you know the outsourcing just through a process and whatever you know what i'm saying is i think we're getting better every day yeah all of our indications and

and data information that we're getting show that we're just getting better at it every day and i think that will translate into some savings we don't know the amount yet but but believe that we're doing all the right things to try to drive that down okay thanks that's great um moving to dip and dots um are i mean what is the uh temperature on on internally on know launching it into retail or i think you brought that up versus you know further expansion um you know in some of the food service accounts where you know either you have broader distribution or better relationships yeah i think you'll see the food service expansion happen first um and we're having really good um really good meetings with some of our potential customers out there we thought that that would be an opportunity from the start And as we've been out introducing the Dippin' Dots team to customers that we have really good relationships with and some of the categories where they didn't operate in in the past, we're really encouraged and believe that we will be able to get some solid placements over the next three to six months. At that same time, I have our R&D group working on a package or a form that we might be able to release in retail. But I would expect the food service to be months ahead of the retail side.

Got it.

And last question, on the price increases, at least I've seen with other companies, and it sort of stands to reason that there's more elasticity, you know, on the retail side than on food service for a bunch of reasons. I'm just wondering if that's the experience you're seeing or are you seeing that Yeah, a little commentary around elasticity by the two segments. That's it for me. Thank you.

Yeah, you know, I think our team has done an excellent job this past year in really a difficult circumstance to get out there and pass on pricing to our customers. You know, in the best environments, that's not easy. In tough environments, it even gets harder. We believe that both retail and food service have done a good job at that. We don't think that we've done anything to hurt our volume. We're watching volume really closely. So that elasticity side of it, we're being really careful for. But to date, we haven't seen any indications of it impacting it. And I don't know that I actually see a difference between retail and food service.

I think all customers are watching it closely. Got it. Thanks for the color. Appreciate it. Thank you, Andrew.

Thank you. I would now like to turn the call back over to Dan Faschner for any closing remarks.

Great. I guess that concludes the question. So in closing, while rising costs are surely impacting consumer choices, consumers are also putting greater value than ever before on quality of life and experiences, including traveling, sporting events, concerts, amusement parks, and movie theaters. This dynamic is not only supporting how consumers view our products, but is also allowing us to create new occasions and new products to delight them with. I want to take this opportunity to thank all of our employees. Our accomplishments are due to their extraordinary dedication and efforts. Thank you, team out there. Thank you, everyone, for joining us on the call today. We appreciate your interest and continued support. Should you have any questions or wish to speak to us, please contact our investor relations firm, JCIR, at 212-835-8500.

Thank you very much. Thank you. This concludes today's conference call. Thank you for participating.